DBRS Morningstar Confirms Credit Ratings on All Classes of Morgan Stanley Capital I Trust 2021-PLZA

DBRS, Inc. (DBRS Morningstar) confirmed its credit ratings on the Commercial Mortgage Pass-Through Certificates, Series 2021-PLZA issued by Morgan Stanley Capital I Trust 2021-PLZA as follows:

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

All trends are Stable.

The credit rating confirmations reflect the stable performance of the transaction, which has remained in line with DBRS Morningstar’s expectations since issuance, evidenced by the strong occupancy and healthy debt service coverage ratio of 99.0% and 3.30 times, respectively, as of YE2022.

The transaction is secured by the fee-simple interest in Park Avenue Plaza, a 45-story, 1.16 million-square-foot (sf) LEED Platinum office tower located along Park Avenue between 52nd Street and 53rd Street in Midtown Manhattan’s Plaza submarket. The $460 million whole loan, composed of nine promissory notes (eight senior A notes totaling $339.2 million and one junior B note of $120.8 million), along with $115 million of mezzanine debt (held outside the trust) repaid existing debt, funded upfront reserves, paid closing costs, and returned equity to the borrower. The trust loan of $260 million consists of the senior A-1 note with an aggregate principal balance of $139.2 million and the $120.8 million junior B note. The interest-only (IO) loan has a fixed interest rate and is structured with a 10-year term.

According to the June 2023 rent roll, property occupancy remained relatively flat from issuance at 98.8%. Two major tenants, BlackRock and Aon Services Corporation (Aon), collectively accounting for approximately 584,515 sf (50.4% of net rentable area) at issuance, vacated at their respective lease expirations in April 2023 as planned. The BlackRock space was backfilled by three tenants at a weighted-average rent of $85 per sf (psf), a premium of 11.9% over BlackRock’s rental rate of $76 psf at issuance, with lease commencement dates between July 2023 and September 2023 and rent commencement dates between November 2024 and January 2025. All of Aon’s space was being subleased to General Atlantic and Evercore prior to lease expiration, and, upon lease expiration, those subleases were converted to direct leases with expiration dates ranging from 2035 to 2039. The loan is structured with an upfront re-tenanting reserve of approximately $43.5 million and will also be in a full cash sweep through December 2024. The upfront reserve and the sweep together will be used to pay for all property-level operating expenses including real estate taxes, the sponsor’s contractual obligations to current and/or future tenants (tenant improvements and leasing commissions), and covering debt service. Aside from a Starbucks kiosk tenant, which accounts for a nominal percentage of base rent, only one tenant, representing less than 10% of base rent, has a lease expiration during the loan term.

Based on the YE2022 financials, the loan reported a net cash flow (NCF) of $43.6 million compared with the DBRS Morningstar NCF of $46.1 million. DBRS Morningstar expects NCF to temporarily decline through 2024 as a result of contractual rental abatements and then increase significantly once the concessions burn off.

The loan has a relatively low loan-to-value (LTV) ratio of 31.9% on the senior debt and 43.3% on the whole loan based on the appraiser’s value of $1.06 billion at issuance. This compares with the DBRS Morningstar LTV ratio of 47.9% on the senior debt and 64.9% on the whole loan based on the DBRS Morningstar value of $708.5 million. The DBRS Morningstar value was derived using an NCF of $46.1 million and a capitalization rate of 6.50%. In its analysis, DBRS Morningstar made a total qualitative adjustment of 7.25% by increasing the LTV thresholds to account for limited cash flow volatility because of the property’s high occupancy, minimal rollover during the loan term, and loan structural features, as well as the property’s above-average quality and location within Midtown Manhattan. The property benefits from a substantial floor value based on the appraiser’s concluded land value at issuance of approximately $562.0 million, which covers the entire whole loan balance of $460 million and more than 95% of the whole loan balance plus the $115 million mezzanine debt, providing additional downside protection.

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/416784 (July 4, 2023).

Class 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 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 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 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 see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

DBRS, Inc.
22 West Washington Street
Chicago, IL 60602 USA
Tel. +1 312 332-3429

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 (October 19, 2023; https://www.dbrsmorningstar.com/research/422174)

-- Rating North American CMBS Interest-Only Certificates (December 19, 2022; https://www.dbrsmorningstar.com/research/407577)

-- DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 22, 2023; https://www.dbrsmorningstar.com/research/420982)

-- 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)

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