DBRS Morningstar Confirms All Ratings on NYT 2019-NYT Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed the following ratings of the Commercial Mortgage Pass-Through Certificates issued by NYT 2019-NYT Mortgage Trust:

-- Class A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at AA (sf)
-- Class X-EXT at A (high) (sf)
-- Class D at A (sf)
-- Class E at BBB (sf)
-- Class F at BB (high) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance since issuance. The transaction consists of a $515 million non-recourse, first-lien mortgage loan secured by 715,341 square feet (sf) of office space on floors 28 through 50 and 23,044 sf of ground-floor retail space in The New York Times Building, a Class A office building at 620 Eighth Avenue in Manhattan’s Times Square submarket. Floors 2 through 27 are used as the New York Times headquarters and are not collateral for the loan. In November 2021, the borrower exercised the second of five 12-month extension options for the underlying mortgage loan, which has a floating rate, interest-only structure. There is an interest rate cap agreement in place that caps the spread over Libor at 3.5%.

The whole loan amount of $635 million includes the $515 million mortgage loan contributed to the subject transaction, as well $120 million of secured subordinate debt held outside the subject transaction. There is also $115 million of unsecured mezzanine debt in place, also held outside the subject transaction. The leasehold interest in the collateral is subject to a ground lease that runs through December 11, 2100, with an option to purchase in 2032 for a nominal amount. Forest City Enterprises L.P., which is ultimately owned by Brookfield Property Partners L.P. (rated BBB (low) with a Stable trend by DBRS Morningstar), is the loan sponsor, which contributed equity of $279.6 million at closing to indirectly acquire the collateral property.

As of January 2022, the servicer reported an occupancy rate of 100% for the subject property, consistent with reporting since issuance. The year-end (YE) 2021 analysis completed by the servicer showed a net cash flow (NCF) of $46.7 million, a 10.9% decline from the YE2020 figure of $52.4 million but still above the DBRS Morningstar NCF of $43.5 million derived in 2020 when the ratings were assigned. The year-over-year decline in the servicer’s reported NCF in 2021 is reflective of an 8.2% drop in revenue over the previous year. As the occupancy rate was flat year over year, with no significant leases rolling in the near term, DBRS Morningstar expects in-place revenues to return to prior levels in 2022.

The largest tenants include ClearBridge Investments (27.2% of the net rentable area (NRA), expiring in December 2023) and the law firms Covington & Burling LLP (26.2% of the NRA, expiring in September 2027) and Seyfarth Shaw LLP (17.5% of the NRA, expiring in December 2032). The retail space generates a relatively small portion of the rent (approximately 3%) and is mostly leased to food-service tenants. Tenant rollover in the next 12 months includes Osler, Hoskin & Harcourt LLP (Osler) (8.6% of the NRA, expiring in May 2022) and Goodwin Procter LLP (Goodwin) (8.5% of the NRA, expiring in March 2023), both of which are not expected to renew, according to a servicer-provided update. Pepper Hamilton, which currently subleases one of Osler’s floors, signed a direct lease to keep the space through 2026. The servicer also noted ongoing discussions between the borrower and another subtenant in the building for a large, non-contiguous block of space that would include the spaces to be vacated by Osler and Goodwin.

The concentrated rollover through the next few years that includes the largest tenant and the two tenants mentioned above is noteworthy given the submarket trends that have shown increasing vacancy rates and declining asking rents. According to Reis, the subject’s Midtown West submarket had an overall vacancy rate of 11.5%, with asking rents averaging $68.95 per square foot (psf) as of Q4 2021, compared with the pre-pandemic figures of 7.7% and $72.37 psf, respectively, at Q4 2019. According to Reis, as of December 2021, the property’s asking rent was $89.31 psf, which is well above the submarket averages, showcasing the subject’s superior position within the submarket given its desirable location within proximity to major bus and subway lines and newer construction year of 2007. Reis’s baseline scenario shows vacancy rates in Midtown West hovering near 11% over the next few years, suggesting the leasing dynamics may be challenged as compared with pre-pandemic conditions, but still reflective of generally healthy demand.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Class X-EXT is an interest-only (IO) certificate that reference a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation tranche adjusted upward by one notch if senior in the waterfall.

All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for this transaction.

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes loan-level data for most outstanding CMBS transactions (including non-DBRS Morningstar-rated), as well as loan-level and transaction-level commentary for most DBRS Morningstar-rated and -monitored transactions.

Notes:
All figures are in U.S dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology (March 4, 2022), which can be found on dbrsmorningstar.com under Methodologies & Criteria. For a list of the structured-finance-related methodologies that may be used during the rating process, please see the DBRS Morningstar Global Structured Finance Related Methodologies document, which can be found on dbrsmorningstar.com in the Commentary tab under Regulatory Affairs. Please note that not every related methodology listed under a principal structured finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrsmorningstar.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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