DBRS Assigns Provisional Ratings to Natixis Commercial Mortgage Securities Trust 2018-ALXA

DBRS, Inc. (DBRS) assigned provisional ratings to the following classes of Commercial Mortgage Pass-Through Certificates, Series 2018-ALXA to be issued by Natixis Commercial Mortgage Securities Trust 2018-ALXA:

-- Class A at AAA (sf)
-- Class X at AA (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)

All trends are Stable.

All classes will be privately placed.

The subject loan is secured by the fee interest in a 356,909-square-foot (sf) condominium portion of a newly constructed Class A office building located in downtown Bellevue, Washington, approximately 10.0 miles east of Seattle. The condominium interest includes 98.3% of the leasable square footage within the 16-story structure, in addition to the entirety of the eight-level underground parking garage. Completed in the second quarter of 2017, the collateral is situated in the heart of downtown Bellevue, which includes nearly 5.0 million sf of retail and entertainment developments and just under 7.0 million sf of office space. The property is currently 100.0% occupied by Amazon.com, Inc. (Amazon) and Starbucks Corporation, both investment-grade-rated tenants, with Amazon accounting for 99.4% of the net rentable area. Bank of America Corporation previously owned the land parcel and retains a non-collateral 6,000 sf bank-branch condo unit on the ground floor of the building. In 2017, Amazon executed a 16-year triple-net lease that extends well beyond the ten-year loan term to September 30, 2033. Amazon’s initial base rental payment is $34.63 per square foot (psf), with annual escalations of 2.25%. This equates to a gross equivalent rent for Amazon of roughly $50.00 psf, which compares favorably with the average Class A submarket rents in the $45.50 to $47.00 psf gross range, based on information compiled by CoStar and from the appraisal.

The sponsors for this loan are RFR Holding LLC (RFR) and TriStar Capital, LLC (TriStar Capital). RFR is a private full-service company established in Manhattan, New York, in 1991; it currently has a multinational portfolio of over 100 assets across a diverse array of property types and markets. TriStar Capital is a real estate investment firm based in New York with more than two decades of experience in the financing and development of commercial real estate. The principals of the sponsors, David Edelstein, Aby Rosen and Michael Fuchs, will serve as guarantors for the transaction. The guarantors have a combined net worth and liquidity of $3.4 billion and $146.9 million, respectively.

Loan proceeds of $266.1 million ($745.43 psf), inclusive of $57.6 million of mezzanine debt, and $71.7 million of borrower equity were used to finance the acquisition of the subject for a purchase price of $313.0 million ($876.97 psf); fund upfront free rent and tenant improvement/leasing commission reserves totaling approximately $18.0 million; and pay closing costs. The loan is a ten-year fixed-rate IO mortgage loan with an anticipated repayment date (ARD) structure and final loan maturity in 2033. CB Richard Ellis has determined the as-is appraised value to be $316.0 million ($885.38 psf) based on a direct capitalization method utilizing a 5.50% terminal capitalization rate, which equates to a relatively moderate appraised loan-to-value (LTV) of 66.0%. The DBRS-concluded value of $182.3 million ($510.82 psf) represents a significant 42.3% discount to the appraised value but results in a DBRS LTV of 114.3% on the mortgage debt, which is indicative of high-leverage financing; however, the DBRS value is based on a reversionary cap rate of 8.25%, which represents a significant stress over current prevailing market cap rates. While the DBRS LTV on the $208.5 million mortgage debt is relatively high, the leverage is reflected in the below-investment-grade last-dollar rating of BB (low). The cumulative investment-grade-rated proceeds of $177.0 million ($495.92 psf) on the total mortgage debt compares favorably with the three-year average sales price psf of $548.40 for properties in the surrounding area, according to data from Real Capital Analytics. Additionally, when taking into account the implied amortization of 23.8% during the ARD term, cumulative investment-grade exposure at the end of the Amazon lease is $127.4 million ($356.91 psf), which represents a more modest 69.9% DBRS LTV and just 40.7% of the purchase price.

Class X is an interest-only (IO) certificate that references a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated reference tranche adjusted upward by one notch if senior in the waterfall.

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

For more information on this transaction and supporting data, please log into viewpoint.dbrs.com. DBRS will continue to monitor this transaction, with periodic updates provided in the DBRS Viewpoint platform.

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

With regard to due diligence services, DBRS was provided with the Form ABS Due Diligence-15E (Form-15E), which contains the description of the information that the third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While DBRS did not require due diligence services outlined in Form-15E, DBRS did use the Data File outlined in the Independent Accountant’s Report in its analysis to determine the ratings.

The principal methodology is North American Single-Asset/Single-Borrower Methodology, which can be found on dbrs.com under Methodologies. For a list of the Structured Finance related methodologies that may be used during the rating process, please see the DBRS Global Structured Finance Related Methodologies document on www.dbrs.com. 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.

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

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

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrs.com.