DBRS Morningstar Confirms Ratings on All Classes of VASA Trust 2021-VASA

DBRS Limited (DBRS Morningstar) confirmed its ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2021-VASA issued by VASA Trust 2021-VASA:

-- Class A at AAA (sf)
-- Class A-Y at AAA (sf)
-- Class A-Z at AAA (sf)
-- Class A-IO at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class F at B (low) (sf)

All trends are Stable.

The rating confirmations reflect the overall performance of the transaction since issuance. The collateral consists of the borrower’s fee and leasehold interest in a 576,921-square-foot (sf) mixed-use office and retail development in the heart of Mountain View, California, which is part of Silicon Valley. The property was built in 2017 and consists of 456,760 sf (79.2% of the net rentable area (NRA)) of Class A office space and 120,161 sf (20.8% of the NRA) of ground/second-floor retail space. There is also a nine-story parking garage. The property benefits from being located within the highly developed and affluent Mountain View submarket, which has relatively high barriers to entry.

Senior mortgage loan proceeds of $506.6 million along with $139.2 million of borrower equity were used to purchase the property at a cost of $603.0 million and fund $4.8 million of upfront reserves to cover outstanding leasing and gap rent shortfalls and cover closing costs. The loan is structured with a two-year initial term ending April 2023 and three 12-month extension options that are exercisable subject to certain criteria set forth in the initial loan agreement. The servicer has confirmed that the first of three extension options has been exercised commencing April 2023. The floating-rate loan is interest only (IO) through the fully extended loan term. However, commencing after the fully extended anticipated repayment date in April 2026, the loan is scheduled to hyper-amortize until the balance is repaid in full, subject to a final maturity date in July 2029.

The sponsor is Brookfield Strategic Real Estate Partners III GP L.P., which is a global private real estate fund managed by Brookfield Asset Management Inc., an alternative asset manager and one of the largest owners and managers of office properties. As of September 2022, the property was 22.0% occupied but 93.1% leased to three tenants, with an average rental rate of $78 per square foot (psf). According to Reis, comparable properties within a two-mile radius of the property reported average rental and vacancy rates of $76 psf and 10.0%, respectively.

The collateral’s office component was originally 100.0% leased by LinkedIn but, following Microsoft’s acquisition of LinkedIn in 2016, Microsoft assigned the LinkedIn lease to WeWork and provided a guaranty on the assigned lease that extends through July 2029. WeWork, in turn, subleased the office space to Meta, which took occupancy prior to the Coronavirus Disease (COVID-19) pandemic; however, Meta has since exercised the opt-out clause from its sublease agreement and vacated the space, according to an article published by The Real Deal in November 2022. WeWork is currently working with Jones Lang LaSalle Inc. to market the space after Meta’s departure. As noted, Microsoft is subject to an absolute and unconditional guarantee of the payment and performance of WeWork’s covenants, obligations, liabilities, and duties that arise in relation to the leased space through July 2029.

The collateral’s retail component was 69.6% occupied according to the September 2022 rent roll, consistent from issuance, anchored by Showplace Icon Theatre (8.8% of the NRA). The tenant reported strong sales at the property prior to the pandemic and has shown its commitment to the space through significant capital investment, as well as the recent execution of a lease amendment that extended the lease through October 2040.

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/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022).

Classes A-IO, A-Y, and A-Z are 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.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology (October 3, 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. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS Morningstar long-term rating scale definition indicates that ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

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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