DBRS Morningstar Confirms Ratings on All Classes of SFO Commercial Mortgage Trust 2021-555

DBRS Limited (DBRS Morningstar) confirmed the ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2021-555 issued by SFO Commercial Mortgage Trust 2021-555 as follows:

-- Class A at AAA (sf)
-- Class B at AA (sf)
-- Class C at AA (low) (sf)
-- Class D at A (low) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (sf)
-- Class HRR 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 two-year floating-rate loan is interest only for the full term with an initial scheduled maturity of May 2023, and five one-year extension options available for a fully extended maturity date of May 2028. The transaction is collateralized by 555 California Street Campus, a 1.8 million-square-foot Class A office complex in the North Financial District of San Francisco, California. The campus comprises three LEED Gold-certified and Energy Star-rated office buildings—555 California Street, 345 Montogomery Street, and 315 Montgomery Street. The loan is sponsored by a 70/30 joint venture between Vornado Realty L.P. and Donald J. Trump. The $1.2 billion loan refinanced existing debt, funded $39.2 million across various reserves, and returned $617.8 million of equity to the sponsors. The properties have collectively received $164.8 million in capital improvements since 2016.

The property benefits from a diversified tenant roster, consisting of 41 unique tenants with 19 investment-grade tenants that account for approximately 30.0% of the total net rentable area (NRA). The rent roll is considered granular with only one tenant, Bank of America (BofA; 18.1% of the NRA, lease expiration September 2025), accounting for more than 10.0% of the NRA. It was noted at issuance that the tenant had executed lease extensions, including a 10-year extension at 555 California Street commencing in October 2025 on a 10-year term. BofA invested approximately $8.3 million between 2019 and 2020 on build-outs within its space. As part of the lease extension, the borrower will be providing a tenant allowance and rent abatements, all of which were reserved in full at issuance. DBRS Morningstar has requested a status update on the renovations and updated balances on the reserves. According to the March 2022 loan-level reserve report, $32.6 million was reported in reserves.

The deal closed in May 2021, and there has been little updated financial reporting since then. According to the servicer’s reporting, the YE2021 occupancy rate was 90.2% with a debt service coverage ratio (DSCR) of 2.60 times (x), compared with the DBRS Morningstar DSCR of 3.37x. The DBRS Morningstar net cash flow analysis includes straight-line rent credit given to BofA over the loan term given its consideration as a long-term credit tenant, which is not reflected in the current servicer reporting. At issuance, the 345 Montgomery Street building, which represents only 4.3% of the NRA, had recently completed a $60 million renovation project and to date remains vacant. DBRS Morningstar has requested a leasing update from the servicer as well as an updated rent roll. Based on the rent roll provided at issuance, leases representing approximately 10% of the NRA are scheduled to expire in 2023. DBRS Morningstar maintains a positive view on the near- to mid-term sustainability of the campus’ net cash flow based on its location, tenancy, significant reserves, and historical performance prior to issuance.

ESG CONSIDERATIONS
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.

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.

The DBRS Viewpoint platform provides additional information on this transaction and underlying loans including DBRS Morningstar metrics, commentary, servicer-reported cash flows, and other performance-related data.

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes issuer and servicer 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.

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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