DBRS Morningstar Confirms Ratings on All Classes of 225 Liberty Street Trust 2016-225L

DBRS Limited (DBRS Morningstar) confirmed the ratings on all classes of Commercial Mortgage Pass-Through Certificates (the Certificates) issued by 225 Liberty Street Trust 2016-225L as follows:

--Class A at AAA (sf)
--Class B at AA (low) (sf)
--Class X at A (sf)
--Class C at A (low) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the underlying collateral, which has remained in line with DBRS Morningstar's expectations at issuance. The loan is secured by a 2.4 million-square-foot (sf), Class A office property across from the World Trade Center site in Lower Manhattan. The subject is the largest of four towers that make up Brookfield Place, a mixed-use office development encompassing 7.1 million sf of office space and roughly 340,000 sf of lifestyle-oriented retail and public space. The property is subject to a long-term ground lease with the Battery Park City Authority whereby the annual rent is fixed at $5.1 million through its June 2069 expiration date. The $900.0 million fixed-rate, whole loan consists of a $778.5 million trust loan, which is composed of a $337.5 million senior trust note and a $441.0 million junior trust note, and three companion notes totalling $121.5 million. The loan is interest only (IO) for the entire 10-year term with scheduled maturity in February 2026.

As of the December 2021 rent roll, the property was 87.0% occupied with an average rental rate of $60.35 per square foot (psf), compared with 88.8% occupied at YE2020 and 92.6% occupied in YE2019. The largest tenants are Ti Gotham (26.6% of the net rentable area (NRA), lease expiry in December 2032), Bank of New York Mellon (BNY; 13.8% of the NRA, lease expiry in December 2034), OFI Global Asset Management (11.9% of the NRA, lease expiry in September 2028), Saks Fifth Avenue (9.8% of the NRA, lease expiry December 2032), and Bank of America (BofA) (7.2% of the NRA, lease expiry April 2036).

BNY subleased its entire space to J.Crew in June 2018 on a 16-year sublease agreement. J.Crew filed for Chapter 11 bankruptcy protection in May 2020 and exited bankruptcy in September 2020. The company appears to still be at the property based on online job listings, and the servicer has confirmed the sublease remains in effect. BofA occupied 13.1% of the NRA at issuance but gave back approximately 130,000 sf of space upon lease renewal in October 2020, and it currently pays a rental rate of $70.00 psf, an increase from its previous rental rate of $62.50 psf. BofA’s downsizing has been the primary driver of occupancy decline at the subject.

Leases representing 2% of the NRA are scheduled to roll through 2023, indicating minimal rollover risk in the near to medium term. According to Reis, the Downtown submarket reported an average vacancy rate of 12.4% in Q1 2022 with an asking rental rate of $60.06 psf, compared with the Q1 2019 pre-pandemic vacancy rate of 11.4% with an asking rental rate of $55.48 psf. The loan benefits from experienced sponsorship in Brookfield Property Partners L.P. At issuance, the tenant improvements were fully guaranteed by a subsidiary of the sponsor, Brookfield Office Properties Inc., which has DBRS Morningstar-rated Senior Unsecured Notes at BBB (low) with a Stable trend.

Based on the YE2021 financials, the loan reported a debt service coverage ratio (DSCR) of 1.42 times (x), compared with the YE2020 DSCR of 1.56x and DBRS Morningstar Term DSCR of 1.45x. Although the property’s expense ratio has increased to 53% as of YE2021 from 44% at issuance, primarily driven by increased expenses rather than decreased revenue, the YE2021 NCF of $60.2 million remains in line with DBRS Morningstar’s issuance NCF of $60.9 million.

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.

Classe X is an IO certificate that references 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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