DBRS Morningstar Confirms Ratings on COMM 2019-521F Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed its ratings on the following classes of COMM 2019-521F Mortgage Trust, Commercial Mortgage Pass-Through Certificates, issued by COMM 2019-521F Mortgage Trust:

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

All trends are Stable.

The rating confirmations reflect the overall stable performance of the underlying collateral, despite some cash flow and occupancy declines in the last year, as further described below. The $242.0 million first-lien mortgage loan is secured by 521 Fifth Avenue, a 39-storey Class A office building in New York that was built in 1929 and contains retail space on multiple levels. The property is well located within close proximity to Grand Central Terminal, Bryant Park, and the New York City Public Library. The sponsor, Savanna Capital Partners, acquired the property in May 2019 for $381.0 million.

The building offers efficient and flexible floorplates with outdoor terraces that appeal to both large and boutique tenants. Tenants can enter the office space using the main office lobby along 43rd Street, which provides additional access to the two side street retail tenants within the property. The office floorplates range in size from 3,000 square feet (sf) to 22,500 sf. The property also has eight setback outdoor terraces on the fifth, 14th, 16th, 19th, 22nd, 24th, and 37th floors. The property consists of 89.9% office space and 10.1% retail space. Urban Outfitters occupies the prime Fifth Avenue retail space on the ground floor, while Equinox and Cazzolina Restaurant occupy the side street retail suites.

The loan had an initial term of two years with the initial maturity date in June 2021, which was subsequently extended to June 2022. The borrower notified the servicer of its intent to exercise the second of three one-year extension options. These options are not subject to any performance hurdles and the servicer is expected to finalize the extension in the near term.

According to the December 2021 rent roll, the property was 80.8% occupied at an average gross rental rate of $52.40 per square foot (psf), compared with the occupancy rate of 93% and average gross rental rate of $64.83 psf at issuance. The occupancy decline since issuance is the result of Modis (4.4% of the net rentable area (NRA)) vacating the subject upon its November 2021 lease expiration, along with several smaller tenants vacating in the last few years. A September 2021 article in Real Estate Weekly reported Savanna had recently signed three new leases for the property for a total of 20,000 sf (it is not clear if this includes tenants on the December 2021 rent roll). The article also noted the property benefits from a $4.0 million facade upgrade completed by the sponsor after the 2019 acquisition, as well as pre-built suites and built-to-suit options alike, a variety of floor plan options, and a recently added coffee/wine bar in the building lobby.

The largest tenant, Urban Outfitters (5.2% of the NRA) has a lease that expires in February 2026 and is structured with two five-year extension options. The second-largest tenant is Equinox (5.2% of the NRA through January 2035), which occupies 25,735 sf of primarily below-ground-level retail space. No other tenant represents more than 5% of the NRA. Major office tenants at the property include BMO Capital Markets (4.5% of the NRA through May 2022 – this lease appears to have been renewed based on job postings located online for the tenant that show the subject as the location), Major, Lindsey & Africa (4.4% of the NRA through January 2024), and CTBC Bank Co. (4.2% of the NRA through January 2029). According to Q1 2022 Reis data, comparable office properties within the subject’s Grand Central submarket reported an average rental rate of $75.90 psf and a vacancy rate of 10.5%.

According to the December 2021 financials, the loan reported a net cash flow (NCF) of $16.1 million and a debt service coverage ratio (DSCR) of 4.48 times (x), compared with the YE2020 NCF and DSCR of $16.4 million and 3.33x. Comparatively, the issuer’s DSCR was 2.06x. The December 2021 NCF compares with the DBRS Morningstar NCF of $17.1 million, suggesting a moderate decline from DBRS Morningstar’s expectations, but not altogether unexpected given recent office trends amid the last few years. In general, the strong location, superior building quality, and experienced sponsorship are considered mitigating factors for the cash flow declines from issuance, and performance is expected to stabilize given the overall healthy market dynamics and trends for office workers returning to physical locations in recent months, which are expected to continue to accelerate over the remainder of 2022.

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.

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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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