DBRS Confirms Rating of BWAY 2015-1740 Mortgage Trust

DBRS Limited (DBRS) has today confirmed the rating on the Commercial Mortgage Pass-Through Certificates, Series 2015-1740, Class A (the Certificates) issued by BWAY 2015-1740 Mortgage Trust (BWAY 2015-1740 or the Trust) at AAA (sf). The trend is Stable.

The rating confirmation reflects the healthy performance metrics for the transaction since issuance. The collateral consists of the fee interest in a 26-story office and retail tower located at 1740 Broadway in Midtown Manhattan with a loan balance of $308.0 million. The property is well located in the Columbus Circle submarket and benefits from potential cash flow and value upside related to signage income and the underused bicycle storage space, which the sponsor plans to reposition. As of January 2017, the servicer reports that work on the rooftop signage has not commenced, with the borrower budgeting for a signage study to be completed this year.

The property comprises 572,645 square feet (sf) of office space, 16,587 sf of ground-floor retail space and 14,696 sf of storage space. According to the September 2016 rent roll, the property is 98.2% occupied, with nominal tenant rollover risk within the next 12 months. The subject’s occupancy rate has remained relatively unchanged since issuance. Major tenants at the property include L Brands Inc. (L Brands; 77.3% of the net rentable area (NRA)) and Davis & Gilbert LLP (15.8% of the NRA), with lease expirations in March 2022 and December 2020, respectively. Although these tenants are scheduled to expire during the ten-year loan term, both tenants have established critical operations for their respective companies at the subject and have expanded their spaces at the property over the years. The servicer’s March 2016 site inspection confirmed the collateral to be in good condition with no deferred maintenance noted.

According to the servicer, L Brands vacated the 14th and 15th floors following its lease expiration for those respective spaces in November 2016. As of January 2017, the borrower has planned improvements for the 14th floor in preparation for a tenant that will be moving into a portion of that space. In addition, the borrower is in the process of negotiating a deal with a tenant for the full 15th floor, according to the servicer.

The subject averages rental rates of $60.86 per square foot (psf) for the office space, which is below Class A office properties within the submarket that are reporting average rental rates of $66.37 psf, according to January 2017 CoStar data. The Q3 2016 debt service coverage ratio (DSCR) of 2.03 times (x) and YE2015 DSCR of 2.06x have improved compared with the DBRS underwritten DSCR of 1.92x, and the loan benefits from a replacement reserve balance of $1.8 million ($3.00 psf) as of the January 2017 remittance.

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

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 to the right under Related Research or by contacting us at info@dbrs.com.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The principal methodologies are North American CMBS Rating Methodology (January 2017) and CMBS North American Surveillance (December 2016), which can be found on dbrs.com under Methodologies.

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