DBRS Morningstar Maintains Under Review with Negative Implications Status on MAD 2015-11MD Mortgage Trust

DBRS Limited (DBRS Morningstar) maintained the Under Review with Negative Implications status on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2015-11MD issued by MAD 2015-11MD Mortgage Trust:

-- Class A rated AAA (sf)
-- Class B rated AA (sf)
-- Class C rated A (low) (sf)
-- Class D rated BBB (low) (sf)

There are no trends for these rating actions.

DBRS Morningstar initially placed these classes Under Review with Negative Implications on March 24, 2023, following the announcement that the collateral property’s largest tenant, Credit Suisse AG (Credit Suisse), would be acquired by UBS AG (UBS). DBRS Morningstar noted that these events could negatively affect the credit for the subject transaction given the uncertainty with regard to the tenant’s lease, which represents approximately half of the collateral property’s net rentable area (NRA). Subsequently, DBRS Morningstar maintained the Under Review with Negative Implications status on June 21, 2023, for these same concerns.

These events prompted DBRS Morningstar to address Credit Suisse’s ratings on March 22, 2023 (see the press release titled “DBRS Morningstar Takes Rating Actions on Credit Suisse Following Sale to UBS,” https://www.dbrsmorningstar.com/research/411462). After the ratings for the subject transaction were placed Under Review with Negative Implications, on March 31, 2023, DBRS Morningstar discontinued and withdrew Credit Suisse’s Long-Term and Short-Term Issuer ratings and assigned new ratings, which were equalized to the ratings of UBS (see the press release titled “DBRS Morningstar Takes Follow-Up Rating Actions on Credit Suisse Following Sale to UBS,” https://www.dbrsmorningstar.com/research/412157).

The UBS acquisition of Credit Suisse closed on June 12, 2023; to date, nothing has been confirmed regarding the Credit Suisse lease for the collateral property and, based on the servicer’s commentary in August 2023, there are no ongoing discussions between UBS and Credit Suisse with the borrower. The collateral property is comprised of the fee, leasehold, and reversionary interest in the condominium units for 11 Madison Avenue, a Class A, 29-story, 2.3 million-square-foot office tower in Manhattan’s Midtown South submarket.

News outlets have reported that UBS was exploring possibilities for distributing team operations between the subject property and UBS’s offices at 1285 Avenue of the Americas. In a June 2023 article published by Bloomberg, UBS is planning to cut more than half of Credit Suisse’s workforce worldwide. The first round of cuts was expected to take place in July 2023 while the second and third rounds are planned for September and October 2023. DBRS Morningstar has requested additional information from the servicer if the subject property will be affected by these layoffs. Given the outstanding unknowns regarding the Credit Suisse lease and long-term plans for the subject property, DBRS Morningstar maintained the Under Review with Negative Implications status for all classes.

Credit Suisse is the largest tenant at the property with a lease expiring in May 2037. The building is located between 24th Street and 25th Street, occupying an entire city block that overlooks Madison Square Park. According to the most recent rent roll from June 2023, the subject was 96.5% occupied, remaining in line with the 97.0% occupancy rate as of year-end (YE) 2022. Credit Suisse recently gave back a floor of space representing approximately 3.5% of the NRA in exchange for a termination fee of $6.1 million, which was deposited into a reserve account. Other major tenants at the property include Sony (24.5% of the NRA, lease expiry in January 2031) and Yelp (8.1% of the NRA, lease expiry in April 2025). Yelp had announced its plans to reduce its office footprint across several cities, including the subject property; based on an online leasing brochure, the entirety of Yelp’s space was listed available for lease in May 2025.

According to the trailing 12-month period ended June 30, 2023, financials, the loan reported a net cash flow (NCF) of $132.2 million, which remains in line with the YE2022 figure of $130.2 million. For those same periods, the debt service coverage ratio was reported at 2.89 times (x) and 2.84x, respectively. Financial performance has been stable and continues to improve year over year since issuance. Credit Suisse has two remaining termination options, available in 2027 and 2032; each may be exercised for up to a full floor of space.

DBRS Morningstar has requested further updates on the impact of the proposed layoffs, status of the Credit Suisse lease, and UBS’s obligation given the acquisition’s closing and will continue to monitor closely for developments.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) 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/416784 (July 4, 2023).

All credit ratings are subject to surveillance, which could result in credit 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 the North American CMBS Surveillance Methodology (March 16, 2023) https://www.dbrsmorningstar.com/research/410912.

Other methodologies referenced in this transaction are listed at the end of this press release.

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 credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

Please note that a risk sensitivity analysis was not conducted considering the deal was placed Under Review with Negative Implications.

This credit rating is Under Review with Negative Implications. Generally, the conditions that lead to the assignment of reviews are resolved within a 90-day period, but the resolution period may extend further depending on the information received from the servicer.

DBRS Limited
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Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

North American Single-Asset/Single-Borrower Ratings Methodology (February 23, 2023; https://www.dbrsmorningstar.com/research/410191)
DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 12, 2022; https://www.dbrsmorningstar.com/research/402646)
North American Commercial Mortgage Servicer Rankings (August 23, 2023; https://www.dbrsmorningstar.com/research/419592)
Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023; https://www.dbrsmorningstar.com/research/415687)
Legal Criteria for U.S. Structured Finance (December 7, 2022; https://www.dbrsmorningstar.com/research/407008)

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/417279.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.