DBRS Morningstar Confirms All Ratings on Independence Plaza Trust 2018-INDP

DBRS Limited (DBRS Morningstar) confirmed its ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2018-INDP issued by Independence Plaza Trust 2018-INDP:

-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class X-CP at BBB (sf)
-- Class X-NCP at BBB (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class X-ECP at B (high) (sf)
-- Class X-ENP at B (high) (sf)
-- Class HRR at B (sf)

All trends are Stable. The ratings confirmations reflect the overall stable performance of the transaction, which remains in line with DBRS Morningstar’s expectations.

The collateral consists of the fee and leasehold interests in a 1.5 million-square-foot (sf) mixed-use residential and commercial complex in the Tribeca neighbourhood of Manhattan, New York. The complex consists of three 39-storey apartment towers and connecting townhomes, in addition to commercial space. The fee interest covers the entire property, while the leasehold interests relate to three parcels: the South Podium, North Podium, and Tower Development, which contain a mix of parking, retail, and apartment units.

The property was originally built in 1975 under an affordable-housing initiative for lower- and middle-income families. The property exited the program in June 2004 and since that time, management has been able to increase value by renovating rent-regulated apartments as they become available and re-leasing them at market rates. The borrower intends to continue this strategy as additional units turn over.

As of the September 2021 rent roll, the residential portion of the property was 84.1% occupied with an average annual rental rate of $45 per sf (psf), trailing the YE2020 occupancy rate of 85.9% and the September 2019 occupancy rate of 95.9%. The decline in occupancy is likely attributable to the economic headwinds caused by the Coronavirus Disease (COVID-19) pandemic throughout the majority of 2020 and 2021. Although residential occupancy has seen a nominal decline of 1.8% when compared with YE2020, average rental rates have increased by 22.2% over the same period. The commercial occupancy rate, which includes both the retail space and parking garage, currently stands at 88.3%, relatively static year over year. Patriot Parking Inc., the largest commercial tenant, currently occupies 75.6% of the commercial net rentable area (NRA) and leases the entire 550-space parking garage through August 2024 at a rental rate of $18.83 psf. Commercial tenant rollover within the next 12 months is moderate, with one tenant, Public School 150 (6.2% of the commercial NRA), on a lease that expires in July 2022. DBRS Morningstar has reached out to the servicer for updates regarding leasing information and potential lease extensions.

The servicer-reported net cash flow for YE2021 was $35.5 million with a debt service coverage ratio of 1.22 times (x), compared with $39.6 million and 1.36x at YE2020, respectively. Although average residential rental rates have increased in the last year, the decline in cash flow was primarily driven by an increase in vacancy loss and operating expenses, namely real estate taxes and payroll liabilities. Despite a slight dip in occupancy and cash flow, DBRS Morningstar expects the collateral’s performance will improve in the near to moderate term given the asset’s desirable location in Manhattan’s Tribeca neighbourhood, strong submarket fundamentals, and strong historical performance. Moreover, the subject transaction may benefit from cash flow upside and renewed demand as vacated units are renovated and turned over at current market rental rates.

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.

Classes X-CP, X-NCP, X-ECP, and X-ENP are interest-only (IO) certificates 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.

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.

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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