DBRS Morningstar Confirms Ratings on NYC Commercial Mortgage Trust 2021-909

DBRS Limited (DBRS Morningstar) confirmed its ratings on all classes of Commercial Mortgage Pass Through Certificates, Series 2021-909 issued by NYC Commercial Mortgage Trust 2021-909 as follows:

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

All trends are Stable. The rating confirmations reflect a deal that is early in its lifecycle with limited reporting and no changes to the underlying performance of the transaction since issuance.

The loan is secured by the leasehold interest in 909 Third Avenue, a 32-story, 1.35 million-square foot (sf) Class A, LEED Gold certified office tower in Midtown, Manhattan. The property is prominently situated between 54th Street and 55th Street, occupying the entire eastern block of Third Avenue. The office portion of the collateral sits atop approximately 492,000 sf of flex industrial space, which is occupied by the United States Postal Service’s (USPS’) main New York City mail-handling facility. The property is subject to a ground lease with the next maturity scheduled in May 2031 and a fully extended maturity of November 2063. The trust loan of $250.0 million consists of $135.6 million of senior debt along with $114.4 million of junior debt; total debt is $350 million and includes additional senior notes, which are held outside the trust. The fixed-rate loan, which is sponsored by Vornado, is interest only (IO) for the full 10-year term.

The USPS has been a tenant at the property since 1968 and currently occupies 36.5% of net rentable area (NRA) on a lease expiring in October 2023. The tenant has three five-year extensions remaining, bringing the fully extended lease expiration date to October 2038. Given the unique nature of the space, its mission critical location in the heart of Manhattan, the tenant’s renewal history, and its well-below-market rents of approximately $14.20 per sf (psf), DBRS Morningstar expects that the USPS will renew and believes there is substantial long-term upside embedded in this space.

The collateral was 97.9% occupied as of September 2021, which is unchanged from issuance. Approximately 66.1% of the NRA is leased to investment-grade-rated tenants, which includes the three largest tenants at the property, cumulatively representing 40.8% of the NRA and 52.4% of the gross rent. These tenants are USPS, IPG DXTRA, a subsidiary of The Interpublic Group of Companies (17.1% of NRA; expiring in February 2028), and the AbbVie Inc.-owned pharmaceutical company Allergan Sales, LLC (12.5% of NRA; expiring in January 2027). According to Reis, the Plaza submarket reported an average effective rental rate and vacancy rate of $99.98 psf and 11.1%, respectively, as of Q4 2021. Rollover risk is minimal over the first five years of the loan term. Although USPS has an expiration in October 2023, the tenant represents only 11.2% of gross rents at the property.

The deal closed in April 2021, and there has been little updated financial reporting since then. DBRS Morningstar’s net cash flow derived at issuance was $26.5 million. Given the property’s stable occupancy and limited rollover risk in the near term, DBRS Morningstar projects the loan will continue to perform in line with expectations.

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 is an IO certificate that references a single rated tranche. 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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