DBRS Morningstar Finalizes Provisional Ratings on Citigroup Commercial Mortgage Trust 2022-GC48 Yorkshire & Lexington Towers Loan-Specific Certificates

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following classes of Yorkshire & Lexington Towers Loan-Specific Certificates issued by Citigroup Commercial Mortgage Trust 2022-GC48:

-- Class YL-A at A (sf)
-- Class YL-B at BBB (low) (sf)
-- Class YL-C at BB (low) (sf)

All trends are Stable.

The Yorkshire & Lexington Towers Loan-Specific Certificates are secured by the borrower’s fee-simple interest in two multifamily properties totaling 808 units on the Upper East Side of Manhattan. There are 503 market-rate units and 305 rent-stabilized units across the two properties. In addition to 57 unit renovations that have already been completed, the sponsor has identified 311 units that will be renovated over the next three years. More specifically, the business plan contemplates 283 traditional renovations at an estimated cost of $19,382 per unit and 28 major renovations at an estimated cost of $37,143 per unit. The major renovations are more complex, combining multiple units into a single larger unit or materially altering floorplans. When the unit size or floorplan is materially altered, rent stabilization regulations allow for the rent-stabilized legal rent to be reset to the first rent achieved following the renovation. While DBRS Morningstar considers there to be an inherent risk in the business plan, it also believes that there are appropriate loan structures in place to mitigate the risk, including a $6.5 million upfront unit upgrade reserve and a $5.9 million upfront supplemental income reserve that will cover any income lost while units are undergoing renovation. Additionally, the DBRS Morningstar net cash flow and value assumptions do not include any stabilization credit.

The subject whole loan of $714.0 million ($883,663 per unit) will refinance $550.0 million ($665,054 per unit) of existing debt that was originated in October 2017 and securitized in various conduit transactions, equating to an increase of 29.8% in total debt load. The collateral’s net operating income increased approximately 53.3% to $24.3 million in 2021 from $15.8 million in 2017. However, the January 2022 as-is appraised value of $954.0 million ($1.2 million per unit) represents an increase of only 7.2% over the October 2017 appraised value of $890.0 million ($1.1 million per unit). As a result, the total debt leverage has increased notably as evidenced by the current loan-to-value ratio (LTV) of 74.8%, based on the whole loan of $714.0 million and as-is appraised value of $954.0 million, compared with the 2017 LTV of 61.8%, based on the previous whole loan of $550.0 million and appraised value of $890.0 million. If the sponsor is able to successfully carry out its business plan, the gap would be partially bridged as the appraiser’s stabilized value estimate of $1.1 billion indicates a LTV of 67.5% on the whole loan of $714.0 million.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/396929.

All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

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.

With regard to due diligence services, DBRS Morningstar was provided with the Form ABS Due Diligence-15E (Form-15E), which contains a description of the information that a third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While due diligence services outlined in Form-15E do not constitute part of DBRS Morningstar’s methodology, DBRS Morningstar used the data file outlined in the independent accountant’s report in its analysis to determine the ratings referenced herein.

The principal methodology is the North American Single-Asset/Single-Borrower Ratings Methodology (June 10, 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 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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