JANUARY 2019
STRUCTURED FINANCE: CMBS PRESALE REPORT BANK 2019-BNK16 Table of Contents
Capital Structure 3 Transaction Summary 4 Rating Considerations 5 DBRS Credit Characteristics 7 Largest Loan Summary 8 DBRS Sample 9 Transaction Concentrations 11 Loan Structural Features 12 One AT&T 15 Southeast Hotel Portfolio 20 Millennium Partners Portfolio 28 ExchangeRight Net Leased Portfolio #25 35 Shadow Mountain Marketplace 42 Rainbow Sunset Pavilion 47 Regions Tower 52 US Bank Centre 57 Penske Distribution Center 62 Haymarket Village Center 67 Willowbend Apartments 73 Springdale General 78 Hancock Plaza 83 Transaction Structural Features 88 Surveillance 89 CMBS Rating Methodology – Highlights 89
David Fackler Kevin Mammoser Vice President Managing Director +1 312 332 9457 +1 312 332 0136 [email protected] [email protected]
Erin Stafford Managing Director +1 312 332 3291 [email protected] PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
Capital Structure
Description Rating Action Balance Subordination DBRS Rating Trend
Class A-1 New Rating - Provisional $22,471,000 30.000% AAA (sf) Stable
Class A‑2 New Rating - Provisional $50,985,000 30.000% AAA (sf) Stable
Class A‑SB New Rating - Provisional $42,321,000 30.000% AAA (sf) Stable
Class A‑3 New Rating - Provisional TBD 30.000% AAA (sf) Stable
Class A‑4 New Rating - Provisional TBD 30.000% AAA (sf) Stable
Class X‑A New Rating - Provisional $648,269,000 - AAA (sf) Stable
Class A-S New Rating - Provisional $103,029,000 18.875% AAA (sf) Stable
Class B New Rating - Provisional $41,674,000 14.375% AA (high) (sf) Stable
Class X‑B New Rating - Provisional $180,590,000 - A (high) (sf) Stable
Class C New Rating - Provisional $35,887,000 10.500% A (sf) Stable
Class D New Rating - Provisional $21,995,000 8.125% BBB (high) (sf) Stable
Class X‑D New Rating - Provisional $39,359,000 - BBB (sf) Stable
Class E New Rating - Provisional $17,364,000 6.250% BBB (low) (sf) Stable
Class X-F New Rating - Provisional $18,522,000 - BB (high) (sf) Stable
Class F New Rating - Provisional $18,522,000 4.250% BB (sf) Stable
Class X-G New Rating - Provisional $9,261,000 - B (high) (sf) Stable
Class G New Rating - Provisional $9,261,000 3.250% B (sf) Stable
Class X-H New Rating - Provisional $4,631,000 - B (sf) Stable
Class H New Rating - Provisional $4,631,000 2.750% B (low) (sf) Stable
Class X-J NR $25,467,749 - NR n/a
Class J NR $25,467,749 0.000% NR n/a
RR Interest NR $48,742,092 - NR n/a
Notes: 1. NR = Not Rated. 2. Classes X-D, X-F, X-G, X-H, X-J, D, E, F, G H and J will be privately placed. 3. The X-A, X-B, X-D, X-F, X-G, X-H and X-J balances are notional. The Class X-A will be equal to the aggregate Certificate Balance of the Class A-1, A-2, A-3, A-SB and A-4 Certificates outstanding from time to time. The Class X-B will be equal to equal to the aggregate Certificate Balance of the Class A-S, B and C Certificates outstanding from time to time. The Class X-D will be equal to the Certificate Balance of the Class D and E Certificates outstanding from time to time. The Class’s X-F will be equal to the aggregate Certificate Balance of the Class F Certificates outstanding from time to time. The Class X-G will be equal to the Certificate Balance of the Class G Certificates outstanding from time to time. The Class X-H will be equal to the Certificate Balance of the Class H Certificates outstanding from time to time. The Class X-J will be equal to the Certificate Balance of the Class J Certificates outstanding from time to time. The Class X-A, X-B, X-D, X-F, X-G, X-H and X-J Certificates will not be entitled to distributions of principal. 4. The RR Interest (eligible vertical interest) is a non-offered certificate that will be retained by certain rating parties in accordance with the credit risk retention rules applicable to this securitization transaction. 5. The exact initial certificate balances of the Classes A-3 and A-4 subject to change and will be determined based on the final pricing of those classes certificates. The aggregate initial certificate balance of the Class A-3 and Class A-4 certificates is expected to be approximately $532,492,000, subject to a variance of +/- 5%. The class amount shown is the mid-point of the ranges provided for each certificate in the term sheet. The expected range for the Class A-3 certificates is $90.0 million to $265.0 million and the expected range for the Class A-4 certificates is $267.5 million and $442.5million.
Structured Finance: CMBS 3 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
Transaction Summary
POOL CHARACTERISTICS
Trust Amount $974,841,840 Wtd. Avg. Interest Rate 4.836%
Number of Loans 69 Wtd. Avg. Remaining Term 115
Number of Properties 115 Wtd. Avg. Remaining Amortization 194
Average Loan Size $14,128,143 Total DBRS Expected Amortization3 -7.7%
Wtd. Avg. DBRS Term DSCR1 1.81x/1.73x2 Wtd. Avg. DBRS Term DSCR Whole Loan 1.81x
Wtd. Avg. DBRS Refi DSCR1 1.16x/1.11x2 Wtd. Avg. DBRS Refi DSCR Whole Loan 1.16x
Wtd. Avg. DBRS Debt Yield1 11.1%/10.7%2 Wtd. Avg. DBRS Debt Yield Whole Loan 11.1%
Wtd. Avg. DBRS Exit Debt Yield1 10.5%/10.4%2 Wtd. Avg. DBRS Exit Debt Yield Whole Loan 10.5%
Top Ten Loan Concentration 49.7% Avg. DBRS NCF Variance -8.7%
1. Includes pari passu debt, but excludes subordinate debt. 2. Excludes shadow-rated loans and co-ops. 3. For certain ARD loans, expected amortization may include amortization expected to occur after the ARD but prior to single/major tenant expiry.
PARTICIPANTS
Depositor Wells Fargo Commercial Mortgage Securities, Inc.
Mortgage Loan Sellers Bank of America, National Association (BANA - 21 loans; 37.6% of pool)
Morgan Stanley Mortgage Capital Holdings LLC (MSMCH - 12 loans; 30.9% of pool)
Wells Fargo Bank, National Association (WFB - 24 loans; 27.4% of pool)
National Cooperative Bank (NCB - 12 loans; 4.0% of pool)
Master Servicer Wells Fargo Bank, National Association and National Cooperative Bank, N.A.
Special Servicer KeyBank National Association and National Cooperative Bank, N.A.
Certficate Administrator Wells Fargo Bank, National Association
Trustee Wilmington Trust, National Association
Trust Advisor Park Bridge Lender Services LLC
Asset Representations Reviewer Prime Finance Long Duration (B-Piece) II, or an affiliate thereof
Structured Finance: CMBS 4 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
Rating Considerations
The collateral consists of 69 fixed-rate loans secured by 115 commercial and multifamily properties. The transaction is a sequential-pay pass-through structure. Two loans, representing 9.2% of the pool, are shadow-rated investment grade by DBRS. Proceeds for the shadow-rated loans are floored at their respective ratings within the pool. When 9.2% of the pool have no proceeds assigned below the rated floor, the resulting subordination is diluted or reduced below the rated floor. The conduit pool was analyzed to determine the provisional ratings, reflecting the long-term probability of loan default within the term and its liquidity at maturity. When the cut-off loan balances were measured against the DBRS Stabilized NCF and their respective actual constants, two loans, representing 4.8% of the pool, have a DBRS Term DSCR below 1.15x, a threshold indicative of a higher likelihood of mid-term default. Additionally, to assess refinance risk given the current low interest-rate environment, DBRS applied its refinance constants to the balloon amounts. This resulted in 24 loans, representing 50.3% of the pool, having refinance DSCRs below 1.00x and 14 loans, representing 28.3% of the pool, having refinance DSCRs below 0.90x. These credit metrics are based on whole-loan balances.
STRENGTHS • Fourteen loans, representing 26.4% of the pool, are located in super-dense urban and urban markets with increased liquidity that benefit from consistent investor demand, even in times of stress. Urban markets with exposure in the pool include New York, Los Angeles, Dallas, Cleveland and Indianapolis. • Five loans, which include four of the top ten loans and represents 21.7% of the pool, exhibit Average (+) property quality. Additionally, only three loans, representing 5.4% of the pool, were assigned Average (-) property quality while no properties were deemed Below Average. • Two loans within the top 15 largest loans exhibit credit characteristics consistent with investment-grade shadow ratings. Millennium Partners Portfolio exhibits credit characteristics consistent with an A (high) shadow rating while Willowbend Apartments exhibits credit characteristics consistent with a AAA shadow rating. These loans combine to represent 9.2% of the pool. Please refer to pages 28 and 73 for more information on these assets. • The pool has low term default risk as indicated by the DBRS Term DSCR 1.81x. When shadow-rated loans, representing 9.2% of the pool, and loans secured by cooperative properties, representing 4.0% of the pool, are both excluded, the pool still exhibits a strong DBRS Term DSCR of 1.65x.
CHALLENGES AND CONSIDERATIONS • Twenty-four loans, representing 45.8% of the pool, including six of the largest 15 loans, are structured with IO payments for the full term. An additional 20 loans, representing 29.1% of the pool, have partial-IO periods ranging from 12 months to 60 months. –– This concentration includes Millennium Partners Portfolio, an investment-grade shadow-rated loan which represents 6.7% of the pool and 14.6% of the full-term IO concentration. –– Of the full-IO and partial-IO loans, five are located in either urban or super-dense urban markets with strong investor demand. These loans account for 30.6% of all IO loans and 22.9% of the pool as a whole. Expected amortization for the pool is 8.3%, which is in line with recent conduit securitizations, and 25 loans, representing 25.9% of the pool, are expected to amortize by 15.0% or more. • The DBRS Refi DSCR of 1.16x indicates moderate refinance risk at the overall pool level but, when loans backed by cooperative properties and shadow-rated loans are excluded, the figure drops substantially to 1.02x. Fourteen loans, representing 28.3% of the pool, also have DBRS Refi DSCRs below 0.90x. –– These metrics are based on whole-loan balances. One of the pool’s loans with a DBRS Refi DSCR below 0.90x – Millennium Partners Portfolio – is shadow-rated investment grade by DBRS and has a large piece of subordinate mortgage debt outside the trust. This loan accounts for approximately 6.7% of the pool. Based on A-note balances only, the deal’s WA DBRS Refi DSCR excluding cooperative loans improves to 1.09x.
Structured Finance: CMBS 5 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
• Nineteen loans, representing 21.9% of the pool, are secured by properties located in rural or tertiary markets, including three of the top 15 loans. –– Properties located in tertiary and rural markets are analyzed with significantly higher loss severities than those located in urban and suburban markets. Furthermore, the WA DBRS Debt Yield and DBRS Exit Debt Yield for such loans are 8.7% and 10.0%, respectively, which are somewhat, though not materially, higher than the overall pool metrics. Only two properties, representing 0.4% of the pool balance, are located in rural markets. • The deal appears concentrated by property type with 19 loans, representing 35.0% of the pool, secured by retail properties. –– Four loans, representing 36.1% of the retail concentration, are portfolios secured by multiple properties, which insulates the loans from issues at any one property. In addition, the two largest retail properties, representing 12.0% of the pool – Millennium Partners Portfolio and ExchangeRight Net Leased Portfolio #25 – are both portfolios. ExchangeRight Net Leased Portfolio #25 has a strong tenant mix, including credit-rated tenants on NNN leases with limited lease expirations within the loan term. –– The pool has just four loans backed by hotel properties for a combined 10.7% of the pool balance, which is low compared with recent securitizations. Hotels have the highest cash flow volatility of all major property types as their income, which is derived from daily contracts rather than multi-year leases, and their expenses, which are often mostly fixed, are quite high as a percentage of revenue. These two factors cause revenue to fall swiftly during a downturn and cash flow to fall even faster as a result of high operating leverage. The lower concentration of hotels helps to offset the concentration in retail.
Structured Finance: CMBS 6 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
DBRS Credit Characteristics
DBRS TERM DSCR DBRS REFI DSCR
% of the Pool % of the Pool % of the Pool % of the Pool DSCR (Trust Balance)1 (Whole Loan) DSCR (Trust Balance)1 (Whole Loan) 0.00x-0.90x 0.0% 0.0% 0.00x-0.90x 28.3% 28.3%
0.90x-1.00x 0.0% 0.0% 0.90x-1.00x 22.0% 22.0%
1.00x-1.15x 4.8% 4.8% 1.00x-1.15x 33.4% 33.4%
1.15x-1.30x 18.4% 18.4% 1.15x-1.30x 5.0% 5.0%
1.30x-1.45x 17.0% 17.0% 1.30x-1.45x 0.9% 0.9%
1.45x-1.60x 2.5% 2.5% 1.45x-1.60x 1.2% 1.2%
1.60x-1.75x 11.4% 11.4% 1.60x-1.75x 1.7% 1.7%
>1.75x 45.9% 45.9% >1.75x 7.5% 7.5%
Wtd. Avg. 1.81x 1.81x Wtd. Avg. 1.16x 1.16x
DBRS DEBT YIELD DBRS EXIT DEBT YIELD
% of the Pool % of the Pool % of the Pool % of the Pool Debt Yield (Trust Balance)1 (Whole Loan) Debt Yield (Trust Balance)1 (Whole Loan) 0.0%-6.0% 0.0% 0.0% 0.0%-6.0% 0.0% 0.0%
6.0%-8.0% 13.1% 13.1% 6.0%-8.0% 1.8% 1.8%
8.0%-10.0% 59.8% 59.8% 8.0%-10.0% 54.1% 54.1%
10.0%-12.0% 16.2% 16.2% 10.0%-12.0% 30.0% 30.0%
12.0%-14.0% 1.8% 1.8% 12.0%-14.0% 3.7% 3.7%
14.0%-16.0% 2.3% 2.3% 14.0%-16.0% 1.2% 1.2%
>16.0% 7.0% 7.0% >16.0% 9.3% 9.3%
Wtd. Avg. 11.1% 11.1% Wtd. Avg. 10.5% 10.5%
1. Includes pari passu debt, but excludes subordinate debt.
Structured Finance: CMBS 7 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
Largest Loan Summary
LOAN DETAIL
DBRS DBRS DBRS DBRS DBRS Trust Loan Shadow Term DSCR Refi Debt Exit Debt Loan Name Amount % of Pool Rating (x) DSCR (x) Yield Yield One AT&T $71,500,000 7.3% n/a 2.34 1.06 10.4% 10.4% Southeast Hotel Portfolio $69,929,662 7.2% n/a 1.38 1.09 9.2% 11.1% Millennium Partners Portfolio $65,000,000 6.7% A (high) 2.21 0.89 8.8% 8.8% ExchangeRight Net Leased Portfolio #25 $52,281,500 5.4% n/a 1.87 0.90 8.8% 8.8% Shadow Mountain Marketplace $49,400,000 5.1% n/a 1.15 0.86 7.5% 8.5% Rainbow Sunset Pavilion $44,953,796 4.6% n/a 1.28 1.03 8.4% 10.1% Regions Tower $43,000,000 4.4% n/a 1.74 0.95 8.7% 8.7% US Bank Centre $33,200,000 3.4% n/a 1.27 0.96 8.2% 9.5% Penske Distribution Center $30,000,000 3.1% n/a 1.84 0.87 8.6% 8.6% Haymarket Village Center $25,200,000 2.6% n/a 1.13 0.83 7.4% 8.1% Willowbend Apartments $24,937,875 2.6% AAA 3.57 3.57 28.5% 20.0% Springdale General $24,500,000 2.5% n/a 1.84 0.90 8.9% 8.9% Hancock Plaza Colorado Springs $21,400,000 2.2% n/a 1.06 0.82 7.2% 8.0% Park Center Tower $20,835,528 2.1% n/a 1.22 1.00 8.2% 9.9% Carriage Place $20,667,500 2.1% n/a 1.35 0.99 8.6% 9.7%
PROPERTY DETAIL
Loan Maturity DBRS Year SF/ per SF/ Balance per Loan Name Property Type City State Built Units Units SF/Units One AT&T Office Dallas TX 1983 965,800 $136 $136 Southeast Hotel Portfolio Limited Service Hotel Various Various Various 759 $92,134 $76,401 Millennium Partners Portfolio Anchored Retail Various Various Various 1,549,699 $458 $458 ExchangeRight Net Leased Portfolio #25 Anchored Retail Various Various Various 379,202 $138 $138 Shadow Mountain Marketplace Anchored Retail Las Vegas NV 2007 200,703 $246 $219 Rainbow Sunset Pavilion Office Las Vegas NV 2009 215,232 $209 $173 Regions Tower Office Indianapolis IN 1969 687,237 $106 $106 US Bank Centre Office Cleveland OH 1989 255,927 $130 $112 Penske Distribution Center Industrial Romulus MI 2018 606,000 $116 $116 Haymarket Village Center Anchored Retail Haymarket VA 2012 256,856 $98 $89 Willowbend Apartments Multifamily Sunnyvale CA 1985 330 $75,569 $60,874 Springdale General Office Austin TX 2018 165,457 $148 $148 Hancock Plaza Colorado Springs Anchored Retail Colorado Springs CO 1980 181,321 $118 $105 Park Center Tower Office Reno NV 1981 138,188 $151 $126 Carriage Place Anchored Retail Columbus OH 1989 296,620 $103 $91
Note: Loan metrics are based on whole-loan balances.
Structured Finance: CMBS 8 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
DBRS Sample
DBRS SAMPLE RESULTS
Prospectus DBRS DBRS DBRS Major DBRS ID Loan Name % of Pool NCF NCF Variance Variance Drivers Property Quality
1 One AT&T 7.3% $13,670,375 -4.5% Vacancy Average +
2 Southeast Hotel Portfolio 7.2% $6,407,362 -16.8% Rooms Revenue; FF&E Average
TI/LC; Markdown; Straight Line 3 Millennium Partners Portfolio 6.7% $62,166,422 -11.6% Average Rent Credit ExchangeRight Net Leased 4 5.4% $4,597,892 -1.3% Vacancy; TI/LC Average Portfolio #25
5 Shadow Mountain Marketplace 5.1% $3,712,850 -9.7% TI/LC; Vacancy; Mgmt. Fee Average
6 Rainbow Sunset Pavilion 4.6% $3,770,518 -15.5% TI/LC; Mgmt. Fee Average
7 Regions Tower 4.4% $6,313,314 -5.7% TI/LCs Average +
8 US Bank Centre 3.4% $2,723,802 -10.0% TI/LC; Vacancy; Mgmt. Fee Average +
9 Penske Distribution Center 3.1% $6,050,400 -18.8% Rent Steps; TI/LC; Vacancy Average +
10 Haymarket Village Center 2.6% $1,859,207 -16.2% Vacancy; TI/LC; Mgmt. Fee Average
11 Willowbend Apartments 2.6% $7,112,891 -1.9% Vacancy; Expenses Average -
12 Springdale General 2.5% $2,170,779 -9.8% Vacancy; TI/LC Average +
13 Hancock Plaza Colorado Springs 2.2% $1,537,390 -15.2% Vacancy; TI/LC; Markdowns Average -
14 Park Center Tower 2.1% $1,714,568 -12.8% TI/LC; Vacancy; Mgmt. Fee Average
TI/LC; Mgmt. Fee; Replacement 17 Hancock Village - VA 1.8% $1,621,952 -6.8% Average Reserves
20 Residence Inn National Portfolio 1.7% $5,518,269 -3.5% Rooms Revenue Average
24 11755 - 11795 West Olympic Blvd 1.2% $1,446,291 -2.0% Vacancy; Insurance Expense; TI/LC Average
25 Yorba Linda Station Plaza 1.2% $1,129,019 -9.8% TI/LC; Expenses; Vacancy Average
27 Victor's Square 1.1% $867,722 -8.8% Vacancy; Reimbursements; TI/LC Average
30 Prudential - Digital Realty Portfolio 1.0% $23,608,992 -3.7% TI/LC; GPR; CapEx Average
41 Prescott Towne Center 0.6% $501,838 -13.2% Markdowns; TI/LC; Mgmt. Fee Average -
45 2020 East University Drive 0.5% $522,600 -8.2% TI/LC; Rent Steps Average
57 Heritage Crossing 0.3% $257,686 -11.5% Vacancy; Expenses Average
58 Rolling Wheel MHC 0.3% $319,437 -3.8% Expenses; Vacancy Average
Structured Finance: CMBS 9 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
DBRS SITE INSPECTIONS DBRS Sampled Property Quality % of # of The DBRS sample included 24 of the 69 loans in the Property Quality Sample Loans pool. Site inspections were performed on 41 of the Excellent 0.0% 0 115 properties in the portfolio, representing 42.6% of Above Average 0.0% 0 the pool by allocated loan balance. DBRS conducted Average (+) 30.1% 5 meetings with the on-site property manager, a leas- Average 62.1% 16 ing agent or a representative of the borrowing entity Average (-) 7.8% 3 for 58.0% of the pool. The resulting DBRS property Below Average 0.0% 0 quality scores are highlighted in the following chart. Poor 0.0% 0
DBRS CASH FLOW ANALYSIS A cash flow review as well as a cash flow stability and structural review were completed on 24 of the 69 loans, represent- ing 68.9% of the pool by loan balance. For loans not subject to an NCF review, DBRS applied the average NCF variance of its respective loan seller, except for NCB. DBRS did not sample any NCB loans and, as a result, determined the NCF variance applied to this loan seller based on recent DBRS-rated deals that include NCB as a loan seller.
DBRS generally adjusted cash flow to current in-place rent and, in some instances, applied an additional vacancy or con- cession adjustment to account for deteriorating market conditions or tenants with above-market rent. In certain instances, DBRS accepted contractual rent bumps if they were within market levels. Generally, most expenses were recognized based on the higher of historical figures or the borrower’s budgeted figures. Real estate taxes and insurance premiums were inflated if a current bill was not provided. Capex was deducted based on the greater of the engineer’s inflated estimates or the DBRS standard, according to property type. Finally, leasing costs were deducted to arrive at the DBRS NCF. If a significant upfront leasing reserve was established at closing, DBRS reduced its recognized costs. DBRS gave credit to tenants not yet in occupancy if a lease had been signed and the loan was adequately structured with a reserve, LOC or holdback earn-out. The DBRS sample had an average NCF variance of -9.3% and ranged from -18.8% (Penske Distribution Center) to -1.3% (ExchangeRight Net Leased Portfolio #25).
DBRS Sampled Property Type
40.0% 35.0%
35.0% 30.0% 30.0% 25.0% 25.0% 20.0% 20.0%
15.0% % of Pool % of Sample 15.0% 10.0% 10.0%
5.0% 5.0%
0.0% 0.0% Anchored Full Industrial Limited MHC Multifamily Office Regional Self Unanchored Weakly Retail Service Hotel Service Hotel Mall Storage Retail Anchored
Excellent Above Average Average (+) Average Average (-) Below Average Poor Pool
Structured Finance: CMBS 10 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
Transaction Concentrations
DBRS Property Type Geography Property Type % of Pool # of Loans State# % of Pool of Properties Anchored Retail 25.6% 8 CA 13.9% 16 NV 13.6% 7 Full Service Hotel 0.0% 0 TX 12.6% 13 Industrial 3.6% 2 VA 7.9% 13 Limited Service Hotel 10.7% 4 FL 7.6% 8 MHC 4.6% 8 NY 7.0% 15 Multifamily 6.6% 13 All others 37.3% 43 Office 32.1% 14 Regional Mall 0.0% 0 Self Storage 7.4% 9 Unanchored Retail 6.5% 8 Weakly Anchored 3.0% 3
Loan Size DBRS Market Type % of # of Loan Size Pool Loans Market Type % of Pool # of Loans Very Large (>$20.0 million) 64.0% 17 Super Dense Urban 7.9% 6 Large ($10.0-$20.0 million) 18.1% 13 Urban 18.5% 8 Medium ($5.0-$10.0 million) 10.3% 14 Suburban 51.8% 36 Small ($2.0-$5.0 million) 6.4% 18 Tertiary 21.5% 17 Very Small (<$2.0 million) 1.2% 7 Rural 0.4% 2
Largest Property Locations
9) Penske Distribution Center Romulus, MI 8) US Bank Centre Cleveland, OH
11) Willowbend Apartments 3) Millennium Partners Portfolio Sunnyvale, CA New York, NY
10) Haymarket Village Center Haymarket, VA
5) Shadow Mountain Marketplace 7) Regions Tower Las Vegas, NV Indianapolis, IN
6) Rainbow Sunset Pavilion Las Vegas, NV
13) Hancock Plaza Colorado Springs 1) One AT&T Colorado Springs, CO Dallas, TX
12) Springdale General Austin, TX 2) Southeast Hotel Portfolio Various
4) ExchangeRight Net Leased Portfolio #25 Various
Structured Finance: CMBS 11 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
Loan Structural Features
Pari Passu Notes: Five loans, representing 23.6% of the pool, have pari passu debt and are identified in the table below.
PARI PASSU NOTES
Loan Balance % of Pool Deal ID % of Total Pari Passu Loan Controlling Piece (Y/N)
One AT&T $71,500,000 7.3% BANK 2019-BNK16 54.4% Y
$60,000,000 TBD TBD 45.6% N
$131,500,000 n/a n/a 100.0% n/a
Millennium Partners Portfolio $65,000,000 6.7% BANK 2019-BNK16 9.2% N
$238,000,000 51.3% MSC 2018-MP 33.5% N
$226,339,474 48.7% MSC 2018-MP 31.9% Y
$75,000,000 6.9% BANK 2018-BNK15 10.6% N
$55,660,526 6.2% MSC 2018-L1 7.8% N
$50,000,000 3.6% BANK 2018-BNK14 7.0% N
$710,000,000 n/a n/a 100.0% n.a
Regions Tower $43,000,000 4.4% BANK 2019-BNK16 58.9% Y
$30,000,000 3.3% MSC 2018-L1 41.1% N
$73,000,000 n/a n/a 100.0% n/a
Penske Distribution Center $30,000,000 3.1% BANK 2019-BNK16 42.9% N
$40,000,000 5.0% MSC 2018-H4 57.1% Y
$70,000,000 n/a n/a 100.0% m/a
Carriage Place $20,667,500 2.1% BANK 2019-BNK16 67.4% Y
$10,000,000 0.9% BANK 2018-BNK15 32.6% N
$30,667,500 n/a n/a 100.0% n/a
Additional Debt: One loan, Millennium Partners Portfolio, representing 6.7% of the pool, has additional debt in the form of a B-note. Two loans, representing 11.1% of the pool, have existing mezzanine debt. NCB contributed 12 loans contributed to the transaction, representing 4.0% of the pool, that have secured subordinate debt in place ranging between $200,000 and $1.0 million. All 12 NCB loans are permitted to incur unsecured debt, but require lender consent for amounts greater than thresholds ranging from $50,000 and $500,000. There are two loans, representing 2.9% of the pool, permitted to incur mezzanine debt in the future, provided that certain LTV, debt yield and/or DSCR thresholds are met and a lender- approved Intercreditor Agreement and rating agency confirmation (RAC) are obtained.
Structured Finance: CMBS 12 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
SUBORDINATE DEBT
Mezz/ Future Mezz/ Pari Passu B-Note Unsecured Unsecured Debt Total Debt Loan Name Trust Balance Balance Balance Debt Balance (Y/N) Balance
Millennium Partners $65,000,000 $407,000,000 $238,000,000 $280,150,000 N $990,150,000
Regions Tower $43,000,000 $30,000,000 n/a $11,000,000 N $84,000,000
Residence Inn National Portfolio $17,050,000 n/a n/a n/a Y $17,050,000
Yorba Linda Station Plaza $11,500,000 n/a n/a n/a Y $11,500,000
Leasehold: Two loans, representing 6.9% of the pool balance, are fully or partially secured by the borrower’s leasehold interest. The Four Seasons San Francisco Retail property, representing 0.8% of the pool, which is contributed in the Mil- lennium Partners Portfolio loan is secured by the borrower’s fee and leasehold interest. The leasehold interest in the Four Seasons San Francisco Retail property represents the 23,150 sf of retail space. In addition, Offices on Grand Boulevard is secured by the borrower’s leasehold interest, by which the annual ground-rent payment is $10 with no escalations. In both cases, the mortgagee has notice and cure rights and the ground lease has an expiration (including renewal options) far enough beyond the loan’s amortization schedule to be considered traditionally financeable.
RESERVE REQUIREMENT BORROWER STRUCTURE
Type Loans % of Pool Type Loans % of Pool Tax Ongoing 54 74.5% SPE with Independent Director 14 57.1% and Non-Consolidation Opinion
Insurance Ongoing 20 32.3% SPE with Independent 1 1.9% Director Only
CapEx Ongoing 42 72.9% SPE with Non-Consolidation 1 0.6% Opinion Only
Leasing Costs Ongoing1 11 53.1% SPE Only 41 36.3%
1. Percent of office, retail, industrial and mixed use assets based on DBRS property types.
Structured Finance: CMBS 13 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
Interest Only DBRS Expected Amoritization
IO Term % of Pool # of Loans Expected % of Pool# of Loans Amoritization Full IO 45.8% 24 0% 45.8% 24 Partial IO 29.1% 20 0.0%-5.0% 0.0% 0 Amoritization 25.1% 25 5.0%-10.0% 10.6% 9 10.0%-15.0% 17.7% 11 15.0%-20.0% 25.5% 24 20.0%-25.0% 0.0% 0 >25.0% 0.4% 1
Note: For certain ARD loans, expected amortization may include amortization expected to occur after the ARD but prior to single/major tenant expiry.
Sponsor Strength: DBRS considers the sponsorship DBRS Sponsor Strength of one loan, totaling 3.4% of the pool, to be Strong Sponsor Strength % of Pool # of Loans because of the sponsors’ extensive experience in the CRE sector as well as significant financial wherewithal. Strong 3.4% 1 DBRS identified one loan, representing 3.1% of the Average 93.5% 67 pool, associated with sponsors with a prior voluntary Weak 0.0% 0 Bad (Litigious) 3.1% bankruptcy, inadequate CRE experience and/or other 1 negative credit events. DBRS applied POD penalties to mitigate this risk. Both loans are within the top ten by loan size. For information on the history of the sponsorship, please see the individual loan summaries for U.S. Bank Centre (page 57) and Penske Distribution Center (page 62).
Property Release: Four loans, representing 10.4% of the pool, allow for the release or defeasance of one or more properties or a portion of the mortgaged property, subject to release prices at least equal to 110% of the allocated loan amounts of the respective properties and/or certain leverage tests prescribed in the individual loan agreements.
Property Substitution: There are no loans in the pool that allow for the substitution of properties.
Terrorism Insurance: Terrorism insurance is required and in place for all loans.
Structured Finance: CMBS 14 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
One AT&T Dallas, TX
Loan Snapshot Seller MSMCH Ownership Interest Fee Trust Balance ($ million) $71.5 Loan psf/Unit $136 Percentage of the Pool 7.3% Loan Maturity/ARD January 2029 Amortization COLLATERAL SUMMARY Interest Only DBRS Property Type Office Year Built/Renovated 1983 DBRS Term DSCR 2.34x City, State Dallas, TX Physical Occupancy 100.0% DBRS Refi DSCR Units/SF 965,800 Physical Occupancy Date December 2018 1.06x DBRS Debt Yield The loan is secured by the borrower’s fee interest in One AT&T, a 965,800 sf, Class A 10.4% office building. The 37-story office tower was built in 1983 and is located in downtown DBRS Exit Debt Yield Dallas. Loan proceeds of $131.5 million will recapitalize the sponsor after the all-cash 10.4% acquisition of the asset for $166.3 million inclusive of the seller credit of $21.7 million in Competitive Set August 2018. Under the original lease the seller was required to pay AT&T $24.1 million Office, Large, 752 for qualified TIs between now and July 2021. At closing, the seller credited the sponsor Median Debt Yield $21.7 million (90% of the total $24.2 million obligation). After acquisition, the sponsor 9.1% negotiated an additional $50.0 million in TIs contributed by the sponsor for AT&T’s Median Loan PSF/Unit Discovery District. The amendment resulted in the loan being structured with $78 unfunded TI obligations of $74.1 million, which was held back at closing, equating to Debt Stack ($ million) an aggregate cost basis of $219.3 million. The ten-year loan is IO for the entire duration. Trust $71.5 The property is located in the Dallas CBD, which, per CoStar, has experienced asking Pari Passu rent growth, on average, between 5% and 6% per year over the last five years. The $60.0 Dallas-Fort Worth office market is the fourth largest in the United States, with over B-Note $5 billion invested in projects in the Dallas CBD since 2010. According to the appraisal, $0.0 the Dallas office market is expected to continue to trend positively over both the short Mezz $0.0 and long term. Total Debt $131.5 Loan Purpose Acquisition Equity Contribution/ (Distribution) ($ million) $87.8
Structured Finance: CMBS 15 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
ONE AT&T – DALLAS, TX
TENANT SUMMARY
DBRS % of Total % of Base Rent DBRS Investment Tenant SF Total NRA PSF Base Rent Lease Expiry Grade? (Y/N)
AT&T 965,800 100.0% $14.29 100.0% 12/31 Y
Subtotal/Wtd. Avg. 965,800 100.0% $14.29 100.0% 12/31 Y
Other Tenants 0 0.0% Various 0.0% n/a n/a
Vacant Space 0 0.0% n/a n/a n/a n/a
Total/Wtd. Avg. 965,800 100.0% $14.29 100.0% n/a Y
AT&T relocated their global headquarters to the property in 2008 and currently occupies 100% of the property. The collateral is part of AT&T’s Dallas campus, which is comprised of more than two million sf across four buildings. The tenant is the largest private sector employer in Dallas and has consistently invested capital in maintaining and upgrading the property, which houses over 3,000 AT&T employees. Recently completed capital improvements at the property include new signage, lobby renovations and upgraded workspaces. AT&T is heavily invested not only in the collateral, but in the Dallas-Fort Worth market, with naming rights to several events and landmarks, such as AT&T Stadium, home of the Dallas Cowboys. AT&T’s lease is structured with no termination or contraction options and extends approximately three years beyond the loan term with lease expiry on December 31, 2031. AT&T, Inc., which is investment-grade rated, is the lease guarantor, and the loan is structured with an 18 month sweep if AT&T goes dark, falls below investment grade, files bankruptcy or fails to occupy more than 80% of their space.
SPONSORSHIP The sponsor for the transaction is a joint venture (JV) between Woods Capital and Dundon Capital Partners. Both sponsors are located in Dallas and have participated in previous investments together. Woods Capital is an integrated real estate firm founded in 2007. Prior to founding Woods Capital, Jonas Woods, who also serves as the President and CEO, spent 13 years at Hillwood where he held multiple executive positions. Woods Capital participates in the market as a developer, investor and manager of real estate. The firm has completed over $4 billion in acquisition and/or development transactions including industrial, residential, office, retail and mixed-use properties. Woods Capital owns over 3.2 million sf in the Dallas CBD. Notable Woods Capital Dallas-based office building investments include One Dallas Center, 5025 North Central Expressway and Thanksgiving Tower, which it owns as a JV with Dundon Capital Partners. Dundon Capital Partners is a private investment firm that focuses on private equity and credit investments across a range of industries.
Structured Finance: CMBS 16 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
ONE AT&T – DALLAS, TX
DBRS ANALYSIS SITE INSPECTION SUMMARY Based on the DBRS site inspection and management meeting conducted on January 2, 2019, DBRS found the property quality to be Average (+).
One AT&T Plaza is a 37-story office tower exhibiting great frontage occupying a full city block (approximately 1.5 acres) at the southeast corner of Commerce Street and Akard Street. The subject is situated in the heart of the Dallas CBD with convenient accessibility via multiple thoroughfares, such as I-30, I-35, Woodall Rodgers Freeway, U.S. Route 75 and is only 0.2 miles from the Akard DART light rail station.
The property is the eighth-largest office tower in the Dallas CBD market by sf and has the second-largest floorplates. Originally constructed in 1983 and last renovated in 2018, the property’s exterior features stone travertine panels and glass. Primary entrances to the building are on the north and west sides, each inclusive of a security/welcome desk. The ground-floor lobby is large, well-lit, with tall ceilings and has a waiting area for guests with modern furniture. The lobby also included a Starbucks with an outdoor seating area and an AT&T retail storefront. DBRS toured multiple floors and was given access to the meeting room areas on the top floors, the basement-level cafeteria, the tech center and open work area, all of which were consistent with Class A office finishes. The older classic floors featured mid-rise cubicles with offices along the exterior and interior walls. The modernized newly renovated floors had low-rise cubicles with standing desk workstations and glass-wrapped offices as well as multiple huddle rooms and high-tech conference rooms. Since occupying the building in 2008, AT&T has completed numerous significant renovations throughout the building, many of which are ongoing. Over the past two years alone, AT&T has invested over $18.0 million of capex. In addition to the $24.0 million of outstanding TIs, AT&T will also receive a $50.0 million contribution as part of the newly amended lease, which will be used for capital improvements at the property and their Discovery District investment. Overall, the tenant investment in the collateral was notable and the property appeared to be well maintained and in excellent condition at the time of inspection.
Structured Finance: CMBS 17 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
ONE AT&T – DALLAS, TX
DBRS NCF SUMMARY
NCF ANALYSIS
Issuer NCF DBRS NCF NCF Variance
GPR $14,648,652 $14,657,193 0.1%
Recoveries $448,223 $10,013,254 2134.0%
Other Income $0 $0 0.0%
Vacancy -$142,513 -$986,818 592.4%
EGI $14,954,362 $23,683,629 58.4%
Expenses $448,631 $10,013,254 2132.0%
NOI $14,505,731 $13,670,375 -5.8%
Capex $193,160 $0 -100.0%
TI/LC $0 $0 0.0%
NCF $14,312,571 $13,670,375 -4.5%
The DBRS NCF is based on the DBRS North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS NCF was $642,196, a variance of -4.5% from the Issuer’s NCF. The main driver for the NCF variance is the vacancy assumption of 4.0% compared to the Issuer’s 1.0% assumption. The DBRS vacancy assumptions is based on the tenant being a LTCT in the BBB rating category.
DBRS VIEWPOINT The collateral benefits from its location, its longer-term lease to an investment-grade tenant and its sponsor-invested capital. The property was originally constructed for AT&T’s predecessor company, Southwestern Bell, and has served as their global headquarters since 2008. The subject is located in the middle of the Dallas CBD and is easily accessible. Over the years, the tenant has invested $100 million into its downtown campus and has recently reinforced their long- term commitment to the Dallas CBD with their new $100 million investment in their Discovery District development. The initial phase of the Discovery District is currently underway, converting three city blocks into pedestrian-only access lined with new landscaped plazas consisting of retail and eateries. In addition to this new investment, AT&T also holds the naming rights to some of the largest and most significant Dallas events and venues including, AT&T Red River Showdown, AT&T Byron Nelson, AT&T Performing Arts Center and AT&T Stadium. AT&T is the largest company based in Dallas and the second-largest company in North Texas. Further, the tenant carries an investment-grade rating and, as of June 2018, the company had a market cap of over $223.5 billion and reported operating revenues of $158.4 billion and net income of $31.9 billion. The property is supported by local sponsorship in a JV between Woods Capital and Dundon Capital Partners. The sponsors have demonstrated their commitment to the project as evidenced by an $87.5 million cash equity contribution, which results in a 52.4% LTV. Additionally, both sponsors have previously participated in notable Dallas-based office investments and have extensive knowledge of the subject market.
DOWNSIDE RISKS • The ten-year loan is full-term IO. • The subject exhibits single-tenant risk. Loans secured by single-tenant properties have been found to have higher loss severities in the event of a default. By way of example, another single-tenant property occupied by AT&T located in the St. Louis CBD, One AT&T Center, was securitized in the BSCMS 2007-T26 transaction. AT&T has recently vacated the property and the loan is now carrying an appraisal reduction amount of $92.4 million on an original loan balance of $112.7 million.
Structured Finance: CMBS 18 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
ONE AT&T – DALLAS, TX
STABILIZING FACTORS • The loan has strong metrics as evidenced by the DBRS Refi DSCR of 1.06x and the appraiser’s concluded as-stabilized value of $251.0 million, resulting in an LTV of 52.4%. Such metrics are further supported by solid market fundamentals per CoStar demonstrating a high level of demand for the area with overall occupancy increasing 210 basis points since 2011 and positive trends expected to continue. • Given the investment-grade tenancy and tenure and commitment to the property, DBRS considers term default risk to be low. The property was a build-to-suit for Southwestern Bell, AT&T’s predecessor and has functioned as a mission-critical facility and AT&T’s global headquarters since 2008. Furthermore the lease expiration is three years beyond the loan term and includes four five-year renewal options and no termination or contraction options. Contrasting with One AT&T Center in St. Louis, the tenant’s parent company has spent a large amount of money investing in the Dallas area, and the Dallas CBD has been rejuvenated and been the focus of major capital investment in a way that St. Louis has not. Finally, the Dallas- Fort Worth MSA has added approximately one million people from 2010 to 2017, representing an approximate growth rate of 15%. The St. Louis MSA population has stagnated during this time period, adding only 20,000 people (0.7% increase).
Structured Finance: CMBS 19 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
Southeast Hotel Portfolio Various
Loan Snapshot Seller WFB Ownership Interest Fee Trust Balance ($ million) $69.9 Loan psf/Unit $92,134 Percentage of the Pool 7.2% Loan Maturity/ARD January 2029 Amortization COLLATERAL SUMMARY 30 Years DBRS Property Type Various Year Built/Renovated 1970-2001/2016-18 DBRS Term DSCR 1.38x City, State Various, Various T-12 RevPAR $86.70 DBRS Refi DSCR Keys 759 T-12 RevPAR Date October 2018 1.09x DBRS Debt Yield This loan is secured by the borrower’s fee simple interest in Southeast Hotel Portfolio, 9.2% a hotel portfolio comprising four limited-service hotels and one full-service hotel DBRS Exit Debt Yield totaling 759 keys and spread across three cities: Atlanta, Georgia (two properties 11.1% representing 42.2% of total keys and 41.7% of total DBRS room revenue); Orlando, Competitive Set Florida (two properties totaling 40.7% of total keys and total DBRS room revenue); Limited Service Hotel, Large, Suburban and Gastonia, North Carolina (one property representing 17.1% of total keys and 17.5% Median Debt Yield of total DBRS room revenue). Whole loan proceeds of $70.0 million, in addition to a 11.9% borrower cash equity contribution of $27.1 million, financed the sponsor’s $92.5 million Median Loan PSF/Unit acquisition of the portfolio, covered $1.7 million in closing costs associated with the $73,500 transaction, and funded a $2.8 million upfront PIP reserve and a $71,120 upfront tax Debt Stack ($ million) reserve. The ten-year fixed-rate loan amortizes on a 30-year basis and does not allow Trust Balance for any partial releases. $69.9 Pari Passu $0.0 B-Note $0.0 Mezz $0.0 Total Debt $69.9 Loan Purpose Acquisition Equity Contribution/ (Distribution) ($ million) $30.0
Structured Finance: CMBS 20 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
SOUTHEAST HOTEL PORTFOLIO – VARIOUS
PORTFOLIO SUMMARY
% of Cut-Off Year Built/ Cut-Off Date Date Loan Property City, State Keys Renovated Loan Amount Amount Occupancy T-12 RevPAR
Doubletree Atlanta North Druid Hills Atlanta, GA 209 1970/2017 $17,832,064 25.5% 64.9% $79.15
Fairfield Inn Lake Buena Vista Orlando, FL 170 1998/2018 $14,785,128 21.1% 78.6% $84.11
Fairfield Inn Orlando Int'l Airport Orlando, FL 139 1998/2018 $12,986,937 18.6% 89.2% $93.65
Courtyard by Marriott Gastonia, NC 130 2001/2016 $12,537,389 17.9% 77.3% $84.45
Hampton Inn Atlanta North Druid Hills Atlanta, GA 111 1990/2016 $11,788,143 16.9% 81.6% $98.85
Total/Wtd. Avg. Various 759 Various $69,929,662 100.0% 77.0% $86.71
The portfolio features three Marriott-flagged properties, representing 57.8% of total keys and 58.3% of total DBRS room revenue, and two Hilton-flagged properties, representing 42.2% of total keys and 41.7% of total DBRS room revenue. All hotels in the portfolio were constructed between 1970 and 2001 and underwent PIP renovations between 2016 and 2018 that totaled approximately $10.2 million ($13,439 per key). The renovation costs covered guest rooms, common areas and exterior improvements. The properties are to undergo nearly $2.8 million ($3,629) in additional brand-mandated PIP renovations within 12 to 18 months of loan closing, the costs of which are reserved for upfront and shown further in the table below.
PIP RENOVATION SUMMARY
Renovation Rennovation Completion Upcoming PIP Upcoming PIP Upcoming PIP Property Cost Cost/Key Date Costs 1 Cost/Key Timeline 2
Doubletree Atlanta North Druid Hills $4,200,000 $20,096 2016-17 $553,630 $2,649 12 Months
Fairfield Inn Lake Buena Vista $2,000,000 $11,765 2017-18 $428,658 $2,522 12 Months
Fairfield Inn Orlando Int'l Airport $1,800,000 $12,950 2016 $229,250 $1,649 12 Months
Courtyard by Marriott $1,200,000 $9,231 2016-17 $70,000 $538 12 Months
Hampton Inn Atlanta North Druid Hills $1,000,000 $9,009 2016 $1,473,075 $13,271 18 Months
Total/Wtd. Avg. $10,200,000 $13,439 Various $2,754,613 $3,629 Various
1 Amount reserverved for upfront in association with brand-mandated PIP renovations to be completed post loan-closing. 2 Estimated time until completion prior to loan closing.
As of the T-12 period ending October 2018, four of the portfolio’s five properties exhibited RevPAR penetrations above or in line with the market, evidencing the general competitiveness of all assets relative to existing market competition. The single outlier, Doubletree Atlanta North Druid Hills, exhibited occupancy and ADR penetration indexes of 91.6% and 91.1%, respectively, resulting in an overall RevPAR penetration index of 83.5% for the T-12 period ending October 2018. The Doubletree Atlanta North Druid Hills took a -15.1% occupancy hit in 2016, falling from 83.4% for the T-12 period ending December 2015 to 68.3% for the T-12 period ending December 2016 as a result of significant renovations causing two floors to be taken offline during the tail end of 2016 and beginning of 2017. Since completion of the renovations, RevPAR penetration has returned to its 2015 levels and shows a propensity for growth as evidenced by T-12 ADR levels that are still below the competitive set average and a T-12 occupancy that has not yet realigned with the post-renovation 2015 reported figure of 73.2%. The impact of renovation work across the portfolio appears relatively favorable, exhibited by generally positive ADR and occupancy growth trends post-completion of PIP renovation work at each property.
Structured Finance: CMBS 21 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
SOUTHEAST HOTEL PORTFOLIO – VARIOUS
STR REPORT SUMMARY1
Subject Competitive Set Index
Occupancy ADR RevPAR Occupancy ADR RevPAR Occupancy ADR RevPAR
Doubletree Atlanta North Druid Hills 64.9% 121.97 79.15 70.8% 133.85 94.79 91.6% 91.1% 83.5%
Fairfield Inn Lake Buena Vista 78.6% 106.98 84.11 85.2% 98.68 84.09 92.3% 108.4% 100.0%
Fairfield Inn Orlando Int'l Airport 89.2% 104.95 93.66 86.9% 108.72 94.49 102.7% 96.5% 99.1%
Courtyard by Marriott 77.3% 109.28 84.46 75.2% 97.12 72.99 102.8% 112.5% 115.7%
Hampton Inn Atlanta North Druid Hills 81.6% 121.17 98.86 75.4% 117.58 88.66 108.2% 103.1% 111.5%
1. All figures per T-12 period ending Oct. 2018.
SPONSORSHIP The sponsor for this loan is AD1 Global, a privately held real estate development, ownership and management entity specialized in hospitality properties across the Southeast United States. AD1 Global reported ownership interests in 15 hotels, with five additional development projects in the pipeline. AD1 Global is also a repeat CMBS borrower, having securitized the Courtyard Myrtle Beach and Doubletree Rocky Mountain as part of BANK 2018-BNK13 and WFCM 2018-C46, respectively. The guarantors for this transaction are Daniel Berman (President and CEO at AD1 Global), Arie Fridzon (Executive Vice President as AD1 Global) and Alex Fridzon (Partner and CFO at AD1 Global). The guarantors reported a combined net worth and liquidity of $37.5 million and $5.7 million, respectively.
DBRS ANALYSIS SITE INSPECTION SUMMARY DBRS toured four of the five properties in the portfolio, representing 82.9% of total keys and 82.5% of total DBRS room revenue. The DBRS sample included the Fairfield Inn Orlando International Airport, Fairfield Inn Lake Buena Vista, Doubletree Atlanta North Druid Hills and Hampton Inn Atlanta North Druid Hills. Based on the site inspections conducted between January 2 and January 3, 2019, DBRS found the portfolio’s aggregate property quality to be Average.
Fairfield Inn Orlando International Airport DBRS toured the interior and exterior of the property on Wednesday, January 2, 2019, at approximately 12:30 p.m. Based on the inspection, DBRS found the property quality to be Average.
Structured Finance: CMBS 22 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
SOUTHEAST HOTEL PORTFOLIO – VARIOUS
The subject is a 139-key limited-service hotel located 1.9 miles north of Orlando International Airport and 9.2 miles southeast of the Downtown CBD in Orlando, Florida. The property is situated along Augusta National Drive and features an additional right-turn-only entrance/exit along T.G. Lee Boulevard, which connects to South Semoran Boulevard approximately 0.3 miles east of the subject. South Semoran Boulevard is a predominant hospitality/retail corridor servicing airport-driven demand from the nearby Orlando International Airport, which uses South Semoran Boulevard as a primary access point. While the collateral benefits from proximity to Orlando International Airport and easy accessibility to South Semoran Boulevard, the immediate surrounding area features an abundance of additional hospitality properties that benefit from more favorable visibility along South Semoran Boulevard. Per management, the subject’s primary competitor in the immediate surrounding area is the Hampton Inn located directly adjacent to the subject’s west. While the Hampton Inn benefits from direct visibility along South Semoran Boulevard, management indicated that the subject property had been more recently renovated. Management identified the nearby Springhill Suites, Sheraton and Wingate by Wyndham as other competitors to the collateral, though these constitute only a few of several hospitality properties within the immediate vicinity of the subject, and further indicated that a new Home2Suites was to be delivered to the submarket between February and April of 2019. The property appeared generally well positioned to service what management described as predominantly airport-driven commercial demand, as evidenced by the subject’s corporate contracts with Spirit Airlines and Jet Blue.
Originally constructed in 1998, the subject consists of a four-story structure featuring a multi-color beige and light gray stucco exterior facade accentuated by white trim and a slate-blue stucco facade wrapping the ground floor. The property underwent renovations in 2016, which, according to management, included lobby updates, new common area flooring, meeting space renovations, dining area updates, and new soft and hard goods in all guest rooms. The impact of the renovations is evidenced by the property’s replacement of its prior corporate contract with Azul Brazilian Airlines for $59/day with a new Spirit Airlines contract for $113/day. The property features a covered drive-up front entrance through which automated glass sliding doors open to a brand-standard lobby featuring a blend of vinyl-wood flooring and colorful carpeting, an assortment of modern seating arrangements, a check-in desk, an open two-seated business center and a quaint market pantry. The property’s outdoor pool area, small fitness center and dining area are also accessible via the main lobby, though the dining room is separated by a wall that makes the lobby slightly less open than other similar facilities. Guest rooms appeared to benefit from raised ceilings but otherwise appeared relatively standard with bland beige wall paint, dark blue carpeting, white bed linens and wood case goods. The property additionally featured a ground-floor meeting space with seating for 60, a whiteboard and a roll-up projector screen. Landscaping was lush and well kept at the time of inspection, and parking was available in a black-top lot surrounding the property. Overall, DBRS found the property to be generally well maintained, exhibiting similar curb appeal to surrounding properties at the time of inspection.
Fairfield Inn Lake Buena Vista DBRS toured the interior and exterior of the property on Wednesday, January 2, 2019, at approximately 3:30 p.m. Based on the inspection, DBRS found the property quality to be Average.
The subject is a 170-key limited-service hotel located approximately 5.0 miles northeast of the world-renowned Disney World theme park and 15.9 miles southwest of the Downtown CBD in Orlando, Florida. The property is situated along South Apopka Vineland Road and shares a lot with a sizable unanchored retail center. The collateral’s immediate surrounding area is primarily commercial in nature, comprising several retail centers and hospitality properties that additionally service the area’s predominantly leisure-related demand driven by the nearby Disney World, Sea World and Universal Studios resorts. Of the several neighboring hospitality properties, management identified the subject’s primary competitors to be the Marriott’s Fairfield Inn and Suites, Hampton Inn, Staybridge Suites, Hyatt Place and Courtyard Marriott. Management additionally indicated that a dual Spring Hill Suites and TownePlace Suites totaling roughly 350 keys had been delivered to the submarket in Q4 2018, though the hotels entered the market at rates higher than those offered at the collateral and are therefore not considered to be directly competitive. The subject’s lower ADR also makes it a more cost-effective option for leisure travelers than resort-affiliated hospitality options located closer to the parks.
Structured Finance: CMBS 23 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
SOUTHEAST HOTEL PORTFOLIO – VARIOUS
Originally constructed in 1998, the subject consists of an elongated five-story building with a two-tone yellow stucco facade accentuated by white trim, blue pitched aluminum roofing and a dark beige stucco facade wrapping the ground floor. The property underwent renovations between October 2017 and January 2018, which included the replacement of soft goods in all guest rooms and renovation of all common areas, including the lobby and dining spaces. The property features a covered drive-up front entrance through which automated glass sliding doors open to a unique two-story lobby area complete with a centrally located seating area, reception desk, concierge desk and small market pantry. The lobby is open to the dining area, providing an open flow to the ground floor. The property additionally features a gated outdoor pool, small fitness center and small but modern second-floor meeting space complete with whiteboard and television. The property offers several guest room arrangements, including a king bedroom option with a three-quarter height wall divider providing a separate sleeping space furnished with a bunkbed arrangement and separate television complete with a PlayStation to appeal to the subject’s family-driven clientele. Landscaping was minimal but generally well maintained at the time of inspection, and parking is available in a row at the front of the property as well as in a lot at the rear of the adjacent retail center. Per management, parking is a challenge at the property, though the shopping center and hotel have never had issues sharing parking. Overall, DBRS found the property to be extremely well managed, evidenced by an above-average employee tenure, and generally well maintained at the time of inspection.
Doubletree Atlanta North Druid Hills DBRS toured the interior and exterior of the property on Thursday, January 3, 2019, at approximately 1:00 p.m. Based on the site inspection, DBRS found the property quality to be Average.
The subject is a 209-key full-service hotel located 6.9 miles northeast of the Downtown CBD in Atlanta, Georgia. The property is situated along North Druid Hills Road, along which the Hampton Inn Atlanta North Druid Hills that serves as additional collateral for this loan is also situated. The properties are within 0.3 miles of one another. The property benefits from proximity to U.S. I-85, which is accessible 0.2 miles north of the subject and provides both visibility to the property and connection to the Downtown Atlanta CBD. The subject’s immediate surrounding area is primarily commercial in nature, as it neighbors several office buildings, though the area’s retail offerings appeared to be more centrally located across U.S. I-85 approximately 0.7 miles southeast of the property. Per management, the property’s demand segmentation is composed of approximately 70.0% corporate and 30.0% leisure travelers. The collateral was maintaining several corporate contracts at the time of inspection, and management indicated that the largest accounts belonged to Emery University/Emery Hospital, the Salvation Army (whose Southern Territory Headquarters are located directly across North Druid Hills Road to the subject’s east) and Honeywell. Only the Emery University/Emery Hospital accounts for more than 10.0% of total room nights. Management identified the nearby Marriott Century Center and Crown Plaza Midtown to be the subject’s primary and secondary competitors, respectively, and reported an approximately 67.0% occupancy rate for the collateral in 2018. However, management remained positive that the upcoming completion of the new Children’s Healthcare of Atlanta Hospital North Druid Hills Campus would positively affect the subject’s occupancy in the coming years.
Originally constructed in 1970, the subject is composed of a single nine-story uniquely Y-shaped building featuring a beige stucco exterior facade accentuated by a ground-floor brick-wrapped front. The property underwent guest room renovations in December 2016 that, per management, replaced “everything but the headboards,” and underwent gut renovations of all common area spaces shortly after in February 2017. The subject features a covered drive-up front entrance that opens to a white lobby area with wood and purple accents and a small market pantry that management indicated would be updated to brand standard as part of the scheduled 2019 renovation work. The property’s bar and restaurant appeared well finished, decorated with a white, purple and wood color scheme that carried over from the main lobby. Guest rooms appeared modern with white linens, white bathroom fixtures and dark wood case goods. The property additionally has an outdoor swimming pool at the rear that opens seasonally, an expansive fitness center that management indicated would be receiving all new equipment in 2019, and several meeting spaces that appeared suitable for a variety of party sizes. Landscaping was minimal but generally well maintained, and parking was available in a black-top lot located
Structured Finance: CMBS 24 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
SOUTHEAST HOTEL PORTFOLIO – VARIOUS at the front of the property. Overall, DBRS found the property generally well maintained and exhibiting noticeably more pristine curb appeal relative to surrounding facilities.
Hampton Inn Atlanta North Druid Hills DBRS toured the interior and exterior of the property on Thursday, January 3, 2019, at approximately 2:00 p.m. Based on the site inspection, DBRS found the property quality to be Average.
The subject is a 111-key limited-service hotel located 6.8 miles northeast of the Downtown CBD in Atlanta, Georgia. The property is situated along North Druid Hills, along which the Doubletree Atlanta North Druid Hills that serves as additional collateral for this transaction is also situated. The two properties are within 0.3 miles of one another. The property benefits from proximity to U.S. I-85, which is accessible 0.3 miles west of the subject and provides connection to the Downtown Atlanta CBD. The subject is located just north of the area’s central office concentration where the Doubletree Atlanta North Druid Hills is more ideally situated. Per management, the property’s demand segmentation is composed of approximately 60.0% corporate and 40.0% leisure travelers. While the collateral maintained several corporate contracts at the time of inspection, management indicated the largest accounts belonged to Emery Hospital/ Emery University, which combined for just over 10.0% of total room nights. Management identified the nearby Holiday Express Clairmont and Hampton Inn Buckhead to be the subject’s primary and secondary competitors, respectively, and reported an 84.0% occupancy rate for the property in 2018. Management additionally indicated that a new 186-key Hampton Inn and Suites had been delivered to the market in 2018 but remained positive that demand in the submarket would increase in the coming years with the delivery of the new Children’s Healthcare of Atlanta Hospital.
Originally constructed in 1990, the property is a five-story building with a two-color beige and gray stucco exterior facade. The property underwent lobby and common area renovations in 2014 followed by an exterior refinishing in 2018, and management indicated a full PIP renovation would commence in 2019 inclusive of guest room renovations, new carpet and wallpaper throughout all common areas and an upgraded fitness center. The subject features a covered drive-up front entrance that opens to an open lobby and dining area with white tile flooring and appropriately modern furnishings. Guest rooms were somewhat dated and featured a light green and blue color scheme that matched the hotel’s common area spaces. The property additionally has an outdoor swimming pool located at the rear that opens seasonally and a small fitness center located on the ground floor. Landscaping was minimal but generally well maintained, and parking was available in a black-top lot surrounding the subject. Overall, DBRS found the property to be generally well maintained at the time of inspection.
Structured Finance: CMBS 25 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
SOUTHEAST HOTEL PORTFOLIO – VARIOUS
DBRS NCF SUMMARY
NCF ANALYSIS
T-12 October 2015 2016 2017 2018 Issuer NCF DBRS NCF NCF Variance
Occupancy 71.4% 69.1% 77.5% 77.0% 77.0% 72.1% -6.3%
ADR $99.76 $104.16 $109.95 $113.19 $113.19 $110.91 -2.0%
RevPAR -$71.19 $72.01 $85.24 $86.70 $86.70 $80.00 -7.7%
Total Departmental Revenue $20,668,565 $20,868,366 $24,584,879 $25,051,218 $25,051,147 $23,091,633 -7.8%
Total Deparmental Expense $5,361,432 $5,656,269 $6,215,468 $6,406,260 $6,406,234 $5,893,926 -8.0%
Total Departmental Profit $15,307,132 $15,212,097 $18,369,411 $18,644,958 $18,644,913 $17,197,707 -7.8%
Total Undistributed Expense $6,595,753 $7,467,433 $8,207,443 $8,636,539 $8,479,023 $7,960,960 -6.1%
Total Fixed Expense $853,696 $1,001,216 $1,100,715 $1,135,424 $1,463,185 $1,463,185 0.0%
NOI $7,857,683 $6,743,448 $9,061,253 $8,872,995 $8,702,705 $7,773,562 -10.7%
FF&E $0 $0 $0 $0 $1,002,046 $1,366,200 36.3%
NCF $7,857,683 $6,743,448 $9,061,253 $8,872,995 $7,700,659 $6,407,362 -16.8%
The DBRS NCF is based on the DBRS North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS NCF was $6,407,362, representing a -16.8% variance from the Issuer’s NCF of $7,700,659. The primary drivers of the variance were room revenue and FF&E expenses. The DBRS-estimated room revenues were based on a concluded occupancy and ADR of 72.1% and $110.91, respectively, resulting in an aggregate RevPAR of $80.00 across the portfolio compared with the Issuer’s concluded RevPAR of $86.70 across the portfolio derived from an estimated occupancy and ADR of 77.0% and $113.19, respectively. The DBRS RevPAR is generally in line with the RevPAR from YE2016. DBRS additionally concluded to an aggregate FF&E reserve of roughly $1,800/key (5.9% of total revenue) compared with the Issuer’s concluded FF&E reserve of approximately $1,320/key (4.0% of total revenue).
DBRS VIEWPOINT The portfolio is relatively well diversified across two flagships, three cities and four markets. All properties appeared to be generally well positioned within their respective markets at the time of the DBRS inspections, as evidenced by RevPAR market penetrations indexes of at least 99.1% exhibited by four of the five properties as of the T-12 period ending October 2018. The Doubletree Atlanta North Druid Hills exhibited a RevPAR penetration index of 83.5% for the T-12 period ending October 2018 but has also achieved positive year-over-year RevPAR penetration gains since benefiting from the completion of a $4.2 million ($20,096/key) renovation in Q1 2017. Inclusive of the $4.2 million invested at the Doubletree Atlanta North Druid Hills, the portfolio has benefited from $10.2 million in capital investment since 2016, with $2.8 million reserved upfront to cover additional brand-mandated PIP renovations following the sponsor’s acquisition.
DOWNSIDE RISKS • The loan exhibits moderate refinance risk, as evidenced by a relatively low DBRS Refi DSCR and Exit Debt Yield of 1.11x and 11.3%, respectively. • The LTV based on the purchase price of $94.5 million and appraised value of $96.0 million is 75.7% and 72.9%, respectively. The loan therefore exhibits moderate term default risk, as evidenced by a less than favorable DBRS Term DSCR and Going-In Debt Yield of 1.42x and 9.4%, respectively.
Structured Finance: CMBS 26 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
SOUTHEAST HOTEL PORTFOLIO – VARIOUS
STABILIZING FACTORS • The sponsor remains invested in the property, having contributed $27.1 million in cash equity toward the acquisition of the portfolio. • The portfolio has benefited from $10.2 million in capital investment since 2016 and exhibited substantial cash flow growth following completion of the renovation work. The portfolio is scheduled to undergo an additional $2.8 million in brand- mandated PIP renovations within 12 to 18 months of loan closing. The additional capital improvements following loan closing should further enhance the properties’ competitive position within their respective markets and enhance cash flow across the portfolio, as evidenced by an as-stabilized appraised portfolio value of $103.1 million representing an enhanced LTV of 67.9%.
Structured Finance: CMBS 27 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
Millennium Partners Portfolio Various
Loan Snapshot Seller MSMCH Ownership Interest Fee Trust Balance ($ million) $65.0 Loan psf/Unit $458 Percentage of the Pool 6.7% Loan Maturity/ARD July 2028 Amortization COLLATERAL SUMMARY Interest Only DBRS Property Type Anchored Retail Year Built/Renovated Various DBRS Term DSCR 2.21x City, State Various Physical Occupancy 94.3% DBRS Refi DSCR SF 1,549,699 Physical Occupancy Date May 2018 0.89x DBRS Debt Yield The loan is secured by the borrower’s interest in the Millennium Partners Portfolio, a 8.8% portfolio of nine retail and office condominium buildings designated by eight property DBRS Exit Debt Yield names located across five markets. Two adjacent buildings, the Burnham Building 8.8% and Franklin Tower are collectively referred to as Millennium Tower. Of the eight Competitive Set properties, three are located in New York, two in the District of Columbia and one each Anchored Retail, Large in Massachusetts, California and Florida. The collateral is typically the first several Median Debt Yield floors up to floor seven, of a much larger hotel or multi-family development. The 10.2% $472.0 million senior loan, $238.0 million junior loan, $280.2 million of mezzanine Median Loan PSF/Unit financing and $1.3 million of borrower equity serve to refinance $968.1 million of $100 existing debt, pay $15.3 million of defeasance costs and cover $8.1 million of closing Debt Stack ($ million) costs. Of the $710.0 million senior and junior notes, a $226.3 million controlling Trust Balance note was securitized as part of the MSC 2018-MP transaction. Additionally, three $65.0 non-controlling pari passu notes of $50.0 million, $75.0 million and $55.7 million Pari Passu were securitized in the BANK 2018-BNK14, BANK 2018-BNK15 and MSC 2018-L1 $407.0 transactions, respectively. The final $65.0 million pari passu note will be securitized B-Note in the BANK 2019-BNK16 transaction. The ten-year loan is IO throughout. As a result $238.0 of the property’s diversified tenant mix, excellent urban locations and low DBRS LTV Mezz $280.2 of 51.6% based on an 8.0% cap rate, DBRS considers the credit quality associated with Total Debt the senior mortgage attributed to this transaction to be A (high). $990.2 Loan Purpose Refinance Equity Contribution/ (Distribution) ($ million) $0.0
Structured Finance: CMBS 28 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
MILLENNIUM PARTNERS PORTFOLIO – VARIOUS
PORTFOLIO SUMMARY
Year Built/ Cut-Off Date % of Property City, State SF Renovated Loan Amount Loan Amount
Millennium Tower Boston Boston, MA 351,385 2014 & 2016 $12,880,282 25.80%
Lincoln Square New York, NY 349,420 1992 $12,876,761 25.80%
Four Seasons San Francisco San Francisco, CA 210,788 1907/2001 $6,002,113 12.00%
Lincoln West New York, NY 88,418 1997 & 1963 $5,485,916 11.00%
Four Seasons Miami Miami, FL 260,517 2003 $4,119,718 8.20%
Lincoln Triangle New York, NY 76,411 1995 $4,049,296 8.10%
Ritz Carlton Washington DC Washington, DC 132,377 2000 $3,280,262 6.60%
Ritz Carlton Georgetown Washington, DC 80,383 2002 $1,305,634 2.60%
Total/Wtd. Avg. Various 1,549,699 Various $50,000,000 100.00%
Three properties are designated for office and retail while the remaining five properties are designated for urban retail. The portfolio, which spans 1,549,699 sf, is 94.3% leased to a variety of tenants ranging from entertainment, apparel, fitness, advertising and financial services. Equinox Fitness is currently the largest tenant (representing 26.0% of total sf ) in the portfolio with recent executions of four leases that extend through 2039. The next largest tenant is Loews Theater, which occupies space in two properties, representing 14.3% of the total portfolio sf. The remaining rent roll is granular with no other tenant occupying more than 9.0% of total sf. In total, the top ten tenants comprise 70.1% of the total sf and 68.1% of the DBRS base rent. Furthermore, the top ten tenants correspond to 15 separate leases spread across all nine properties. The portfolio benefits from a low lease rollover with 40.8% of currently leased space rolling during the ten-year loan team and no year representing more than 15.0% of the total sf, which only occurs in 2024.
Refer to the table below for a summary of tenants that occupy the portfolio.
TENANT SUMMARY
Tenant SF % of Total SF DBRS Base Rent PSF % of Total DBRS Base Rent Lease Expiry
Equinox 1 403,432 26.0% $41.64 21.3% 06/2039
Loews Theater 2 221,698 14.3% $23.72 6.7% 11/2028 Primark 138,833 9.0% $55.26 9.7% 09/2030 Havas 115,625 7.5% $42.50 6.2% 11/2024 Century 21 62,529 4.0% $79.96 6.3% 01/2021 HSBC Bank 47,145 3.0% $46.91 2.8% 03/2024 Raymours Furniture Company 34,643 2.2% $98.87 4.3% 11/2024 Old Navy 30,350 2.0% $112.03 4.3% 01/2027 Zara 16,792 1.1% $133.40 2.8% 03/2024 The Gap 14,696 0.9% $192.82 3.6% 01/2025
Subtotal/Wtd. Avg. 1,085,743 70.1% $49.51 68.1% Various Other Tenants 376,151 24.3% $66.80 31.9% Various Vacant Space 87,805 5.7% n/a n/a n/a
Total/Wtd. Avg. 1,549,699 100.0% $50.90 100.0% Various
1 Equinox is a tenant in four properties. 2 Loews Theater is a tenant in two properties.
Structured Finance: CMBS 29 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
MILLENNIUM PARTNERS PORTFOLIO – VARIOUS
SPONSORSHIP Millennium Partners, founded in 1991, focuses on the development of luxury condominiums, five-star hotels and retail properties. Christopher Jeffries founded Millennium Partners with the help of Philip Aarons to create a new concept of mixed-use, urban living and entertainment centers. Philip Lovett is a principal at Millennium Partners and currently holds the responsibility of directing and managing development activities in addition to working closely with investor relations. Millennium Partners has developed over 1,860 residential units, 2,000 hotel rooms and two million sf of office and retail combined. Property management for the portfolio is also provided by Millennium Partners.
DBRS ANALYSIS SITE INSPECTION SUMMARY DBRS conducted site inspection meetings on six of the eight properties and determined the overall property quality to be Average.
Four Seasons San Francisco Retail DBRS toured the interior and exterior of the property on August 17, 2018, at approximately 10:00 a.m. Based on the site inspection and management tour, DBRS found the property quality to be Average. The subject is located on Market Street in downtown San Francisco with additional locations on Yerba Buena Lane, which is a pedestrian-only retail corridor east of Market Street. The surrounding area is composed mainly of retail and office locations as well as tourist attractions. The subject is located three blocks southeast of Union Square, the epicenter of the downtown San Francisco retail concentration.
The subject frontage along Market Street is well indicated with signage for Decathlon S.A. (Decathlon), Equinox Fitness and St. John being visible and in good condition. The office space included in the collateral is located at 735 Market Street, above the Decathlon location with its entrance located north of that of Decathlon. The office space is located on the second through sixth floors of the building with one tenant occupying each floor. Office spaces are compact with low ceilings and limited windows. The fifth floor of the office space connects to the Four Seasons Hotel San Francisco, located south of the office space. Ground-level retail spaces are in good condition with modern layouts and well-presented merchandise. Smaller collateral retail spaces along Yerba Buena Lane vary in exterior appearance, although they all feature floor-to- ceiling windows along the pedestrian corridor. Retail and restaurant locations have modern, high-end interiors with most restaurants having outdoor seating. The pedestrian corridor along Yerba Buena Lane features large concrete planters with manicured shrubs, tall modern streetlights and a textured concrete flooring. Overall, the collateral is in good condition and is an appropriate use for the space given the location in downtown San Francisco.
Structured Finance: CMBS 30 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
MILLENNIUM PARTNERS PORTFOLIO – VARIOUS
Lincoln Square, Lincoln Triangle and Lincoln West DBRS toured the interior and exterior of the property on August 21, 2018, at 3:30 p.m. Based on the site inspection, DBRS found the property quality to be Average.
These three properties are located in the upper-west side submarket of New York City, between 66th Street and 68th Street along Broadway. The three separate buildings include retail space on the lower level through floor eight. Above the collateral space are non-collateral residential and hotel condominium properties. The neighborhood is primarily residential in nature with low- to mid-rise structures on the east-west streets while the north-south avenues have an abundance of mid- to high-rise office and residential buildings with ground floor retail space. The subject is one block west of Central Park, 0.5 miles north of Columbus Circle and adjacent to the Juilliard School of Music.
The northernly most property is known as Lincoln Square. The building has a brick facade starting on the second floor, while the ground floor has a black granite exterior with aluminum framed glass storefront windows. The collateral for this property includes portions of the lower level through the eighth floor. Loews Theater has a large illuminated canopy over its entrance, which leads to a lobby and ticket counter on the first floor with nine theaters on multiple floors above. Equinox Fitness has its own elevator lobby entrance on 67th Street with its main reception on the second floor. The fitness club consists of 142,211 sf on floors two through six and was overall nicely finished with a multi-floor rock wall, basketball court, yoga rooms, two sets of locker rooms, a four-lane outdoor running track on the sixth floor, fitness equipment located on each floor and a large cafe/juice bar on the second floor. The Gap has frontage on Broadway, while J. Jill, Chase Bank and a small space leased by a nearby condominium developer has space on the slightly less trafficked Columbus Avenue. This property contains the only vacant space of the three buildings. It is located on the corner of 67th Street and Broadway, however, only has a couple thousand sf on the ground floor with approximately 26,000 sf located on two levels below grade.
Directly south of Lincoln Square is the Lincoln Triangle property, located between 66th and 67th Streets on the east side of Broadway. The building has a brick facade starting on the second floor, while the ground floor has a black granite exterior with aluminum framed glass storefront windows. The collateral at this property consists of two tenants, Banana Republic and Century 21. Banana Republic occupies space on the ground floor and lower level and Century 21 has space on the lower level through floor five. Both spaces have traditional retail build-outs with wood, carpeting and tile floors, white painted walls and acoustical tile ceilings with recessed lighting. The Century 21 space has prominent corner frontage along Broadway and 66th Street, across from the space Richard Tucker Park and a subway entrance. The store is a local discount retailer that is a draw for tourists. According to management, they are interested in taking the Banana Republic space, potentially before the tenant rolls in July 2021. Banana Republic does have decent sales, $414 psf in 2017, but nationally the company is struggling.
The third property, know as Lincoln West, is located on the west side of Broadway, between 66th and 67th Streets. Similar to the other two properties, this building has a brick facade starting on the second floor, while the ground floor has a black granite exterior with aluminum framed glass storefront windows. This building is adjacent to the Juilliard School of Music and is south of a large Apple retail store. The subject includes the Raymour & Flanigan furniture store, Zara and Pottery Barn along Broadway. Again, these tenants occupy portions of the lower level through the second floor and have standard retail interiors. Farther west along 66th Street are the Gourmet Garage and nail salon tenants. The Gourmet Garage is a modest size grocery store. The space also includes a commercial kitchen on the lower level that creates prepared foods for this and five other locations in Manhattan.
Overall, the tenants are a good mix of local and national retailers that cater to the surrounding residential neighborhoods.
Structured Finance: CMBS 31 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
MILLENNIUM PARTNERS PORTFOLIO – VARIOUS
Ritz-Carlton Georgetown Retail DBRS toured the interior and exterior of the property on August 23, 2018, at 2:00 p.m. Based on the site inspection, DBRS found the property quality to be Average.
The retail property is located across the street from Georgetown Waterfront Park and the Potomac River along K Street NW, a busy commercial thoroughfare. The subject collateral is located within a building that also contains a Ritz-Carlton branded hotel and residences. The property is well located 3.1 miles northwest from the United States Capitol building and 0.4 miles south of Georgetown University. The area around the property appeared to be fully built-out and offered a mixture of office, school, hospitality, multifamily and competing ground-floor retail properties. Due to the presence of the highway structure of Whitehurst Freeway NW, the visibility to the collateral’s front facade and tenant signage along K Street NW is hindered. The primary retail corridor within the Georgetown neighborhood, which offered a mixture of boutique and national retailers, is located approximately 0.3 miles north of the property. The tenants at the property benefit from the property’s close proximity to Georgetown Waterfront Park, as numerous people were observed purchasing ice cream from Hersey’s Ice Cream and walking over to the park across the street. The four-story subterranean parking lot can be accessed via K Street NW and was noted to be very full at the time of the inspection, with only a couple of empty parking spaces observed.
The largest tenant Loews Theater offered a large lobby area that benefited from a glass ceiling and contained a concession stand, bar and ticket purchasing area with electronic kiosks. While DBRS did not inspect any of the thirteen theaters, the lobby area was modern and appeared to offer the latest designs and finishes for the Loews Theater brand. Several of the small retail tenants in occupancy at the property such as Scavolini, Red Toque Cafe and Hershey’s Ice Cream had very shallow build-out depths, which could make it difficult for another tenant to re-lease the space, although the overall density of the area would be attractive to retailers. While tenants such as Scavolini and Maté Lounge featured higher-end build-outs, the space occupied by Red Toque Cafe, an Indian restaurant, featured limited decor and build-out. DBRS noted minor instances of deferred maintenances at the property such as damages to columns in the subterranean parking lot and marks on exterior window sills that appeared to have previously incurred graffiti damage.
Ritz-Carlton Washington, D.C. Retail DBRS toured the interior and exterior of the property on August 23, 2018, at 3:00 p.m. Based on the site inspection, DBRS found the property quality to be Average (+).
The retail property is located along M Street, a busy commercial thoroughfare, within the CBD of Washington, D.C. The property is well located 2.7 miles northwest from the United States Capitol building and 0.5 miles north of George Washington University. The area around the property appeared to be fully built-out and offered a mixture of office, hospitality, multifamily and competing ground-floor retail properties. The subject collateral is located within an 11-story building containing a Ritz-Carlton branded hotel and residences. The tenants located along the northern portion of the collateral, such as Sweetgreen, CVS Pharmacy (CVS) and SunTrust Banks, Inc. (SunTrust Bank), had the best visibility to vehicular and pedestrian traffic along M Street compared to the other retailers within the collateral. While the entrance of Equinox Fitness is located on the ground floor within the entrance of the non-collateral hotel and residential sections of the building, this tenant is the only tenant that has leased space on the second and third floor of the building. The collateral’s subterranean parking garage can be accessed via by 22nd Street or 23rd Street NW, which were less-trafficked compared to M Street.
In terms of build-out, national retailers such as CVS, SunTrust Bank and Sweetgreen featured standard build-outs that were in line with their respective national chains latest build-outs. While the space occupied by Greenworks, a local florist retailer, was noted to be slightly cluttered with merchandise, the exposed open ceilings and natural sunlight from the exterior window panels helped open up the space. The Westend Bistro, an upscale restaurant, featured a nicely decorated outdoor patio with suspended light bulbs and a variety of floral pots. The interior of the Westend Bistro featured upscale
Structured Finance: CMBS 32 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
MILLENNIUM PARTNERS PORTFOLIO – VARIOUS finishes typical of a modern high-end restaurant such as dark-wood paneled walls and unique square-shaped light fixtures. The busiest tenant at the time of the inspection was Sweetgreen, which had a line that frequently extended outside the door, despite the later afternoon time of the site inspection. DBRS noted minor instances of deferred maintenance such as damages to the brick exterior facade and a defaced SunTrust Bank logo on the exterior ATM.
DBRS NCF SUMMARY
NCF ANALYSIS
2014 2015 2016 2017 Issuer NCF DBRS NCF NCF Variance
GPR $59,490,624 $72,111,827 $75,159,585 $79,039,048 $81,733,204 $85,620,215 4.8%
Recoveries $13,072,754 $12,600,722 $15,089,753 $15,285,690 $15,614,364 $15,888,962 1.8%
Other Income $5,187,922 $5,516,070 $6,261,956 $7,001,434 $6,790,819 $6,903,115 1.7%
Vacancy $0 $0 $0 $0 $1,490,467 -$8,188,579 -649.4%
EGI $77,751,300 $90,228,619 $96,511,294 $101,326,172 $105,628,854 $100,223,713 -5.1%
Expenses $25,903,008 $26,310,727 $29,013,209 $30,656,231 $31,705,173 $31,541,697 -0.5%
NOI $51,848,293 $63,917,892 $67,498,085 $70,669,941 $73,923,682 $68,682,016 -7.1%
Capex $0 $0 $0 $0 $309,940 $402,782 30.0%
TI/LC $0 $0 $0 $0 $3,250,515 $6,112,812 88.1%
NCF $51,848,293 $63,917,892 $67,498,085 $70,669,941 $70,363,227 $62,166,422 -11.6%
The DBRS NCF is based on the DBRS North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS NCF was $62,166,422, a variance of -11.6% from the Issuer’s NCF. The main drivers of the variance are the TI and LC assumptions, mark to market deductions and the exclusion of future rent steps for tenants that are not LTCT. For the leasing costs, DBRS used TI and LC figures based on the respective property appraisals. DBRS applied mark to market rent adjustments based on 115% of market rents based on appraisal assumptions or recent leasing at the respective properties. Finally, the Issuer gave credit for certain investment-grade and non-investment-grade tenants with remaining lease terms of one to 12 years. DBRS did not give any credit for these future rent bumps as none of the lease extend at least three years beyond the term of the loan.
DBRS VIEWPOINT The collateral benefits from its diverse collection of tenants located in five, first-tier, densely infill, urban markets, including New York City, Washington, D.C., San Francisco, Boston and Miami. While 26.0% of the total sf and 21.6% of the DBRS base rent is associated with Equinox Fitness, this is spread across four properties in four different markets. The current occupancy is 94.3%, however, between 2014 and 2017, occupancy has averaged 97.4%. Furthermore, rollover during the loan term is relatively low at 40.8%. Only one year has a spike in rollover (2024; 15.0% of the total sf ), otherwise no year has more than 6.5% of the total space rolling. Lastly, several of the tenants are reporting strong sales, including: Loews Theater – Lincoln Square, $1.2 million per screen; The Gap - $569 psf; Banana Republic - $414 psf; and Gourmet Garage - $739 psf.
Overall, the senior loan’s leverage statistics are considered good with a DBRS Refi DSCR of 1.88x and DBRS Exit Debt Yield of 15.5%. Based on such factors DBRS considers the credit qualities of this loan to be A (high). DBRS anticipates significant institutional investor demand for the properties, which is reflected by the implied cap rate of 4.8% based on the appraised value and Issuer NCF. Additionally, the DBRS Term DSCR is high at 3.65x, in line with the investment-grade tenancy, lowering the default risk during the loan term.
Structured Finance: CMBS 33 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
MILLENNIUM PARTNERS PORTFOLIO – VARIOUS
DOWNSIDE RISKS • The portfolio is predominately leased to retail tenants, which on a national basis have been experiencing decreased sales and store closures. Specifically, the Upper West retail submarket, which encompasses 44.9% of this portfolio by allocated loan amount, experienced a 14.7% decline in base rent since the fall of 2016.
STABILIZING FACTORS • The collateral is a mix of national and local stores, with generally with strong sales and are located in densely infill urban locations. The sponsor is a well-capitalized, experienced, long-term owner who developed these assets. Furthermore, the collateral represents the retail condominium within larger hotel or residential buildings that facilitate demand generating retail patrons. Lastly, the DBRS NCF reflected a mark to market rent adjustment, half of which was allocated toward the New York properties.
Structured Finance: CMBS 34 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
ExchangeRight Net Leased Portfolio #25 Various Loan Snapshot Seller BANA Ownership Interest Fee Trust Balance ($ million) $52.3 Loan psf/Unit $138 Percentage of the Pool 5.4% Loan Maturity/ARD January 2029 Amortization COLLATERAL SUMMARY Interest Only DBRS Property Type Anchored Retail Year Built/Renovated Various DBRS Term DSCR 1.87x City, State Various Physical Occupancy 100.0% DBRS Refi DSCR Units/SF 379,202 Physical Occupancy Date February 2019 0.90x DBRS Debt Yield The loan is secured by the borrower’s fee simple interest in the ExchangeRight 8.8% Portfolio #25, consisting of 21 cross-collateralized single-tenant buildings., 19 retail DBRS Exit Debt Yield and two medical office properties The portfolio is located across ten states and has 8.8% seven unique tenants. The largest concentrations are in Virginia (27.9% of allocated Competitive Set loan amount (ALA)), Minnesota (22.3% of ALA) and Texas (12.9% of ALA). No other Anchored Retail, Large, Tertiary state accounts for more than 10% of ALA. Loan proceeds of $52.0 million combined Median Debt Yield with $33.3 million in sponsor cash equity were used to acquire the property for a 10.3% purchase price of $83.8 million, fund upfront an upfront TI/LC reserve of $500,000 Median Loan PSF/Unit and pay closing costs of $1.0 million. The loan has a ten-year term and is IO for the $93 full term. Debt Stack ($ million) Trust Balance The buildings were constructed between 2000 and 2018, with eight of the properties, $52.3 representing 53.2% of the loan amount, constructed within the last three years. Pari Passu Though relatively new, the entire portfolio is occupied with tenants in place and $0.0 paying rent. The portfolio also benefits from having four of the seven unique tenants B-Note being investment grade, resulting in 16 of the 21 buildings occupied by investment- $0.0 grade tenants. The portfolio as a whole has 47.8% of NRA occupied by, and 56.2% of Mezz $0.0 gross rent coming from, investment-grade tenants. Investment-grade tenants include Total Debt Dollar General (eight properties, 19.2% of NRA), Walgreens (four properties, 15.7% of $52.3 NRA), BioLife Plasma Services LP (two properties, 8.4% of NRA) and Family Dollar Loan Purpose (two properties, 4.4% of NRA). Non-investment-grade tenants include Hobby Lobby, Acquisition Hy-Vee and Tractor Supply Company. Lease expirations, while limited during the loan Equity Contribution/ term, are heavily concentrated at maturity in 2029. Eight leases, representing 19.0% (Distribution) ($ million) of NRA, expire just after the loan matures on January 1, 2029. An additional three $33.1 leases, totaling 11.1% of NRA, expire just before loan maturity in 2028 and three leases, totaling 11.9% of NRA, expire just after loan maturity in 2030.
Structured Finance: CMBS 35 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
EXCHANGERIGHT NET LEASED PORTFOLIO #25 – VARIOUS
PORTFOLIO SUMMARY
Cut-Off % of Date Loan Loan Year Built/ Tenant/Property Amount Amount City, State SF Renovated Lease Expiry
Hy-Vee - Austin (18th Ave), MN $11,679,735 22.3% Austin, MN 86,377 2017 December 2038
Hobby Lobby - Bristol (Falls Blvd), VA $4,718,200 9.0% Bristol, VA 55,000 2018 August 2033
BioLife Plasma Services L.P. - St. Peters (Mexico Rd), MO $4,526,000 8.7% O'Fallon, MO 16,708 2016 January 2032
Walgreens - Roanoke (Brambleton Ave), VA $3,968,000 7.6% Roanoke, VA 15,120 2000 May 2030
Walgreens - Crowley (South Crowley Rd), TX $3,596,000 6.9% Crowley, TX 14,550 2004 February 2030
Walgreens - Menomonee Falls (Silver Spring Dr), WI $3,379,000 6.5% Menomonee Falls, WI 14,490 2003 February 2028
Tractor Supply - Slidell (Gause Blvd), LA $2,604,000 5.0% Slidell, LA 19,097 2018 October 2033
Tractor Supply - Prince George (Wagner Way), VA $2,573,000 4.9% Prince George, VA 19,097 2013 October 2028
BioLife Plasma Services L.P. - Muncie (Marleon Dr), IN $2,495,500 4.8% Muncie, IN 15,157 2007 October 2027
Walgreens - Roanoke (Williamson Rd NW), VA $2,431,465 4.7% Roanoke, VA 15,120 2000 May 2030
Tractor Supply - Milford (State Route 28), OH $1,798,000 3.4% Loveland, OH 19,273 2018 November 2033
Dollar General - Orlando (Weston Ln), FL $1,209,000 2.3% Orlando, FL 9,100 2014 June 2029
Dollar General - Sioux Falls (West 12th St), SD $930,000 1.8% Sioux Falls, SD 9,215 2014 May 2029
Dollar General - Hampton (North Armistead Ave), VA $874,200 1.7% Hampton, VA 9,002 2014 February 2029
Family Dollar - Eagle Pass (Memo Robinson Rd), TX $868,000 1.7% Eagle Pass, TX 8,320 2018 April 2029
Dollar General - Amherst (Leavitt Rd), OH $868,000 1.7% Amherst, OH 9,100 2014 June 2029
Dollar General - Edinburg (East Monte Cristo Rd), TX $837,000 1.6% Edinburg, TX 9,100 2018 October 2033
Dollar General - San Antonio (Pue Rd), TX $775,000 1.5% San Antonio, TX 9,028 2014 July 2029
Family Dollar - St. Amant (Hwy 429), LA $756,400 1.4% St. Amant, LA 8,320 2018 September 2028
Dollar General - Springfield (West Chestnut Expwy), MO $713,000 1.4% Springfield, MO 9,026 2014 June 2029
Dollar General - Waco (Pamela Ave), TX $682,000 1.3% Waco, TX 9,002 2014 June 2029
Subtotal/Wtd. Avg. $52,281,500 100.0% Various 379,202 2012 Various
SPONSORSHIP The key sponsors of the loan are Joshua Ungerecht, David Fisher and Warren Thomas, who all act as carveout guarantors. The sponsors are the principals of ExchangeRight, a company based in Pasadena, California, that specializes in investing in net leased retail properties backed by investment-grade companies. The three carveout guarantors of the loan have a collective net worth of $81.3 million and liquidity of $3.9 million. The borrower for this loan is structured as a Delaware statutory trust (DST), but has been outfitted with a master-lease structure, whereupon the DST will master lease the properties to a master lessee. Since 2013, ExchangeRight has sponsored over 18 CMBS deals that have utilized a DST structure, including the ExchangeRight Net Leased Portfolio #22 and ExchangeRight Net Leased Portfolio #23, which were recently securitized in BANK 2018-BNK13 and BANK 2018-BNK14, respectively.
Structured Finance: CMBS 36 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
EXCHANGERIGHT NET LEASED PORTFOLIO #25 – VARIOUS
DBRS ANALYSIS SITE INSPECTION SUMMARY DBRS inspected ten of the 21 properties, representing 66.5% of the ALA. Properties toured were located in tertiary markets in Minnesota, Virginia, Texas, Missouri and Florida. Based on the site inspections, DBRS found the overall property quality for the portfolio to be Average.
Hy-Vee — Austin (18th Avenue), MN DBRS toured the interior and exterior of the property on January 2, 2019, around 12:00 p.m. Based on the DBRS site inspection, DBRS found the property quality to be Average.
The subject property is a single-tenant retail building that was constructed in 2016. The building sits on a 22.2 acre lot that is located in Austin, Minnesota. I-90 is adjacent directly south of the property and is the primary east-west thoroughfare in the area. Adjacent to the west is US-218, the primary north-south thoroughfare in the area that leads to I-35 approximately 30 miles away and eventually to downtown Minneapolis, 97.8 miles north. The immediate area serves as the predominant retail corridor in Austin, a town of 24,933 people with a median household income of $46,923, approximately 28.6% below the state-wide median of $65,699. Other retail in the area includes a Walmart, ALDI, a movie theater, Shopko (not part of the 39 store closures in 19 states) and several restaurant outparcels. The building benefits from being newer construction and superior quality to surrounding retail. The property also benefits from high visibility from the two main roads in Austin; however, the property is located in a tertiary market more than an hour and a half drive from the closest major metropolitan area (Minneapolis). DBRS inspected the exterior and interior of the subject, both of which were clean and well maintained. There was a good amount of traffic at the property and surrounding retail; however, DBRS noted a vacant large box retail in a surrounding center, Austin Town Center, that was formerly a Target. Hobby Lobby announced they will take occupancy of a majority of this space.
Hobby Lobby — Bristol (Falls Boulevard), VA DBRS toured the interior and exterior of the property on January 3, 2019, around 12:30 p.m. Based on the DBRS site inspection, DBRS found the property quality to be Average (+).
The single-tenant anchored retail property is located in Bristol, Virginia, approximately four miles north of the CBD, which is situated at the Virginia/Tennessee border and 21.4 miles northeast of Tri-Cities Airport. The subject is situated directly between Lee Highway and I-81, the two major thoroughfares that service the area and provide access to the surrounding urban centers such as Knoxville, Charlotte and Richmond. Although the collateral is situated in a sparsely developed community, it benefits from strong visibility, with prominent signage and frontage alongside one of the busiest
Structured Finance: CMBS 37 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
EXCHANGERIGHT NET LEASED PORTFOLIO #25 – VARIOUS commercial corridors supported by the market. The intersection was moderately busy at the time of inspection and the subject itself had a half-occupied parking lot with several customers seen shopping. The land immediately surrounding the subject was unimproved but future projects could be built to the south with additional retail uses represented by a Lowes, Cabela’s, Buffalo Wild Wings and a few other in-line tenants. The community was typical of a spread-out, suburban bedroom community. There was a handful of retail developments and light commercial uses with most of the vicinity being improved with single-family residences. Built in 2018, the property was well presented compared with competing product in the submarket. There was no deferred maintenance seen at the time of inspection and, of note, the parking lot and building exterior were in great condition though the aesthetic was plain. The interior of the building conformed to the Hobby Lobby brand standards and was noticeably brightly lit, adequately stocked and clean during the tour.
BioLife Plasma Services LP — St. Peters (Mexico Road), MO DBRS toured the exterior of the property on January 2, 2019, at 1:00 p.m. Based on the site inspection, DBRS found the property quality to be Average.
The collateral is located in St. Peters, Missouri, a suburban area 34.0 miles northwest of the St. Louis CBD. The property is also less than one mile from I-70, providing convenient highway access to the greater St. Louis area. St. Louis Lambert International Airport is approximately 18 miles southwest of the subject. The surrounding area is a mixture of office, industrial and residential development. The building has above-average curb appeal driving from each direction on Mexico Road.
The 16,708-sf single medical office building was constructed in 2014. The property is 100% leased to BioLife Plasma Services LP, an industry leader in the collection of high-quality plasma that is processed into life-saving plasma-based therapies. The property looked new and was fairly better but relatively in line with other properties in the area that appeared to have similar construction vintages.
Walgreens — Crowley (South Crowley Road), TX DBRS toured the interior and exterior of the property on January 2, 2019. Based on the DBRS site inspection, DBRS found the property quality to be Average.
The single-tenant anchored retail property is located in Crowley, Texas, approximately 15 miles south of Fort Worth. Situated at the southeast corner of the signalized intersection of South Crowley Road and Crowley Plover Road, the collateral benefits from strong visibility and accessibility. The intersection was busy at the time of inspection, with significant vehicular traffic along South Crowley Road. The collateral is located in an area with some vacant land available for future development along with some light commercial retail uses in the immediate vicinity. Commercial uses in the direct area include a Kroger-anchored retail center on the southwest corner, a strip center with mainly local tenants on the northwest corner and a CVS Pharmacy on the northeast corner.
The 14,550-sf Walgreens features a drive-thru pharmacy and photo center. Upon inspection, DBRS found the interior to be clean and well stocked with merchandise. The exterior is typical of other Walgreens featuring a stucco and stone design. The site offered adequate parking in a lot surrounding the structure and appeared to be well maintained. Landscaping was minimal but attractive and in good condition. Built in 2004, the subject appeared to be well kept and showed no evidence of deferred maintenance.
Structured Finance: CMBS 38 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
EXCHANGERIGHT NET LEASED PORTFOLIO #25 – VARIOUS
Dollar General — Orlando (Weston Lane), FL DBRS toured the interior and exterior of the property on January 2, 2019, at approximately 2:00 p.m. Based on the site inspection, DBRS found the property quality to be Average (-).
The collateral comprises a 9,100-sf independently standing Dollar General located 5.6 miles northwest of the Orlando, Florida, CBD. The property is situated along Weston Lane, which is a dead-end inlet roadway off Forest City Road that provides access to the collateral as well as the neighboring condominium/multifamily residential developments and a church.
Forest City Road features light commercial development and is sparsely populated by equally dated vintage and equally less-than-favorable curb-appeal properties as the subject collateral. At the time of the DBRS inspection, the nearby retail centers were predominantly additional discount retail tenants. Nonetheless, Forest City Road appeared to be somewhat heavily trafficked and the subject’s location within proximity of several low- to middle-income residential areas appeared conducive for business operations based on the steady flow of customers to the subject during the inspection.
Originally constructed in 2014, the subject is a single-story, independently standing retail box featuring a brick exterior facade accentuated by cement columns and vertical brown-aluminum panel siding. The property was 100.0% occupied by Dollar General at the time of inspection and featured prominent tenant signage clearly visible to passing traffic along Forest City Road. The property’s interior featured polished concrete flooring and a raised drop-tile acoustic ceiling. Though spacious, shelving appeared densely packed and the distraught nature of product placement gave the store a generally unkempt look. Parking is available in a lot surrounding the structure and exhibited minor staining and graveling. Landscaping was minimal but generally unkempt, with small pieces of trash noticeably littered throughout. The property features a double-door entrance at the rear, but no dock-high loading area and deliveries were wheeled in through the front entrance at the time of inspection. Overall, DBRS found the property to have limited curb appeal and exhibit less- than-favorable quality at the time of inspection.
Dollar General — Amherst (Leavitt Road), OH DBRS toured the interior and exterior of the property on January 16, 2019, at 11:30am. Based on the site inspection, DBRS found the property quality to be Average.
The Dollar General-anchored retail property is located in Amherst, Ohio, approximately 35 miles west of downtown Cleveland. The property has frontage along Leavitt Road, which is a four-lane roadway and was moderately busy at the time of inspection. The Ohio Turnpike is located less than 0.5 miles from the property and accessible via Leavitt Road. The property’s parking lot is connected by a small frontage road to a Sunoco Gas Station. A vacant land parcel adjoins the subject property on the south side. The surrounding neighborhood primarily consists of residential subdivisions and to a lesser extent, retail establishments including several auto dealerships. The area also has several large parcels of undeveloped land that are either wooded or used for agriculture. The subject property was built in 2014 and found to be in good condition and no observable deferred maintenance. The parking lot had several cars and there was a constant flow of customers in and out of the property. DBRS inspected the interior of the subject, which was clean, functional and fully stocked with merchandise.
Dollar General — San Antonio (Pue Road), TX DBRS toured the interior and exterior of the property on January 3, 2019. Based on the site inspection, DBRS found the property quality to be Average.
The free-standing retail property is a single-tenant Dollar General store located in San Antonio, Texas. The property is located 18.0 miles directly west of the city’s CBD and is well located near the 1604 Loop located west of the property and Hwy. 151 to the north. The subject has average accessibility off Pue Road and Marbach Road.
Structured Finance: CMBS 39 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
EXCHANGERIGHT NET LEASED PORTFOLIO #25 – VARIOUS
The property was recently built in 2014 and consists of a rectangular-shaped building with a brick exterior. The property’s entrance is a sliding glass door on the southwest corner of the building with two Dollar General signs in yellow lettering at the top of the building. The property resides in a primarily residential neighborhood with a large presence of single- family homes as well as small retail developments located nearby. The interior of the property largely consists of a retail area with shelves that were found to be well stocked. A management office and restrooms were located toward the back of the building. The subject has over 40 parking spaces and the condition of the lot was found to be adequate. The primary competitor in the area to the property is a Family Dollar that is located a half-mile west of the subject. Overall, the property was found in good condition with no deferred maintenance visible.
DBRS NCF SUMMARY
NCF ANALYSIS
Issuer NCF DBRS NCF NCF Variance
GPR $5,297,734 $5,296,018 0.0%
Recoveries $0 $1,885,585 0.0%
Other Income $0 $0 0.0%
Vacancy -$264,887 -$422,900 59.7%
EGI $5,032,847 $6,758,703 34.3%
Expenses $125,821 $1,885,585 1398.6%
NOI $4,907,026 $4,873,118 -0.7%
Capex $71,519 $68,560 -4.1%
TI/LC $175,217 $206,667 17.9%
NCF $4,660,290 $4,597,892 -1.3%
The DBRS NCF is based on the DBRS North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS NCF was $4,597,892, a variance of -1.4% from the Issuer’s NCF. The primary driver was vacancy. The DBRS vacancy figure of 5.9% was slightly higher than the Issuer’s vacancy figure of 5.0%. DBRS based vacancy on a blend of 5% and 10%, depending on the strength of tenant, and applied a 4% vacancy rate to LTCTs that are rated BBB and have lease terms at least three years beyond loan maturity.
DBRS VIEWPOINT While a DBRS Debt Yield of 8.8% would normally be considered average for a portfolio of primarily single-tenant retail properties in tertiary markets, the portfolio has attributes that significantly lower term default risk, including strong tenancy, limited lease expirations during the loan term and loan structure. Approximately 56.2% of gross rent is coming from investment-grade-rated tenants, 11.0% of which are considered LTCTs, and all leases are NNN. The first and only lease expirations during the loan term are in 2028 when three leases (11.1% of NRA) expire. While the properties are generally located in tertiary markets that are likely to endure higher amounts of stress during downturns, the loan is structured with springing TI/LC reserves of $18,278.43 per month in the event the DSCR drops below 1.55x, which would require approximately 19.1% of the portfolio to become vacant during the loan term, based on DBRS analysis. The DBRS Exit Debt Yield of 8.8% is low given the represented markets and indicative of high maturity default risk. Further compounding maturity default risk are a total of eight leases (19.0% of NRA) expiring in 2029 just after loan maturity on January 1, 2029, and an additional three leases (11.9% of NRA) expiring in 2030. The loan is well structured with $500,000 in upfront TI/LC reserves, which would cover approximately 30.9% of the cost to re-tenant the entire portfolio (based on DBRS assumptions) and enough to cover the the 30.9% of NRA expiring in 2029 and 2030, assuming none of the tenants renew.
Structured Finance: CMBS 40 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
EXCHANGERIGHT NET LEASED PORTFOLIO #25 – VARIOUS
DBRS has analyzed multiple ExchangeRight portfolios in the recent past, including ExchangeRight Portfolio #22 and ExchangeRight Portfolio #23. While the subject portfolio, ExchangeRight Portfolio #25, shows strong investment-grade credit tenancy totaling 56.2% of gross rent (11.0% of which are considered LTCTs), comparatively, this is lower than recent portfolios. ExchangeRight Portfolio #22 and ExchangeRight Portfolio #23 had 86.0% and 90.9% of gross revenue from investment-grade tenants and 38.6% and 14.0% from LTCTs, respectively.
DOWNSIDE RISKS • The ten-year loan is IO for the entire term. • Concentrated lease roll in 2029 and 2030 (30.9% of NRA), just after loan maturity on January 1, 2029. • The sponsor’s borrowing entity will be a DST.
STABILIZING FACTORS • The sponsor is an experienced owner/operator with multiple previously securitized NNN lease portfolios, and contributed approximately $33.3 million in equity as part of the transaction. • The loan is backed by a portfolio of single-tenant NNN lease properties spread throughout nine states and seven different tenants, and is structured with $500,000 in upfront TI/LC reserves, enough to cover the substantial lease roll near loan maturity. • The loan is structured with a full cash flow sweep for the last 36 months of the term if there has not been a transfer to a qualified transferee with minimum assets of $400 million and net worth of $200 million.
Structured Finance: CMBS 41 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
Shadow Mountain Marketplace Las Vegas, NV
Loan Snapshot Seller BANA Ownership Interest Fee Trust Balance ($ million) $49.4 Loan psf/Unit $246 Percentage of the Pool 5.1% Loan Maturity/ARD February 2029 Amortization COLLATERAL SUMMARY 30 Years DBRS Property Type Anchored Retail Year Built/Renovated 2007 DBRS Term DSCR 1.15x City, State Las Vegas, NV Physical Occupancy 100.0% DBRS Refi DSCR SF 200,703 Physical Occupancy Date November 2018 0.86x DBRS Debt Yield The loan is secured by the borrower’s fee simple interest in Shadow Mountain 7.5% Marketplace, a 200,703 sf anchored retail property located in Las Vegas, Nevada. The DBRS Exit Debt Yield ten-year loan amortizes over a 30-year loan term with a three-year IO period. Loan 8.5% proceeds of approximately $49.4 million as well as $19.3 of borrower cash equity will Competitive Set be used to acquire the collateral for $67.3 million, cover closing costs of $977,000, and Anchored Retail, Medium, 891 reserve $492,297 toward future TIs and LCs. Median Debt Yield 9.5% The anchored retail center, which was constructed in 2007, consists of a 200,703 sf Median Loan PSF/Unit power center situated across a 21.0-acre site. The property includes 1,139 parking spaces. $146 Debt Stack ($ million) Trust Balance $49.4 Pari Passu $0.0 B-Note $0.0 Mezz $0.0 Total Debt $49.4 Loan Purpose Acquisition Equity Contribution/ (Distribution) ($ million) $19.0
Structured Finance: CMBS 42 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
SHADOW MOUNTAIN MARKETPLACE – LAS VEGAS, NV
TENANT SUMMARY
DBRS % of Total % of Base Rent DBRS Investment Tenant SF Total NRA PSF Base Rent Lease Expiry Grade? (Y/N)
Best Buy 45,000 22.4% $16.12 16.2% 3/31/2023 Y
Ashley Furniture 35,853 17.9% $11.00 8.8% 3/31/2024 N
Seafood City Supermarket 28,000 14.0% $14.50 9.1% 12/31/2028 N
Walgreens 14,820 7.4% $39.50 13.1% 12/31/2082 Y
Pacidic Dental 7,842 3.9% $40.91 7.2% 10/31/2027 N
Subtotal/Wtd. Avg. 131,515 65.5% $18.49 54.4% Various Various
Other Tenants 66,188 33.0% $30.78 45.6% Various N
Vacant Space 3,000 1.5% n/a n/a n/a n/a
Total/Wtd. Avg. 200,703 100.0% $22.27 100.0% Various Various
The largest tenant at the property is Best Buy, a consumer electronics provider founded in 1966. Best Buy has been at the property since 2007 and recently amended its lease in 2017 to extend its term for five years, with a lease expiry of March 31, 2023. As of October 2017, Best Buy has approximately 1,250 stores or affiliated locations within the United States and an additional 214 locations internationally. The second-largest tenant, Ashley Furniture, occupying 17.9% of total NRA, has been at the subject since 2009 and has one remaining five-year renewal option. In July 2018, the tenant elected to exercise its first five-year renewal term, which becomes effective in April 2019. Ashley Furniture has a co-tenancy clause in place with the property’s shadow anchor tenant, Costco Wholesale (Costco): If Costco is not open for business for six consecutive months, Ashley Furniture has the right to terminate its lease with a 30-day written notice. As of the November 2018 rent toll, the collateral was 98.5% occupied with the remain space used as a management office which is considered vacant by DBRS. Rollover throughout the loan term is heavily concentrated in 2023–2024 when eight leases, comprising 47.0% of the property’s total sf, are scheduled to expire.
The appraisal identified five retail properties in the local market that directly compete with the subject property. For more information, please refer to the table below.
COMPETITIVE SET
Distance from Property Location Subject SF Year Built Occupancy
Crossroads Towne Center Las Vegas, NV 0.1 miles 148,791 2007 87.0%
Decantur 215 Plaza Las Vegas, NV 0.4 miles 126,678 2009 100.0%
Centennial Crossroads Plaza Las Vegas, NV 3.0 miles 105,415 2003 95.0%
Montecito Crossing Las Vegas, NV 4.5 miles 190,434 2005 97.0%
DC Plaza Las Vegas, NV 4.4 miles 68,028 2017 100.0%
Shadow Mountain Marketplace Las Vegas, NV n/a 200,703 2007 98.5%
Source: Appraisal.
Structured Finance: CMBS 43 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
SHADOW MOUNTAIN MARKETPLACE – LAS VEGAS, NV
SPONSORSHIP The loan’s sponsor is Palm Deluxe Investments, and the carveout guarantor is Anupam Patel, an individual involved with a primary real estate investment and management company that began with primarily residential communities and has expanded to various retail centers in Las Vegas and California. Property management is provided by Lucescu Realty, an investment real estate brokerage company headquartered in Newport Beach, California, that specializes in the acquisition and disposition of premier retail and office properties. Lucescu Realty’s predecessor entity, The Lucescu Group, routinely accounted for the majority of the firm’s retail and office transactions.
DBRS ANALYSIS SITE INSPECTION SUMMARY Based on the DBRS site inspection and management meeting conducted on January 11, 2019, DBRS found the property quality to be Average.
The property is located just off the highway exit for the Bruce Woodbury Beltway (I-215) along North Decatur Boulevard, a major thoroughfare in the area, approximately 14 miles northwest of the Las Vegas strip. The area is heavily developed with retail and surrounded by single-family homes and other housing developments. The property benefits from several drives and points of access, each with its own pylon, including signage for tenants closest to that driveway, creating high visibility. The property further benefits from Costco next door, which generates a significant amount of traffic for the area.
The property’s build is typical of the area, with varying hues of tan concrete and stucco and the occasional pillars of tan stone creating a covered exterior walkway for aesthetic appeal. The only deviation from this would be Best Buy, which has its signature blue siding above its entrance. Big box retailers such as Seafood City and Ashley Furniture have double height spaces allowing them to stand out compared with the remaining in-line space. Each tenant has its own signage affixed to the front facade above its respective entrance. Large, tinted storefront windows line the entire property. While the area lacked landscaping, this appeared to be in line with the surrounding area, and the property showed very little signs of deferred maintenance, limited to some cracks in the surface lot asphalt. Stores have typical build-outs with the majority of spaces having tile or stone flooring, wide aisles and racks for goods sold. Best Buy and Ashley Furniture each had carpeted spaces in line with their brand standards. Spaces were clean and well lit, and most had several shoppers despite the mid-morning hour on a weekday. Seafood City was not yet open for business but had workers on site wrapping up the interior build-out and several signs posted to hire staff. Overall, the property was easy to access, highly visible, well suited for the local area and generally attractive.
Structured Finance: CMBS 44 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
SHADOW MOUNTAIN MARKETPLACE – LAS VEGAS, NV
DBRS NCF SUMMARY
NCF ANALYSIS
2015 2016 2017 Issuer NCF DBRS NCF NCF Variance
GPR $4,302,179 $4,277,208 $4,332,655 $4,598,247 $4,572,093 -0.6%
Recoveries $874,079 $670,152 $657,651 $756,057 $756,057 0.0%
Other Income $2,210 $53,188 $46,102 $70,000 $70,000 0.0%
Vacancy $0 $0 $0 -$271,215 -$373,547 37.7%
EGI $5,178,468 $5,000,548 $5,036,408 $5,153,089 $5,024,603 -2.5%
Expenses $789,835 $789,978 $805,971 $872,994 $921,690 5.6%
NOI $4,388,633 $4,210,570 $4,230,437 $4,280,095 $4,102,913 -4.1%
Capex $0 $0 $0 $30,105 $40,141 33.3%
TI/LC $0 $0 $0 $136,889 $349,922 155.6%
NCF $4,388,633 $4,210,570 $4,230,437 $4,113,101 $3,712,850 -9.7%
The DBRS NCF is based on the DBRS North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS NCF was $3,712,850, a -9.7% variance from the Issuer’s NCF. The main drivers of the variance are vacancy and TIs. DBRS concluded to a blended vacancy at the property of 7.0% based on 5.0% for anchor space and 10.0% for in-line space. This conclusion is above the current in-place vacancy of 1.5% at the property but is in line with the surrounding market. TIs were concluded to $10/$5 for anchor space and $20/$5 for all other space types.
DBRS VIEWPOINT The collateral is well located with excellent visibility and several points of access to the property. This superior location is likely a contributing factor to the property’s ability to sign national retailers, which account for 17 of the 34 tenants at the location, or 79.4% of the total NRA. The national retailers have been in place at the property for an average of nine years and have an average of five years remaining on their leases. The loan exhibits less favorable metrics with a low DBRS Refi DSCR of 0.86x and moderate DBRS Exit Debt Yield of 8.4%, which are indicative of elevated refinance risk. The property is being acquired by an experienced sponsor — Palm Deluxe Investments — which has a portfolio valued at over $221.0 million. The sponsor is contributing a significant 28.3% of the purchase price to the transaction. This investment, coupled with the sponsor’s experience both in the market and with retail properties, bodes well for the property’s continued performance for the duration of the loan term.
DOWNSIDE RISKS • The property has a large concentration of rollover during the first five years of the loan when 47.7% of the total NRA rolls, including Best Buy, which accounts for 22.4% of the total NRA and rolls in 2023. Furthermore, 98.5% of the total NRA rolls during the full term of the loan. • Ashley Furniture, 17.9% of the NRA, has a co-tenancy clause with nearby Costco, which is not a part of the collateral, should Costco go dark for more than six consecutive months.
STABILIZING FACTORS • The property has had stable historical occupancy with vacancy of 3.0% or less over the past six years. Further emphasizing its desirability in the market, when Stein Mart vacated its space in December 2017, the property quickly re-leased to Seafood City, which began paying rent just ten months later. Moreover, 48.6% of the total NRA has been in place at the property for over ten years, including Walgreens, Ashley Furniture, Best Buy, Chili’s, Subway, etc. The loan is also structured with
Structured Finance: CMBS 45 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
SHADOW MOUNTAIN MARKETPLACE – LAS VEGAS, NV
a cash flow sweep 12 months prior to Best Buy’s lease expiry should it not renew. Additionally, Best Buy recently executed its reneal early and completed a remodel of the interior at its own cost and has been in the space since 2007, which demonstrates the tenant’s commitment to the location. • Ashley Furniture has been in its space since 2009 and recently renewed for five years. The nearby Costco reports $205.0 million in annual sales, which translates to approximately $1,294/sf and compares favorably with Costco’s national average of $1,119/sf.
Structured Finance: CMBS 46 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
Rainbow Sunset Pavilion Las Vegas, NV
Loan Snapshot Seller BANA Ownership Interest Fee Trust Balance ($ million) $45.0 Loan psf/Unit $209 Percentage of the Pool 4.6% Loan Maturity/ARD January 2029 Amortization COLLATERAL SUMMARY 30 Years DBRS Property Type Office Year Built/Renovated 2008 DBRS Term DSCR 1.28x City, State Las Vegas, NV Physical Occupancy 100.0% DBRS Refi DSCR Units/SF 215,303 Physical Occupancy Date 1.03x DBRS Debt Yield The loan is secured by the borrower’s fee simple interest in Rainbow Sunset Pavilion, 8.4% a 215,303 sf office building located in Las Vegas, Nevada. The ten-year loan amortizes DBRS Exit Debt Yield over a 30-year schedule with no IO term. Loan proceeds of $45.0 million will return 10.1% $23.8 million to the sponsor, refinance $18.1 million in existing debt, fund $2.7 million Competitive Set in free rent and landlord obligations, and cover closing costs. Office, Large, 891
Median Debt Yield The subject property, which was constructed in 2009 by the sponsor, is a single office 9.7% building that is part of a larger site consisting of three office buildings and seven retail Median Loan PSF/Unit buildings. The collateral holds 215,303 sf in leasable space. There is a four-story garage $196 located directly behind the office structure for tenants’ employees use, which is also Debt Stack ($ million) a part of the collateral. Trust Balance $45.0 Pari Passu $0.0 B-Note $0.0 Mezz $0.0 Total Debt $45.0 Loan Purpose Refinance Equity Contribution/ (Distribution) ($ million) ($23.8)
Structured Finance: CMBS 47 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
RAINBOW SUNSET PAVILION – LAS VEGAS, NV
TENANT SUMMARY
DBRS % of Total % of Total Base Rent DBRS Investment Tenant SF NRA PSF Base Rent Lease Expiry Grade? (Y/N)
Hakkasan 53,944 25.1% $35.12 25.7% December 2024 N
Boyd Gaming 41,297 19.2% $31.81 17.8% Various N
LBBS 39,358 18.3% $36.11 19.2% May 2025 N
MGM 26,311 12.2% $33.87 12.1% April 2025 Y
Subtotal/Wtd. Avg. 160,910 74.8% $34.31 74.8% Various N
Other Tenants 54,393 25.3% $34.28 25.2% Various N
Vacant Space 0 0.0% n/a n/a n/a n/a
Total/Wtd. Avg. 215,303 100.0% $34.30 100.0% Various N
The property is leased to nine tenants that largely include entertainment-based companies and a law firm. The largest tenant is Hakkasan, a luxury restaurant and event space company founded by Syra Khan and Alan Yau in 2001. The company has 11 event locations across the world, including its popular namesake nightclub at the MGM Grand casino just 20 minutes from the collateral. Boyd Gaming, the second-largest tenant at the property, is a gaming company founded in 1975. It took occupancy at the subject in 2016 after expanding from the building next door where it has been the singular tenant and owner since 2006. This office campus, including the space at the subject, serves as the company headquarters. Finally, the third-largest tenant at the property is Lewis, Brisbois, Bisgaard & Smith (LBBS), a law firm with offices located in 43 cities across the country. LBBS is Las Vegas’s largest private law firm and began occupancy in 2010.
As of the November 2018 rent roll, the collateral was 100.0% occupied. Rollover throughout the loan term is heavily concentrated in the first six years of the loan term and in particular in 2024 when three tenants, totaling 37.7% of the NRA, roll and in 2025 when two tenant leases, representing 30.5% of the NRA, are scheduled to expire. The loan is structured with a hard lockbox in place at closing and a cash flow sweep 12 months prior to lease expiration of any major tenants to mitigate this risk.
SPONSORSHIP The loan’s sponsor is Gene Yamagata, who developed the property in 2009 and is the owner and founder of Yamagata Enterprises. The sponsor’s company specializes in hospitality enterprises, real estate investments, parking garages and philanthropy. Mr. Yamagata reported a net worth of approximately $92.8 million and a liquidity of approximately $22.2 million as of November 2018. During that same financial period, the Yamagata Legacy Trust had a net worth of $27.5 million and liquidity of $5.5 million.
Property management is provided by the borrower-affiliated company, GY Rainbow Holdings, LLC, for a contractual management fee of 3.0% EGI.
Structured Finance: CMBS 48 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
RAINBOW SUNSET PAVILION – LAS VEGAS, NV
DBRS ANALYSIS SITE INSPECTION SUMMARY DBRS toured the interior and exterior of the property on Friday, January 11, 2019, at 11:00 a.m. Based on the site inspection, DBRS found the property to be Average.
The subject consists of a 215,232 sf office property located in Las Vegas, Nevada, about 13.0 miles southwest of downtown Las Vegas. The collateral has good accessibility with primary access provided by the Bruce Woodbury Beltway (I-215) giving linkage to the McCarran International Airport sitting just eight miles to the east. The Class A office building is located within a suburban corridor with primarily retail uses infilling the surrounding area. The subject was in line with similar properties in the nearby area and showed well with its nicely maintained exterior.
Originally constructed in 2009, the improvements consist of one eight-story office building and a four-story parking structure situated on a four-acre site. The building’s front entryway is located along South Rainbow Boulevard and includes electronic sliding glass doors opening to a single-story elevator lobby. The lobby featured modern finishes with tall ceilings and four centrally located elevators. DBRS toured several tenant spaces, including Hakkasan Group, the subject’s largest tenant, comprising 25.1% of the NRA. Its space featured glass entryways, a modern front desk area with ample seating for visitors, access to an exterior patio, concrete flooring and a mixture of open concrete ceilings with modern drop-down lighting fixtures or drop-tile ceilings. Select work spaces featured glass garage doors as the primary access to the space, which provided a modern accent. The open-concept work space also included an amphitheater-style seating area for larger meetings. LBBS occupies 18.0% of the NRA, and its suite featured cubicles near the center of the space with private offices along the corridors with carpeted flooring and drop-tile ceilings. Remaining spaces presented like typical office suites with neutral carpeting, cubicles and some open-air workspaces, as well as glass-enclosed offices along walls. In aggregate, the tenant suites presented very well with little to no deferred maintenance. There are 238 surface parking spaces available in front of the subject as well as 750 spaces in the parking garage behind the property, totaling 988 spaces, that exhibited minimal cracking at the time of inspection. Access to the garage is located through electronic sliding glass doors near the south edge of the property with a walkway directing tenants across the street. The parking garage included two elevators as well as an exterior stairway to provide access to each floor. According to on-site management, the addition of the fourth story of the parking structure was completed in fall 2017. The subject will not undergo any major renovations in the near future. At the time of inspection, the lobby, main corridors and parking lot were well trafficked with tenants. Overall, the property was found to be in good condition and in line with comparable properties in the surrounding submarket.
Structured Finance: CMBS 49 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
RAINBOW SUNSET PAVILION – LAS VEGAS, NV
DBRS NCF SUMMARY
NCF ANALYSIS
T-12 August 2015 2016 2017 2018 Issuer NCF DBRS NCF NCF Variance
GPR $3,782,652 $4,998,094 $5,380,097 $6,222,913 $7,387,959 $7,390,600 0.0%
Recoveries $0 $0 $0 $0 $0 $0 0.0%
Other Income $36,011 $85,434 $91,812 $126,423 $115,000 $149,938 30.4%
Vacancy $0 $0 $0 $0 -$738,450 -$738,796 0.0%
EGI $3,818,663 $5,083,528 $5,471,909 $6,349,336 $6,764,509 $6,801,742 0.6%
Expenses $1,633,611 $1,605,735 $1,832,421 $1,977,532 $1,951,520 $2,059,685 5.5%
NOI $2,185,053 $3,477,793 $3,639,488 $4,371,804 $4,812,989 $4,742,058 -1.5%
Capex $0 $0 $0 $0 $53,808 $43,061 -20.0%
TI/LC $0 $0 $0 $0 $333,137 $928,215 178.6%
NCF $2,185,053 $3,477,793 $3,639,488 $4,371,804 $4,426,044 $3,770,782 -14.8%
The DBRS NCF is based on the DBRS North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS NCF was $3,770,518, a -15.5% variance from the Issuer’s NCF. The main drivers of the variance are management fee, LCs and TIs. DBRS concluded the management fee at the property to 4.0%, though the property is currently under management by a borrower affiliated management team that collects a 3.0% fee. LCs were concluded to 6.0% for new leases and 3.0% for renewals. TIs were concluded to $30/$10 for all spaces within the office building on a five-year term, which was on top of the appraiser’s assumption as well as actual packages given at the property.
DBRS VIEWPOINT The collateral is a part of a larger office campus that was developed in phases between 2004 and 2009. The submarket is currently performing adequately, with CoStar Q2 2018 showing office vacancy at 10.7%. The appraiser identified five competitive properties, which have occupancy ranging from 78.0% to 100.0%. According to property management, the area struggled historically and only truly gained footing in the last few years. That appears to track along with the property’s historical occupancy. The subject has had an average occupancy of 85.2% since 2014. In 2015, the property was at 78.7% occupancy, broke 90.0% to hit 90.7% in 2016, came to 98.3% in 2017, finally hitting 100.0% in late 2018. The property came online in 2009 during the recession and thus had a difficult first few years but kept to the sponsor’s strategy of waiting to only sign high-quality tenants that would attract other big names. Property management credited the sponsor’s marketing and leasing strategies with being able to sign Hakkasan, which increased occupancy immensely in 2014 and helped the building become more desirable for smaller tenants due to the Hakkasan brand’s notable reputation. From there they were able to attract MGM in 2015 and Boyd Gaming in 2016. The latter two each recently expanded their spaces within the subject. Property management noted the past two years had been a nice upswing for the area in terms of occupancy. To mitigate a weaker market, difficult time leasing up, and rollover at the subject, DBRS applied a 10.0% vacancy to the property in its analysis. The loan exhibits moderately favorable balloon metrics with a DBRS Refi DSCR of 1.03x and DBRS Exit Debt Yield of 10.1%.
Structured Finance: CMBS 50 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
RAINBOW SUNSET PAVILION – LAS VEGAS, NV
DOWNSIDE RISKS • The property has a large concentration of rollover during the loan term: during the first six years of the loan term, 58% of the total NRA rolls, including the property’s largest tenant, Hakkasan. By the end of the loan term, 100.0% of the leases will roll. • The loan includes a significant $23.8 million equity recapture to the sponsor.
STABILIZING FACTORS • The loan is structured with a hard lockbox in place at closing and a cash flow sweep 12 months prior to lease expiration for Hakkasan, Boyd Gaming, MGM and LBBS, whose leases make up 74.7% of the total NRA and all expire between 2021 and 2025. Seven of the tenants in place have at least one more renewal option, and Yamagata Enterprises Family Office just exercised its final five-year renewal extending its lease to 2024. Furthermore, several tenants have invested heavily in their spaces, including Hakkasan, which invested $1.6 million into its space, which is just shy of $30/sf; MGM, which invested $923,000 or $35/sf; and LBBS, which invested $629,000 or $16/sf. Boyd Gaming not only owns and fully occupies the building next door, it outgrew it and invested heavily in its space at the subject, spending $1.55 million on its space, which translates to $45/sf. Between the heavy investment and the fact that it is the sole owner of the building next door, Boyd Gaming is likely highly committed to the subject space. • The sponsor is the original developer of the property, has maintained the property since 2009, having spent over $12.5 million in capex since the building came online, and will still have $33.2 million in cash equity invested in the property.
Structured Finance: CMBS 51 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
Regions Tower Indianapolis, IN
Loan Snapshot Seller MSMCH Ownership Interest Fee Trust Balance ($ million) $43.0 Loan psf/Unit $106 Percentage of the Pool 4.4% Loan Maturity/ARD October 2023 Amortization COLLATERAL SUMMARY Interest Only DBRS Property Type Office Year Built/Renovated 1969/2017 DBRS Term DSCR 1.74x City, State Indianapolis, IN Physical Occupancy 84.5% DBRS Refi DSCR Units/SF 687,237 Physical Occupancy Date July 2018 0.95x DBRS Debt Yield This loan is secured by the borrower’s fee interest in Regions Tower, a 687,237 sf Class 8.7% A office tower located in Indianapolis, Indiana, and the attached eight-story (825- DBRS Exit Debt Yield space) parking garage. Originally constructed in 1969, the 35-story office tower was 8.7% approximately 84.5% occupied by 47 tenants as of July 2018. Whole loan proceeds Competitive Set of $73.0 million, in addition to an $11.0 million mezzanine loan and a $0.9 million Office, Large, 462 borrower equity contribution refinanced $63.0 million of existing debt on the property, Median Debt Yield funded $16.3 million in escrows and covered $5.7 million in closing costs associated 9.8% with the transaction. The $16.3 million in escrows were composed of an $6.6 million Median Loan PSF/Unit escrow for outstanding TI/LCs at the property, a $4.0 million escrow for future TI/LCs, $90 a $3.0 million holdback ($2.6 million of which is associated with the first mortgage), Debt Stack ($ million) a $1.9 million escrow for outstanding free rent obligations, a $0.6 million deferred Trust Balance maintenance reserve and a $0.5 million capital improvement escrow. The five-year $43.0 loan is full-term IO and is structured with a $3.0 million upfront holdback split pro Pari Passu rata between the First Mortgage and the Mezzanine Loan. The borrower will have 12 $30.0 months to quality for release of the holdback, which will require the execution of a B-Note lease with Maplewood or another lender acceptable tenant for the ground-floor vacant $0.0 restaurant space and an NCF debt yield of at least 7.96%. Mezz $11.0 Total Debt The collateral was originally constructed in 1969 as the headquarters for Indiana $84.0 National Bank and acquired by the borrower in September 2014 for a purchase price Loan Purpose of $67.9 million. The acquisition price included the borrower’s purchase of an adjacent Refinance 177-space parking lot, which was legally separated prior to loan closing and does not Equity Contribution/ serve as collateral for this transaction. As of loan closing, the adjacent lot was owned (Distribution) ($ million) by a separate sponsor-controlled entity and indented to be developed into a four- ($1.3) to five-story apartment building with ground-floor retail and below-grade parking. The subject was approximately 70.0% occupied at the time of the current sponsor’s
Structured Finance: CMBS 52 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
REGIONS TOWER – INDIANAPOLIS, IN acquisition. The below-stabilized occupancy resulted from severe tornado damage caused to the collateral’s exterior facade in 2006. Building repairs were completed in August 2011 and reportedly cost the prior owner nearly $48.7 million (exclusive of a $34.1 million insurance payout related to the damages incurred). Since acquiring the property, the borrower has invested $9.5 million ($13.82 psf ) in capital improvements, inclusive of lobby renovations, exterior facade repairs, elevator upgrades and new common-area carpeting/paint. The borrower additionally executed new/renewal leases totaling 222,578 sf (32.4% of total NRA) from acquisition through the YTD period ending July 2018.
TENANT SUMMARY
% of Total % of Total DBRS Base DBRS Base Investment Tenant SF NRA Rent PSF Rent Lease Expiry Grade? (Y/N)
Taft Stettiinius & Hollister LLP 97,423 14.2% $25.45 21.9% 8/2036 N
Regions Bank 59,864 8.7% $23.17 12.6% 12/2029 Y
Kreig DeValut LLP 54,505 7.9% $22.50 10.8% 11/2025 N
Wooden & McLaughlin LLP 32,495 4.7% $17.08 4.9% 1/2028 N
Flaherty and Collins Construction 24,503 3.6% $19.35 4.2% 11/2018 N
Subtotal/Wtd. Avg. 268,790 39.1% $22.78 54.4% Various Various
Other Tenants 296,587 43.2% $17.60 45.6% Various N
Vacant Space 121,860 17.7% n/a n/a n/a n/a
Total/Wtd. Avg. 687,237 100.0% $20.08 121.9% Various Various
As of July 2018, the property was approximately 86.2% physically occupied (82.3% accounting for tenants anticipated to vacate). Though the property’s three largest tenants account for a combined 31.1% of total NRA and 45.3% of total DBRS Base Rent, no additional tenant accounts for more than 4.7% of total NRA or 4.9% of total DBRS Base Rent. Taft Stettinius & Hollister, the property’s largest tenant, recently renewed and expanded its space in the building on a new lease set to expire in August 2036. Regions Bank, rated A (low) by DBRS and the property’s second-largest tenant, also renewed and expanded its space at the property just prior to loan closing, on a new lease set to expire December 2029. The tenant roster features a high concentration of law offices, representing three of the property’s five largest tenants. The property benefits from a healthy lease rollover schedule, with only 12.6% of total NRA scheduled to roll throughout the loan term at an average of 2.5% per annum. Annual lease rollover escalates post-loan maturity but remains healthy, with an average annual rollover of 8.2% between 2023 and 2027.
SPONSORSHIP The sponsors and non-recousre carveout guarantors for this loan are Elchonon Schwartz, Simon Singer and Isaac Maleh. Nightingale Group was founded by Elchonon Schwartz and Simon Singer in 2005 and serves as a commercial real estate investment firm focused on value-add investments with repositioning or redevelopment opportunities. As of July 2018, Nightingale reported holdings in over 11 million sf of commercial office and retail space. The Nightingale group is 50.0% owned by Elchonon Schwartz, who reported a net worth of $282.8 million and liquidity of $24.2 million as of December 2017. The property is managed by Nightingale Realty, LLC, which serves as the management arm of the Nightingale Group.
Structured Finance: CMBS 53 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
REGIONS TOWER – INDIANAPOLIS, IN
DBRS ANALYSIS SITE INSPECTION SUMMARY DBRS toured the interior and exterior of the property on Thursday, August 30, 2018, at approximately 11:00 a.m. Based on the site inspection, DBRS found the property quality to be Average (+).
The collateral is located at the intersection of Pennsylvania Street and East Ohio Street approximately one block northeast of Monument Circle, which is commonly referred to as the heart of Downtown Indianapolis, Indiana. The intersection of Pennsylvania Street and East Ohio Street sits as the northeast corner of the downtown Indianapolis high-rise district. The collateral is located directly adjacent to the U.S. Bankruptcy Court, Salesforce Tower Indianapolis and BMO Plaza. Per management, the collateral is superior to BMO Plaza and serves as a more economic alternative to Salesforce Tower. At 35 stories tall, the collateral stands as the third-tallest building in Indianapolis and benefits from prominent visibility relative to surrounding office towers. While the Salesforce Tower stands as Indianapolis’s tallest tower, the elongated base of the collateral provides it greater visibility and curb appeal. Management further indicated that Salesforce-related entities had recently began seeking space at the subject as a result of Salesforce Tower having reached capacity. The collateral benefits from proximity to Massachusetts Avenue, which, per management, is a prominent retail corridor populated by a variety of retail and dining options and renowned for its lively urban nightlife.
The collateral was originally constructed in 1969 and comprises a 35-story Class A office tower featuring a glass-wrapped exterior facade and an attached eight-story, 825-space parking garage extending to the east along East Ohio Street. The garage benefits from three access points, offering separate entrance/egress points to the north, east and south. The office high-rise features two entryway lobbies, one of which is accessible via the attached parking garage. The second lobby located on the building’s west side serves as the primary entrance to the property and features marble flooring and marble panel walls accentuated by a dark-wood reception desk with an electronic display backdrop and slanted touchscreen tenant directory. The ground floor additionally features two separate glass-wrapped tenant suites, both of which were demised to their shell at the time of DBRS’s inspection. Per management, one of the suites is being renovated as part of Taft Stettinius & Hollister’s recent lease renewal/expansion and the other is being marketed to high-end restaurant operators. The restaurant space was well-located at the property’s southeastern corner within proximity of the Massachusetts Avenue nightlife. Per management, the restaurant space additionally benefits from available outdoor patio space along Pennsylvania Street. An escalator located behind the primary lobby’s reception desk leads downstairs to the building’s cafe, fitness center and barbershop, and three bays of elevator lobbies accessible just beyond the lobby lead to tenant suites on floors 2 through 35. The cafe featured ample seating, and, per management, the barbershop had maintained occupancy at the property for over 45 years. Elevators were undergoing renovations/updates at the time of DBRS inspection.
Structured Finance: CMBS 54 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
REGIONS TOWER – INDIANAPOLIS, IN
Tenant suites featured a wide array of finish levels, all of which were appealing and well-suited for their respective tenant uses. Suites featured an array of carpet, wood and marble flooring, as well as a mix of open industrial and drop-tile acoustic ceilings. Standing as the third-tallest building in Indianapolis, several tenant suites benefit from unobstructed views of the surrounding area. A select number of suites additionally benefit from interior suite staircases, which individually service multi-level tenant suites. DBRS toured two vacant suites at the time of inspection, one of which featured carpeted flooring and drop-tile acoustic ceilings, while the other has been demised to shell condition. Both vacant suites appeared easily demisable and well-suited for modern open-office utilization. Tenants benefit from several meeting/conference facilities, as well as an outdoor rooftop reception area located on the eighth floor. Overall, the property appeared very well-maintained with tasteful modern finishes, clearly evidencing the blend of sponsor and tenant investment throughout.
DBRS NCF SUMMARY
NCF ANALYSIS
2015 2016 2017 T-12 May 2018 Issuer NCF DBRS NCF NCF Variance
GPR $8,513,964 $8,108,868 $9,122,094 $9,396,390 $13,797,222 $13,764,667 -0.2%
Recoveries $370,055 $552,971 $508,027 $460,690 $1,817,051 $314,461 -82.7%
Other Income $2,146,931 $2,092,505 $2,152,457 $2,173,296 $398,989 $1,817,051 355.4%
Vacancy $0 $0 $0 $0 -$2,434,894 -$2,453,446 0.8%
EGI $11,030,950 $10,754,344 $11,782,578 $12,030,376 $13,578,368 $13,442,733 -1.0%
Expenses $5,691,603 $6,312,752 -$6,082,419 -$6,272,676 -$6,178,065 -$6,445,168 4.3%
NOI $5,339,347 $4,441,592 $17,864,997 $5,757,700 $7,400,303 $6,997,565 -5.4%
Capex $0 $0 $0 $0 -$137,447 -$137,447 0.0%
TI/LC $0 $0 $0 $0 -$569,004 -$772,267 35.7%
NCF $5,339,347 $4,441,592 $17,864,997 $5,757,700 $6,693,851 $6,087,850 -9.1%
The DBRS NCF is based on the DBRS North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS NCF was $6,087,850, representing -5.5% variance from the Issuer’s NCF of $6,693,851. The variance is primarily driven by leasing costs, which DBRS estimated to be $1.12 psf (inclusive of a $1.16 psf credit given for the transaction’s $4.0 million upfront TI/LC reserve) compared with the Issuer’s estimated $0.83 psf inclusive of a $0.58 psf credit given for the transaction’s $4.0 million upfront TI/LC reserve. The discrepancy in credit for the upfront TI/LC reserve associated with the transaction is a result of DBRS straight-lining the $4.0 million reserve over the five-year loan term ($0.8 million per annum) while the Issuer straight-lines the $4.0 million reserve on a ten-year term ($0.4 million per annum). DBRS assumed new and renewal TIs of $28 psf and $10 psf, respectively, based on recently signed leases and management estimates at the site inspection.
DBRS VIEWPOINT The collateral is well-located at the northeast corner of Indianapolis’s downtown high-rise district, directly adjacent to the management-identified competitors Salesforce Tower Indianapolis and BMO Plaza. While the collateral suffered from historically low occupancy under prior ownership (falling as low as 55.5% in 2010), the current borrower has improved occupancy from approximately 70.0% to 86.2% between acquisition and July 2018. Per management, mid-80.0% occupancy ranges are relatively standard across the Indianapolis office market, supported by CoStar reported vacancy and availability rates of 9.1% and 15.5%, respectively, for Class A office product across the subject’s submarket as of August 2018. The sponsor invested $9.5 million ($13.82 psf ) in capital improvement work across the property over the same period and
Structured Finance: CMBS 55 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
REGIONS TOWER – INDIANAPOLIS, IN escrowed over $11.3 million for outstanding TI/LCs at closing, evidencing substantial sponsor commitment to the space. The loan exhibits moderate loan metrics, exhibited by a reasonable DBRS Going-In Debt Yield and Term DSCR of 8.3% and 1.67x, respectively.
DOWNSIDE RISKS • The loan is full-term IO and returns approximately $4.9 million of cash equity to the borrower. As a result, the loan exhibits somewhat elevated refinance risk evidenced by a relatively low DBRS Exit Debt Yield and Refi DSCR of 8.3% and 0.85x. • The collateral exhibits moderate least rollover risk in the years following loan maturity, with 30.1% of total NRA accounting for 40.1% of total DBRS Gross Rent scheduled to roll between 2023 and 2025.
STABILIZING FACTORS • As of loan closing, the borrower maintains approximately $6.3 million of cash equity in the transaction. • The loan is structured with a $4.0 million upfront TI/LC reserve for future leasing costs. Additionally, the borrower executed new/renewal leases totaling 222,578 sf (32.4% of total NRA) through the YTD period ending July 2018, showing that substantial leasing can be done so long as adequate TI/LCs are being funded.
Structured Finance: CMBS 56 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
US Bank Centre Cleveland, OH
Loan Snapshot Seller BANA Ownership Interest Fee Trust Balance ($ million) $33.2 Loan psf/Unit $130 Percentage of the Pool 3.4% Loan Maturity/ARD January 2029 Amortization COLLATERAL SUMMARY 30 Years DBRS Property Type Office Year Built/Renovated 1989 DBRS Term DSCR 1.27x City, State Cleveland, OH Physical Occupancy 95.7% DBRS Refi DSCR SF 255,927 Physical Occupancy Date December 2018 0.96x DBRS Debt Yield The loan is secured by the borrower’s fee simple interest in the US Bank Centre, a 8.2% 255,927 sf Class A office property and attached seven-story parking garage located at DBRS Exit Debt Yield 1350 Euclid Avenue in Cleveland, Ohio. The ten-year loan is IO for the first two years 9.5% before it amortizes over a 30-year schedule. Loan proceeds of $33.2 million will be used Competitive Set to refinance the existing debt of approximately $21.7 million, fund the approximate Office, Large, 441 $9.2 million equity recapture, cover the $1.0 million in upfront TI/LC costs, cover Median Debt Yield closing costs worth $944,000, cover $92,000 in taxes/insurance, and fund landlord 10.0% obligation reserves of $200,000 as well as $45,640 in free rent reserves. Median Loan PSF/Unit $86 The Class A office property, which is situated across a one-acre plot, was constructed in Debt Stack ($ million) 1989 and consists of a single 16-story office building and a seven-story parking structure Trust Balance connected through a tunnel crosswalk from the second floor. The parking structure $33.2 offers 453 parking spaces. The subject is well located in Cleveland’s downtown core. Pari Passu $0.0 B-Note $0.0 Mezz $0.0 Total Debt $33.2 Loan Purpose Refinance Equity Contribution/ (Distribution) ($ million) ($7.9)
Structured Finance: CMBS 57 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
US BANK CENTRE – CLEVELAND, OH
TENANT SUMMARY
DBRS Base % of Total DBRS Investment Tenant SF % of Total NRA Rent PSF Base Rent Lease Expiry Grade? (Y/N)
Cohen & Company, LTD 47,134 18.4% $20.66 18.9% July 2022 N
U.S. Bank 36,641 14.3% $23.40 16.7% July 2024 Y
Housing & Urban Development 34,247 13.4% $23.34 15.5% August 2021 Y
GCA Services Group 32,430 12.7% $23.25 14.7% January 2024 N
Barnes Wendling CPAs, Inc. 14,572 5.7% $18.50 5.2% August 2023 N
Subtotal/Wtd. Avg. 165,024 64.5% $22.14 71.0% Various N
Other Tenants 69,011 27.0% $21.62 29.0% Various N
Vacant Space 21,892 8.6% n/a n/a n/a n/a
Total/Wtd. Avg. 255,927 100.0% $20.11 100.0% Various N
The subject is largely leased to a collection of tenants in industries primarily related to government or financial services. The largest tenant at the property is Cohen & Company, LTD (Cohen & Company), an investment consultation firm that offers various wealth-building and managing services. It holds 18.4% of the NRA and 18.9% of the base rent. In early January 2019, the tenant executed a lease amendment to expand by 3,912 sf. U.S. Bank is the second-largest tenant at the property. It currently accounts for 14.3% of the NRA and 16.7% of the base rent. In late December 2018, the tenant executed an early five-year lease renewal for all of its space. The renewal provides the tenant with a one-time right to reduce its footprint by 7,567 sf on the 12th floor effective August 1, 2019, but must give notice by March 2019. The third- largest tenant is the U.S. Department of Housing and Urban Development (the HUD), which accounts for 13.4% of the NRA and 15.5% of the base rent.
Historically, the property has been well occupied and outperformed the market with an average occupancy of 94.8% since 2015. As of the December 2018 rent roll, the collateral was 95.7% occupied. According to CoStar, the average Class A office vacancy for Downtown Cleveland was 10.4% as of January 1, 2019. Rollover throughout the loan term is heavily concentrated in 2024 when 38.7% of the NRA is scheduled to expire. U.S. Bank (14.3% of the NRA) and the GCA Service (12.7% of the NRA) have leases that are scheduled to expire in 2024. However, this risk is mitigated by U.S. Bank’s having been at the property since its inception in 1989 and the property’s strong historical occupancy, along with the loan being structured with a TI/LC reserve and cash flow sweep.
SPONSORSHIP The loan’s sponsor is The Wolstein Group, a real estate development and investment company owned by Scott and Iris Wolstein. The property was initially developed by the Wolstein Family in 1990, and they have owned the asset since. The Wolstein Group has a strong portfolio of diverse assets spanning over 160.0 million sf with a value of almost $20.0 billion in real estate assets. The borrowing entity for the loan is the Renaissance Center Limited Partnership.
Property management is provided by Hanna Commercial, LLC for a contractual management fee of 2.5% EGI. The property management firm has over 75 years of experience in the field and currently oversees 3.0 million sf over a diverse portfolio, including office, retail, medical, industrial, multifamily and many other commercial properties.
Structured Finance: CMBS 58 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
US BANK CENTRE – CLEVELAND, OH
DBRS ANALYSIS SITE INSPECTION SUMMARY Based on the DBRS site inspection and management meeting conducted on January 8, 2019, DBRS found the property quality to be Average (+).
The property is located between Euclid Avenue and Prospect Avenue, along East 14th Street in Downtown Cleveland. Euclid Avenue is a main thoroughfare on the east side of the city and is also home to the famous Playhouse Square theater district. Playhouse Square attracts tourist to its multiple theaters, restaurants and massive crystal chandelier, which hangs over the intersection of Euclid Avenue and 14th Street and is directly in front of the subject property. Compared with nearby parts of Downtown Cleveland, the Playhouse Square area along Euclid Avenue has attractive street hardscapes and steady foot traffic. The surrounding properties consist of office buildings, entertainment theaters, retail establishments and parking lots. The majority of the building stock is from the early 1900s, although the better located properties appear to have gone through some level of renovation, and a few buildings were being renovated at the time of inspection. The property manager at the subject property mentioned that a new 319-unit apartment building was under construction down the street from the subject, but she was unaware of any other new construction in the area. The subject property is also well located near I-90 and I-77, both of which provide easy access to the city’s suburbs.
The office building has a glass exterior with dark stone accents. The facade contrasts with the nearby properties, which are predominately brick. The subject property also has a unique tiered shape, which is widest at the bottom and tiers smaller at higher elevations. This architectural effect breaks up the exterior building lines and adds a unique skyline from the street level. Affixed to the top of the building is a prominent U.S. Bank logo, and there is additional exterior signage for Cohen & Company near the street level of the building. Around the perimeter of the building are several access points, including separate entry to the two restaurant tenants: Phuel Café and District. A “For Lease” sign was visible from the street, marketing a small retail space on 14th Street. The property manager indicated that the vacant space was formerly part of the Renaissance sundry shop, which subsequently downsized.
The seven-story parking garage is attached to the office building through a sky bridge on the third floor. At the time of inspection, the parking lot was nearly at capacity, and a sign indicated that the parking garage was full and only accessible by monthly users. The property manager indicated that public parking is allowed but generally discouraged to ensure the monthly parking customers have adequate spaces available.
The interior of the lobby is lined with granite and dark wood finishes and is consistent with the building’s original construction. There is a central two-story rotunda, which highlights the lobby and gives some relief from the lower ceilings
Structured Finance: CMBS 59 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
US BANK CENTRE – CLEVELAND, OH in the hallways off of the rotunda. The retail tenants in the building also have access points directly from the lobby, and there were a few customers in U.S. Bank and Phuel Café. The District restaurant has the least amount of visibility from the lobby and no visibility from Euclid Avenue. Despite the lack of visibility, the property manager indicated that the restaurant is a popular destination for theater goers. DBRS inspected several occupied office units and two vacant units. Cohen & Company’s space on the seventh floor was recently updated and included a large training room. The property manager confirmed that Cohen & Company’s expansion space on the second floor was also nearing completion, with an anticipated completion date in mid-January. GCA occupies the top two floors of the building, and employees are free to move about the floors via an internal stairway. The GCA space was in average condition, with a mix of cubicle and office space. The higher floors in the building offer expansive views of Downtown Cleveland, Lake Erie and Progressive Field baseball stadium. DBRS inspected two vacant office units on the fourth floor. The property manager mentioned that Fairport Asset Management had expressed interest in expanding into a portion of one of the vacant units. The property manager confirmed that occupancy at the property was over 90.0% and has been consistently strong. She attributed this to the property’s newer construction, desirable location near the downtown amenities, large parking garage and accessibility from I-90 and I-77.
Overall, the property has been well maintained and is distinct among the competing office properties.
DBRS NCF SUMMARY
NCF ANALYSIS
T-12 November 2015 2016 2017 2018 Issuer NCF DBRS NCF NCF Variance
GPR $5,056,165 $5,237,376 $5,170,585 $5,415,363 $5,813,249 $5,757,913 -1.0%
Recoveries $237,614 $268,916 $450,841 $388,028 $317,976 $318,941 0.3%
Other Income $1,039,251 $1,156,242 $1,293,608 $1,307,868 $1,307,868 $1,307,868 0.0%
Vacancy $0 $0 $0 $0 -$700,197 -$754,619 7.8%
EGI $6,333,030 $6,662,534 $6,915,034 $7,111,259 $6,738,896 $6,630,103 -1.6%
Expenses $3,051,622 $3,412,778 $3,237,742 $3,236,041 $3,135,778 $3,196,551 1.9%
NOI $3,281,408 $3,249,756 $3,677,292 $3,875,218 $3,603,118 $3,433,552 -4.7%
Capex $0 $0 $0 $0 $63,585 $72,035 13.3%
TI/LC $0 $0 $0 $0 $511,854 $637,714 24.6%
NCF $3,281,408 $3,249,756 $3,677,292 $3,875,218 $3,027,679 $2,723,802 -10.0%
The DBRS NCF is based on the DBRS North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS NCF was $2,723,802, a -10.0% variance from the Issuer’s NCF. The main drivers of the variance were TI/LC costs. TI assumptions for new leases were estimated at $30.00 psf for new office tenants and $25.00 psf for new retail tenants, based on recent leasing at the property and the appraiser’s assumptions. LCs for all spaces were based on the appraisal at 5.0% and 3.0% for new and renewal leases, respectively.
DBRS VIEWPOINT The collateral represents a Class A office building in downtown Cleveland, within the lively Playhouse Square neighborhood. The office building has frontage directly on Euclid Avenue, a popular downtown road with retail establishments and steady foot traffic. The property also includes an attached parking garage and easy access to the city’s major interstates less than one mile away. The building’s modern-day construction, in 1989, is viewed as a benefit when compared with the early 1900s building stock in the surrounding area. Sponsorship was the original developer of the property and, through its long-term
Structured Finance: CMBS 60 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
US BANK CENTRE – CLEVELAND, OH commitment to the building, has been able to achieve occupancy levels above the market average. The strong occupancy has been driven by the tenure of the largest tenants, including the building’s namesake tenant and second-largest tenant, U.S. Bank, which has been at the property since initial construction and recently executed a five-year renewal. The largest tenant in the building, Cohen & Company, has been at the property since 2003 and also recently expanded its space. Based on the DBRS DSCR of 1.27x and DBRS Debt Yield of 8.2%, default over the loan term is considered moderate. The initial loan basis of $130 psf represents a 59.0% LTV based on the appraisal, and the loan benefits from eight years of amortization, which will lower the loan basis to approximately $113 psf at maturity.
DOWNSIDE RISKS • Rollover risk is elevated during the loan term, especially in 2024 when 38.7% of the NRA rolls.
STABILIZING FACTORS • U.S. Bank, representing 14.3% of the NRA expiring in 2024 has been a tenant at the property since construction in 1989 and the tenant has shown its propensity to stay at the property through multiple lease renewals. The loan is also structured with an upfront TI/LC allowance of $1,000,000 and a cash flow sweep should US Bank, Cohen & Company or US Department of Housing and Urban Development give notice of its intent to vacate.
Structured Finance: CMBS 61 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
Penske Distribution Center Romulus, MI
Loan Snapshot Seller MSMCH Ownership Interest Fee Trust Balance ($ million) $30.0 Loan psf/Unit $116 Percentage of the Pool 3.1% Loan Maturity/ARD December 2028 Amortization COLLATERAL SUMMARY Interest Only DBRS Property Type Industrial Year Built/Renovated 2018 DBRS Term DSCR 1.84x City, State Romulus, MI Physical Occupancy 100.0% DBRS Refi DSCR Units/SF 606,000 Physical Occupancy Date December 2018 0.87x DBRS Debt Yield This loan is secured by the borrower’s fee simple interest in Penske Logistics 8.6% Distribution Center, a 606,000 sf single-tenant cold storage facility located in Romulus, DBRS Exit Debt Yield Michigan. Constructed in 2018, the property is 100.0% occupied by Penske Logistics 8.6% LLC (Penske). The tenant took occupancy in October 2018 on a ten-year, NNN lease Competitive Set structured with two five-year renewal options. Penske Truck Leasing Co., L.P. is the Industrial, Large, 481 guarantor of the lease, which expires one month prior to loan maturity. Loan proceeds Median Debt Yield of $70.0 million, along with $56.6 million of cash equity, funded the purchase price of 11.0% $126.6 million. The ten-year loan is IO throughout. Median Loan PSF/Unit $33 Penske Truck Leasing Co., L.P. is rated investment grade and specializes in operational Debt Stack ($ million) services focused on supply chain and logistics. The collateral is subject to an agreement Trust Balance in which Penske is to use 100.0% of the property to perform distribution and logistic $30.0 services for Kroger, a large supermarket and retailer chain, unless Kroger approves Pari Passu an exception. The services provided focus on distribution tactics and strategies for $40.0 Kroger’s grocery operations in Michigan. The subject’s proximity to the Detroit B-Note Metropolitan Wayne County Airport provides strong positioning for the property’s $0.0 intended use. This agreement is automatically extended if Penske exercises one of its Mezz $0.0 lease renewal options. Total Debt $70.0 Loan Purpose Acquisition Equity Contribution/ (Distribution) ($ million) $57.6
Structured Finance: CMBS 62 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
PENSKE DISTRIBUTION CENTER – ROMULUS, MI
TENANT SUMMARY
DBRS UW Base % of Total DBRS Investment Tenant SF % of Total NRA Rent PSF UW Base Rent Lease Expiry Grade? (Y/N)
Penske Logistics LLC 606,000 100.0% $12.95 100.0% October 2028 Y
Total/Wtd. Avg. 606,000 100.0% $12.95 100.0% Various Y
The newly constructed, Class A distribution facility was built-to-suit for Penske in 2018. The collateral features 34-foot clear heights, 105 exterior tuck doors, 17 “Rapid-Rise” overhead doors and less than 5.0% of office space build-out. The 34-foot clear heights and 606,000 sf space allow for a building capacity of approximately 19.7 million cubic feet. The property is cross-docked with climate-controlled receiving and shipping doors on the south and north ends of the of building, respectively. The climate-controlled building is structured with the coldest rooms on the west end, and rooms get progressively warmer from west to east. While the various rooms range from -15 to 55 degrees, both the receiving and shipping docks are maintained at a temperature of 34 degrees. Specific rooms in the building are designated for product types, including ice cream, dairy, dry produce, wet produce, meat, bananas and seasonal candy.
The collateral replaced Penske’s previous facility in Taylor, Michigan, and serves the same 122 stores within six districts across the state. The previous facility was approximately 200,000 sf and so was aged that about 60.0% of the facility’s NRA became obsolete, per management. At the time of the site inspection, the subject was at approximately 40.0% capacity with plans to reach 100.0% capacity by the end of June 2019. To meet this goal, Penske is hiring around 30 employees per week and expects the facility to have between 425 to 450 employees when at full capacity. The product types currently served at the property are bananas, meat, produce and seasonal candy. Management noted plans to begin operations for dairy products by the end of February 2019 and ice cream products by the end of April 2019 in order to meet 100.0% capacity by June 2019.
SPONSORSHIP The sponsor for this loan is Global Net Lease, Inc., a publicly traded REIT that primarily specializes in sale-leaseback transactions for single-tenant net-leased properties and has a current equity market capitalization of approximately $1.5 billion. As of December 2017, the sponsor had ownership interest in 321 properties across the United States, Puerto Rico and Europe. The properties in the sponsor’s portfolio total 22.9 million sf and are 99.5% occupied. Fifteen of the properties were financed with CMBS debt and have had no credit issues. The sponsor reported a net worth of $1.4 billion and liquidity of $102.4 million. The sponsor is currently a defendant in two pending legal cases.
Structured Finance: CMBS 63 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
PENSKE DISTRIBUTION CENTER – ROMULUS, MI
DBRS ANALYSIS SITE INSPECTION SUMMARY DBRS toured the interior and exterior of the property on January 14, 2019, at 11:30 a.m. Based on the site inspection and management tour, DBRS found the property quality to be Average (+).
The subject is located in Romulus, Michigan, a suburb approximately 20 miles southwest of the Detroit CBD. The property is positioned just off of Eureka Road, which runs alongside the southern border of the Detroit Metropolitan Wayne County Airport. Eureka Road provides the subject immediate access to I-275, which intersects I-94 approximately four miles to the north and provides strong access to the 122 stores serviced by the facility throughout Michigan.
The facility has a truck entrance on the western side of the property as well as an entrance for employees and visitors on the eastern side of the property. Fencing around the parking lots allows for the shipping and receiving docks to be accessed solely via the truck entrance. Approximately 35 of 105 docks are designated for shipping purposes only, and the remaining docks are used for receiving and salvage operations. Receiving operations at the facility occur during the day, and shipping operations occur during the night. No operations in the facility are fully automated, so the offices are strategically placed to oversee both receiving and shipping operations. There are small office build-outs near the employee and visitor entrance, shipping docks and receiving docks. Each of these spaces has a small open floor with desks as well as several side offices.
Upon arrival, products undergo quality testing at the receiving docks and are subsequently placed in front of the receiving dock’s office space if the testing is failed. DBRS was not allowed to take any pictures with Kroger products, and the only non-Kroger product at the facility were bananas. The building’s climate control is generated by six refrigeration pumps and one ammonia tank, which are in a secured room on the west end of the building. The ice cream room is positioned adjacent to this room on the west side of the building, and the next warmest room, the freezer, is located directly east of the ice cream room. Unique Glycol Heating System pumps warm water beneath the concrete floor of the ice cream and freezer rooms. This allows for the floor to endure below-freezing room temperatures while maintaining a temperature that prevents freezing and cracking. “Rapid-Rise” overhead doors connect the rooms for different product types. Each of these doors has a sensor that detects when a forklift approaches, allows the door to automatically open and close in a timely manner, and maintains the intended room temperature. Overall, the property appeared very up to date with regards to structure, systems and capacity.
Structured Finance: CMBS 64 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
PENSKE DISTRIBUTION CENTER – ROMULUS, MI
DBRS NCF SUMMARY
NCF ANALYSIS
Issuer NCF DBRS NCF NCF Variance
GPR $8,495,486 $7,847,734 -7.6%
Recoveries $0 $2,995,050 0.0%
Other Income $0 $0 0.0%
Vacancy -$424,774 -$542,139 27.6%
EGI $8,070,712 $10,300,645 27.6%
Expenses $242,121 $3,304,069 1264.6%
NOI $7,828,590 $6,996,575 -10.6%
Capex $60,600 $90,900 50.0%
TI/LC $315,120 $855,276 171.4%
NCF $7,452,870 $6,050,400 -18.8%
The DBRS NCF is based on the DBRS North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS NCF was $6,050,400, a variance of -18.8% from the Issuer’s NCF. The main drivers of the variance are rent steps and TIs. Rent Steps: The Issuer is taking the average base rent throughout the loan term, but DBRS is not accepting these rent steps, as the tenant’s lease does not expire three years beyond loan maturity, which is the minimum length for an LTCT. TIs: The Issuer is using TI allowances from the appraisal of $0.50 psf for new leases and $0.35 psf for renewals on a yearly basis, but DBRS is using assumptions of $25/$5 over a ten-year term based on other comparable cold storage properties. The Issuer used a 70.0% renewal probability, whereas DBRS used a 75.0% renewal probability for all TI/LC assumptions given the recent vintage and build-to-suit nature of the project.
DBRS VIEWPOINT The built-to-suit facility is 100.0% leased to one investment-grade-rated tenant and is mission-critical for Penske. The facility serves as the primary distribution center for 122 stores throughout six districts in Michigan. Although the previous facility benefited from similar proximity to the Detroit Wayne Metropolitan Airport, its vintage and growing obsolescence made the collateral a necessary upgrade for Penske to continue its operations in the area. The facility has approximately 300.0% more NRA than the previous facility, which will allow Penske to grow into the facility’s capacity and reduces the risk of the tenant’s leaving after the initial ten-year lease term. DBRS loan metrics reflect refinance risk with a DBRS Exit Debt Yield of 8.6% and a DBRS Refi DSCR of 0.87x. While the loan psf is quite high for an industrial property at $116, given the newly constructed cold storage nature of the property, the high achieved rental rate and resulting high loan basis are considered reasonable. DBRS concluded to very high TI assumptions in an attempt to account for the non- standard build-out/improvements needed to operate the property as cold storage that may have a shorter useful life than the structure as a whole.
DOWNSIDE RISKS • The subject is occupied by a single tenant with a lease term that expires prior to loan maturity.
STABILIZING FACTORS • The property was built-to-suit for Penske and exceeds the capacity of its previous facility, limiting the likelihood of departure at lease expiry. In addition, the sponsor has invested approximately $56.6 million of cash equity in the property, which demonstrates a commitment to the property.
Structured Finance: CMBS 65 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
PENSKE DISTRIBUTION CENTER – ROMULUS, MI
• The loan is structured with a cash flow sweep that can be triggered at the earlier of the tenant’s notice to vacate or 12 months prior to lease expiration, among other reasons. Although such sweep would aggregate approximately $5.8 million, DBRS was not able to give any credit to this loan structure due to the lack of a hard lockbox in place at closing.
Structured Finance: CMBS 66 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
Haymarket Village Center Haymarket, VA
Loan Snapshot Seller BANA Ownership Interest Fee Trust Balance ($ million) $25.2 Loan psf/Unit $98 Percentage of the Pool 2.6% Loan Maturity/ARD January 2029 Amortization COLLATERAL SUMMARY 30 Years DBRS Property Type Anchored Retail Year Built/Renovated 2012 DBRS Term DSCR 1.13x City, State Haymarket, VA Physical Occupancy 97.8% DBRS Refi DSCR Units/SF 256,856 Physical Occupancy Date December 2018 0.83x DBRS Debt Yield The loan is secured by the borrower’s fee simple interest in Haymarket Village 7.4% Center, a 256,856 sf neighborhood retail center in Haymarket, Virginia, located DBRS Exit Debt Yield approximately 37.0 miles west of Washington D.C. The ten-year loan is IO for four 8.1% years and amortizes on a 30-year schedule thereafter. Loan proceeds of $25.2 million, Competitive Set along with approximately $10.9 million in sponsor equity, will be used to purchase the Anchored Retail, Large, 201 asset for $34.5 million, cover $842,816 in closing costs and fund a $103,074 credit for Median Debt Yield future TI/LC costs. This future TI/LC credit amount is related to the potential lease 9.6% for ABC Liquors pursuant to the tenant’s LOI. The loan is also structured with ongoing Median Loan PSF/Unit TI/LC reserves of $7,500 per month to a $250,000 cap. There is an initial deposit of $128 $205,485 for replacement reserves along with ongoing payments of $4,281 per month. Debt Stack ($ million) There are upfront reserves of $18,547 and $3,175 for taxes and insurance, respectively, Trust Balance and monthly deposits of $18,547 for taxes and $1,587 for insurance. In addition, there $25.2 is a $250,00 initial deposit for a leasing reserve. The property has an appraised value Pari Passu of approximately $34.5 million, establishing an LTV of 73.0%, and with the purchase, $0.0 the borrower has a cost basis totaling $35.2 million. B-Note $0.0 Mezz $0.0 Total Debt $25.2 Loan Purpose Acquisition Equity Contribution/ (Distribution) ($ million) $10.0
Structured Finance: CMBS 67 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
HAYMARKET VILLAGE CENTER – HAYMARKET, VA
TENANT SUMMARY
% of % of DBRS Total DBRS Investment Tenant SF Total NRA Base Rent PSF Base Rent Lease Expiry Grade? (Y/N)
Walmart 153,000 59.6% $4.29 28.2% 9/11/2032 Y
Kohls 64,291 25.0% $7.41 20.5% 1/31/2033 Y
Mattress Firm 4,500 1.8% $29.00 5.6% 11/30/2025 N
Sakura Grill 2,637 1.0% $35.02 4.0% 1/31/2024 N
Pivot 2,406 0.9% $37.13 3.8% 11/30/2021 N
Subtotal/Wtd. Avg. 226,834 88.3% $6.37 62.1% Various Various
Other Tenants 24,301 9.5% $36.28 37.9% Various N
Vacant Space 5,721 2.2% n/a n/a n/a n/a
Total/Wtd. Avg. 256,856 100.0% $9.06 100.0% Various Various
The subject was 97.8% physically leased as of the December 2018 rent roll to a diverse tenant roster composed of 20 companies involved in the retail, restaurant and medical industries. The collateral is anchored by two big box tenants: Walmart and Kohl’s. Walmart, the largest tenant at the property, signed a 20-year ground lease that expires in September 2032 with ten five-year renewal options and no termination options. As of November 2018, Walmart’s sales are approximately $120.9 million ($790.20 psf ), exceeding the company’s national average sales of $670.00 psf. Kohl’s is the second-largest tenant at the subject contributing about 20.0% to the overall GPR. Like Walmart, the tenant signed a 20-year ground lease that expires in January 2033 with six five-year renewal options and no termination options. Kohl’s has sales of approximately $16.9 million ($272.87 psf ), which is above the company’s national average of $172.00 psf. The 18 other tenants occupy in-line or outparcel spaces and account for approximately 15.4% of the property’s NRA but over 50.0% of the DBRS Base Rent. Mattress Firm, the third-largest tenant, is a mattress store chain that was founded in 1986. The company was operating approximately 3,600 stores across the country as of 2016 but recently had to close 900 stores and file for Chapter 11 bankruptcy. The tenant generates around 5.0% of the property’s GPR. Of note, the borrower has an LOI from ABC Liquors for a 2,964 sf space for a proposed ten-year lease with a five-year renewal option. In addition, an outparcel pad for Bank of America is planned to be built er the proposed LOI. Bank of America will be responsible for 100.0% of the construction costs and has a lease ready for execution that would be a ten-year lease with four five-year renewal options.
Structured Finance: CMBS 68 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
HAYMARKET VILLAGE CENTER – HAYMARKET, VA
COMPETITIVE SET
Distance from Property Location Subject SF Year Built Occupancy
Dominion Valley Market Square Haymarket, VA 2.7 miles 175,000 1989 98.9%
Somerset Crossing Gainesville, VA 2.5 miles 80,000 2015 90.5%
The Shops at Stonewall Gainesville, VA 2.9 miles 320,854 2008 97.6%
Braemar Village Center Gainesville, VA 2.7 miles 111,635 2003 98.2%
The Marketplace @ Madison Crescent Gainesville, VA 3.0 miles 125,000 2007 94.0%
Haymarket Village Center Various n/a 256,856 2012 98.4%
Source: Appraisal.
There are several competing properties within three miles of the subject that were predominately built in the last 15 years. All of the properties in the competitive set, with the exception of The Shops at Stonewall, are smaller retail centers and thus lack the major anchor tenants that the subject possesses. The majority of the competitors are located in neighboring Gainesville, Virginia, and generally try to attract the same group of customers as the subject. The Haymarket area is bustling with development activity at the moment, with a mix of 74 commercial properties in the planned or proposed construction phase in the submarket. The subject’s physical occupancy of 97.8% is just above the competitive set’s average occupancy of 95.8%, which is dragged down a bit by the newer vintage of Somerset Crossing and may still be working to fully lease-up the property.
SPONSORSHIP The loan’s sponsor is a TIC called Haymarket Center LLC, which is owned by Series 4 and Institutional Series D of First National Realty Partners. Anthony Grosso and Christopher Palermo co-founded First National Realty Partners (FNRP) and currently serve as managing principals of the real estate investment and development firm. FNRP’s portfolio comprises over one million sf of retail, office, industrial and multifamily properties across the United States. The property is managed by First National Property Management, LLC, a borrower-affiliated company, for a contractual management of 3.0% of the EGI.
Structured Finance: CMBS 69 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
HAYMARKET VILLAGE CENTER – HAYMARKET, VA
DBRS ANALYSIS SITE INSPECTION SUMMARY Based on the site inspection and management meeting conducted on January 4, 2019, at 1:00 p.m., DBRS found the property quality to be Average.
The collateral is a 256,856 sf grocery-anchored retail center located approximately 37.0 miles west of the downtown CBD in Washington D.C. The property is situated just off John Marshall Highway at the intersection of U.S. Route 15, a major north-south highway along the eastern seaboard, and I-66, a main roadway connecting suburbs west of Washington D.C. with the city. Consequently, the subject is easily accessible due to its proximity to these major roadways. The property features two ingress/egress points along John Marshall Highway. Several competing shopping centers are located within three miles of the collateral, but the surrounding area is minimally infilled overall, with open plots of land predominantly west of the subject. The nearest Walmart to the subject is approximately 10.0 miles southeast, while the nearest Kohl’s is about 8.0 miles away. In addition, Dulles International Airport is located approximately 24.0 miles northeast of the subject.
The subject comprises five buildings in total: two buildings occupied by anchor tenants, two outparcels and a building home to exclusively in-line tenants. The building containing the majority of in-line tenants is located on the southeast corner of the property and has an exterior composed of tan concrete with red brick accents and a flat roof. Tenants generally have large, highly visible signage located above the storefronts. Starbucks and Busaba Thai occupy the two end cap spaces; however, Starbucks has far more visibility, as it situated near the entrances to the parking lots. There is a vacant in-line space situated between Starbucks and Famous Kabob that appeared to have been recently vacated. There are two adjacent outparcel buildings on the southeast corner of the property. One building is occupied by Hand & Stone Massage, Dunbri’s Dessert Café, and Sakura Grill, while the other outparcel is occupied by Mattress Firm and Urban Kitchen. The outparcel buildings are situated along the subject’s main entrance point and thus have great visibility. The exterior of Kohl’s is composed of gray and tan concrete. The tenant had a modest number of cars parked in the lot out front; the store itself was relatively empty at the time of inspection with few shoppers present. Awesome Smiles, a dental office, occupies a small tenant space in the same building as Kohl’s, and the end cap space is presently vacant. By comparison, Walmart, which is situated in a stand-alone building on the west portion of the property, was bustling with customers, and the parking lot in front of the store was almost entirely full. Major departments at the Walmart include grocery, pharmacy, outdoor living, and home sections. In addition, this Walmart offers a curbside pickup service. Truck loading docks for both Walmart and Kohl’s are located opposite the parking lots on the north side of the property. Customer parking lots are mostly situated on the south end of the lot with smaller overflow spaces available on northeast and northwest corners of the property. The parking lots were all in good condition with minimal cracking and spalling. Overall, the collateral showed well with minimal deferred maintenance evident.
Structured Finance: CMBS 70 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
HAYMARKET VILLAGE CENTER – HAYMARKET, VA
DBRS NCF SUMMARY
NCF ANALYSIS
T-12 October 2015 2016 2017 2018 Issuer NCF DBRS NCF NCF Variance
GPR $2,242,938 $2,395,095 $2,402,108 $2,391,882 $2,521,973 $2,562,281 1.6%
Recoveries $470,074 $502,506 $436,850 $486,571 $488,707 $510,461 4.5%
Other Income $28,068 $26,398 $24,395 $15,759 $10,962 $15,759 43.8%
Vacancy -$174,491 -$324,039 -$136,310 -$97,670 -$165,417 -$491,272 197.0%
EGI $2,566,589 $2,599,960 $2,727,043 $2,796,542 $2,856,225 $2,597,229 -9.1%
Expenses $490,986 $596,666 $559,561 $624,939 $512,443 $571,594 11.5%
NOI $2,075,603 $2,003,294 $2,167,482 $2,171,603 $2,343,782 $2,025,635 -13.6%
Capex $0 $0 $0 $0 $51,371 $51,371 0.0%
TI/LC $0 $0 $0 $0 $72,730 $115,057 58.2%
NCF $2,075,603 $2,003,294 $2,167,482 $2,171,603 $2,219,681 $1,859,207 -16.2%
The DBRS NCF is based on the DBRS North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS NCF for Haymarket Village Center was $1,954,311, a variance of approximately -8.9% from the Issuer’s NCF of $2,146,272. The main drivers of the variance are the LCs, vacancy, TIs and Management Fee. DBRS used the appraisal LC assumptions of 6.0% and 4.0% for new and renewal leases, respectively. For the vacancy, DBRS applied a blended rate of 9.9% to the subject. This approach was achieved by taking the actual vacancy of 14.4% for in-line tenants and applying 1.0% and 4.0% vacancy figures to LTCTs, Walmart and Kohl’s, respectively. DBRS assumed TIs of $25.00 psf for new leases using the appraisal estimates and took half of that at $12.50 psf for renewal leases. Lastly, DBRS applied a management fee of 4.0%, whereas the Issuer used a 3.0% fee for its NCF analysis.
DBRS VIEWPOINT The collateral is situated in a far outer suburb of the Washington D.C. metro area where the local area is currently minimally infilled. Therefore, there is elevated risk given the collateral’s location in a tertiary market, which would typically suffer greater losses during an economic downturn than urban and suburban neighborhoods. On the other hand, the area appears to be up-and-coming with new developments springing up rapidly. There are currently 48 properties planned for construction in the submarket and another 26 properties in the proposed construction phase. The subject is strategically located in an area with strong linkages to more densely populated eastern suburbs. By being located at the corner of where I-66 and U.S. Route 15 intersect, the collateral can be easily accessed by customers despite its location in a relatively low-density area. The property benefits in part from the economic development of the submarket; however, there are also numerus competing retail properties, including three neighborhood centers totaling 107,000 sf that are presently under construction. None of these properties contain the big-box anchor tenants that the subject possesses, and all have comparable locations. With an average rent of $36.32 psf for in-line tenants, the property currently offers rents above the market average. The appraisal estimates $33.00 psf for the average market rent for in-line tenant space, while CoStar estimates the submarket’s average rent for retail space at $25.14 psf. The property’s revenue could dip in the future given the above-market rents that tenants are paying and increased development activities. However, the collateral is bolstered by strong anchor tenants, especially Walmart, that drive, and should continue to drive, consistent consumer demand to the subject retail center.
Structured Finance: CMBS 71 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
HAYMARKET VILLAGE CENTER – HAYMARKET, VA
DOWNSIDE RISKS • The property exhibits low credit metrics with a DBRS Refi DSCR and DBRS Exit Debt Yield of 0.83x and 8.1%, respectively.
STABILIZING FACTORS • The property is currently 97.8% physically leased and has historically maintained a minimum occupancy of approximately 95.0%. Both Walmart and Kohl’s signed long-term leases that extend more than three years beyond the loan term. Kohl’s current base rent of $7.00 psf increases to $7.70 psf in February 2023, further bolstering the property’s NOI over the loan term. The property benefits from the fact that none of the in-line tenants comprise more than 1.8% of the NRA, and only 13.2% of the property’s NRA rolls over by 2027. The additions of Bank of American and ABC Liquors will also bring in additional revenue to the property.
Structured Finance: CMBS 72 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
Willowbend Apartments Sunnyvale, CA
Loan Snapshot Seller BANA Ownership Interest Fee Trust Balance ($ million) $24.9 Loan psf/Unit $75,569 Percentage of the Pool 2.6% Loan Maturity/ARD December 2028 Amortization COLLATERAL SUMMARY 30 Years DBRS Property Type Multifamily Year Built/Renovated 1985 DBRS Term DSCR 3.57x City, State Sunnyvale, CA Physical Occupancy 89.4% DBRS Refi DSCR Units/SF 330 Physical Occupancy Date January 2019 3.57x DBRS Debt Yield This loan is secured by the borrower’s fee simple interest in the Willowbend Apartments, 28.5% a 330-unit multifamily property in Sunnyvale, California, which is 7.7 miles northwest DBRS Exit Debt Yield of downtown San Jose. Loan proceeds of $25.0 million will be used to repay existing 20.0% debt of $24.4 million, cover closing costs of $250,000 and return $331,559 of cash Competitive Set equity to the borrower. The ten-year loan amortizes over a 30-year schedule with no Multifamily, Large, CA, Suburban IO period. The property was previously securitized in the COMM 2009-K3 transaction Median Debt Yield for a cut-off balance of $29.8 million and was repaid in December 2018. As a result 8.7% of this transaction, the borrower will have $1.5 million of cash equity remaining in Median Loan PSF/Unit the collateral. $94,560 Debt Stack ($ million) The garden-style complex was built in 1985 on a 14.0-acre site. The property contains Trust Balance 16 three-story apartment buildings, a one-story clubhouse building and 727 surface $24.9 parking spaces. Amenities at the property include a clubhouse, fitness center, Pari Passu swimming pool, playground and barbecue patio. The unit breakdown consists of: 138 $0.0 one-bedroom units (648 sf per unit), 20 two-bedroom/one-bathroom units (825 sf B-Note per unit), 116 two-bedroom/two-bathroom units (917 sf per unit), 38 two-bedroom/ $0.0 two-and-a-half-bathroom units (1,042 sf per unit) and 18 three-bedroom/two-and- Mezz $0.0 a-half-bathroom units (1,228 sf per unit). All units offer an exterior storage room, Total Debt a private patio/balcony, two parking spaces, high-speed Internet, dishwasher, air $24.9 conditioning and an in-unit washer and dryer. Loan Purpose Refinance The property was 89.4% occupied as of the rent roll dated January 11, 2019. According Equity Contribution/ to the rent roll, one-bedroom units have average rent of $2,150, two-bedroom/one- (Distribution) ($ million) bathroom units average $2,515, two-bedroom/two-bathroom units average $2,664, ($0.3) two-bedroom/two-and-a-half-bathroom units average $2,756 and three-bedroom/ two-and-a-half-bathroom units average $3,226 rent per month. The property’s average
Structured Finance: CMBS 73 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
WILLOWBEND APARTMENTS – SUNNYVALE, CA in-place rent of $2,499 per unit is below market when compared to the Reis averages of $2,839 per unit for the submarket and $2,905 per unit by submarket vintage. The property’s in-place vacancy rate of 10.6% is also outperformed by the Reis submarket and submarket by vintage vacancy rates of 5.1% and 5.4%, respectively. The property has exhibited an average physical occupancy rate of 93.4% ranging from 2014 to the T-12 period ending August 2018. The current physical occupancy rate of 89.4% is below the historical occupancy rate due to a corporate tenant, operating as Rosswood LLC. and National Housing Corp., vacating 17 units in early September 2018, because the company went out of business. As of the rent roll dated January 11, 2019, there are no units rented to commercial or corporate tenants. Per the appraiser’s competitive set, the property is outperformed by its competitors in terms of WA occupancy rate of 96.4%. However, the property offers short-term and long-term leases and experiences seasonality due to the high concentration of tenants with temporary worker visas that lease units at the property. Additionally, the subject property is the only property in the appraiser’s competitive set to not undergo a renovation since 2001.
COMPETITIVE SET
Distance from Year Built/ Average Property Subject Units Renovated Occupancy Unit Size (sf)
Bristol Commons 0.8 miles 188 1989/2008 97.3% 871
Windsor Ridge 0.8 miles 216 1989/2014 93.1% 915
Avana Sunnyvale 1.7 miles 191 1991/2011 94.8% 1,082
Heritage Park Apartments 1.3 miles 506 1987/2013 96.8% 833
Arbor Terrace Apartments 1.7 miles 175 1980/2001 91.4% 727
Marina Playa 2.2 miles 269 1973/2012 97.0% 838
Briarwood Apartments 2.8 miles 192 1986/2014 99.0% 828
Windmere 3.6 miles 259 1988/2008 99.6% 783
Total/Wtd. Avg. Comp. Set Various 1,996 Various 96.4% 854
Willowbend Apartments - Subject n/a 330 1985 89.4% 830
Source: Cushman & Wakefield Appraisal, except the Subject figures are based on the rent roll dated January 11, 2019.
SPONSORSHIP The loan’s sponsor is C. Gemma Hwang, who has owned the property since 1987. As of October 2018, Hwang reported an ownership interest in two multifamily properties, a Hyatt Place hotel and a retail center all in the state of California with an estimated market value of $525.0 million. In addition to the subject, the other multifamily property the sponsor owns is Heritage Park Apartment Homes, which is a 508-unit multifamily property located in Sunnyvale. The sponsor has a net worth and liquidity of $485.8 million and $32.3 million, respectively.
The property has been managed by the third-party management company Alliance Residential since 2008 at a contractual management fee of 2.0% EGI. Alliance Residential manages a $15.0 billion portfolio with 100,000 units currently under management, making them the nation’s seventh-largest multifamily manager.
Structured Finance: CMBS 74 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
WILLOWBEND APARTMENTS – SUNNYVALE, CA
DBRS ANALYSIS SITE INSPECTION SUMMARY Based on the DBRS site inspection and management meeting conducted on January 4, 2019, DBRS found the property quality to be Average (-).
The garden-style apartment property is located northwest of E. Evelyn Avenue, a neighborhood arterial thoroughfare, in a built-out suburban area of Sunnyvale. The subject is bordered to the north by the Caltrain, a California commuter rail line, and is about a ten-minute walk to the Lawrence Station, which provides residents access to San Francisco to the north and San Jose to the south. The immediate area around the property offers a mixture of single-family homes, industrial, office and competing multifamily properties. The property’s facade has beige-painted stucco exterior walls and pitched-roofs cladded in clay mission tile. A property manager at the property reported that the property’s exterior was being re-painted beige at the time of the inspection and roof repairs had been completed the previous week. The Courtyard Apartments, a competitive Class B apartment complex located directly to the west of the subject, was similar in exterior-quality and curb appeal to the subject.
The clubhouse/leasing office building contain administrative offices, a lounge area and a small gym, and was comparable in quality and layout to a standard suburban Class B multifamily clubhouse/leasing office building. A leasing agent at the property reported that the property was 91.5% leased at the time of the inspection, which was below their targeted goal of 92.0%. Concessions of $200 to $250 off the first month’s rent were being offered to new tenants at the time of the inspection, which is generally in line with the property’s competitors during this time of the year per the leasing agent. In order to accommodate residents with temporary worker visas, the property offers short-term leases, leases that range from six to nine months, and long-term leases, leases that extend from ten to 13 months. Per the leasing agent, there is a large concentration of residents at the property with temporary worker visas that work at Google, Apple and Nvidia due to the property’s proximity to those companies’ nearby offices. The leasing office was busy at the time of the inspection and the leasing agent relayed that the period between November and December was traditionally a busy leasing period due to the seasonality associated with tenants on temporary worker visas. The leasing agent at the property indicated that most of the subject’s competitors offer larger gyms and larger pool areas compared to the subject. The large green space areas within the complex are an attractive feature that the property offers that most of its direct competitors do not have.
The interior units inspected contained dated finishes, such as beige carpeting in the living room and bedroom areas, grey-colored paneled laminate flooring in the kitchens and bathrooms, white-painted popcorn ceilings, white appliances and light-wood Formica countertops with dark-wood laminate cabinetry in the kitchens and bathrooms. Since DBRS last conducted a site inspection for the property in May 2009 for the COMM 2009-K3 securitization, it did not appear that
Structured Finance: CMBS 75 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
WILLOWBEND APARTMENTS – SUNNYVALE, CA the property’s apartments had been renovated. The leasing agent conveyed that most of the property’s competitors have undergone interior renovations in the past few years. The leasing agent and maintenance personnel conveyed that the sponsor planned to begin interior renovations some time this year following the conclusion of the exterior renovations. While the staff at the property did not have details regarding the scope and timeline of the interior renovations, staff at the property expected the interior renovation scope to be similar to the renovations completed at the Heritage Park Apartment Homes, the property’s sister property. The Heritage Park Apartment Homes offers wood-vinyl flooring, stainless-steel appliances and granite countertops in the interior units. DBRS noted instances of deferred maintained, such as cracking in the parking lot, chipped concrete on walkways, peeling of the laminate surfaces on bathroom and kitchen cabinetry and water staining on the ceiling of one of the interior units.
DBRS NCF SUMMARY
NCF ANALYSIS
2015 2016 2017 T-12 August 2018 Issuer NCF DBRS NCF NCF Variance
GPR $8,941,290 $9,612,558 $9,604,186 $9,813,331 $9,908,262 $9,908,262 0.0%
Other Income $762,318 $634,485 $588,500 $643,642 $643,642 $643,642 0.0%
Vacancy & Concessions -$407,570 -$895,997 -$536,331 -$934,672 -$943,209 -$1,029,603 9.2%
EGI $9,296,038 $9,351,046 $9,656,355 $9,522,301 $9,608,695 $9,522,301 -0.9%
Expenses $1,958,476 $2,136,958 $2,136,751 $2,256,652 $2,256,837 $2,307,110 2.2%
NOI $7,337,562 $7,214,088 $7,519,604 $7,265,649 $7,351,858 $7,215,191 -1.9%
Capex $0 $0 $0 $0 $102,300 $102,300 0.0%
NCF $7,337,562 $7,214,088 $7,519,604 $7,265,649 $7,249,558 $7,112,891 -1.9%
The DBRS NCF is based on the DBRS North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS NCF was $7,112,891, a -1.9% variance from the Issuer’s NCF.
DBRS VIEWPOINT The collateral is well located in Silicon Valley in a fully built-out area near public transportation and major employers of tenants at the property such as Google, Apple and Nvidia. The appraiser’s concluded as-is value of $142.0 million, equating to a 17.6% LTV, and $129.2 million land value, equating to a 19.2% LTV, imply there is significant value in the location of the property alone. As of the rent roll dated January 11, 2019, the property’s in-place vacancy rate of 10.6% is well above the appraisers competitive set, Reis submarket and submarket by vintage vacancy rates of 3.6%, 5.1% and 5.4%, respectively. Historically, the property has exhibited a strong average physical occupancy rate of 93.4% ranging from 2014 to the T-12 period ending August 2018. However, the property’s recent decline in occupancy was largely caused by the vacancy of 17 units in early September 2018, which were previously leased to a corporate tenant that went out of business. The property offers short-term and long-term leases, as most of its current tenancy is reportedly comprised of residents on temporary worker visas who work at nearby major technology companies. Due to the property’s tenant concentration, macro-economic factors, such as foreign-policy legislation related to temporary worker visas and Silicon Valley technology firm valuation, could affect the property’s performance over the loan term. Per the leasing agent on the site inspection, most the property’s direct competitors offer more modern units and larger gyms and pool areas compared to the subject. The sponsor’s planned interior renovations, which are scheduled to begin in 2019 per staff on-site at the property, should improve the quality of the property, as the interior units observed on the site inspection appeared dated. The cut-off date balance of $75,799 per unit for this transaction is below the cut-off date balance of $90,312 per unit for the COMM 2009-K3 securitization despite the property’s NOI increasing from $4.6 million as of the T-12 period ending October 2008 to $7.3 million as of the T-12 period ending August 2018. Per Real Capital Analytics, the property’s current
Structured Finance: CMBS 76 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
WILLOWBEND APARTMENTS – SUNNYVALE, CA cut-off date balance of $75,799 is significantly below the WA sale price of $369,116 per unit for multifamily properties within a 5.0-mile radius of the subject property across 112 transactions since January 2014. With a DBRS Exit Debt Yield and DBRS Refi LTV of 35.4% and 22.6%, respectively, as well as the subject’s cut-off date balance per unit of $75,799 and the collateral’s location in a built-out area of Silicon Valley, DBRS considers the credit quality associated with the loan’s exposure to be AAA.
DOWNSIDE RISKS • Per the site inspection conducted on January 4, 2019, a leasing agent and maintenance employee conveyed to DBRS that the sponsor is planning to begin an interior renovation to modernize all the units at the property in 2019. The subject loan was not structured with upfront reserves to complete the renovation and the time-frame and expense scope of the renovation were not provided to DBRS. The interior renovation will likely negatively affect the property’s performance when the units are off-line undergoing renovations.
STABILIZING FACTORS • The loan securitized in the COMM 2009-K3 transaction had the same sponsorship as this transaction and the prior loan performed as agreed upon. The sponsor has experience executing a similar renovation plan at Heritage Park Apartment Homes, a nearby Class B apartment complex also located in Sunnyvale. DBRS would have to assume at least a 69.0% hypothetical economic vacancy rate assumption, equal to the rent generated from approximately 228 units, in its NCF analysis to achieve a DBRS Term DSCR less than 1.00x. The hypothetical economic vacancy plug is significantly above the 10.4% economic vacancy rate assumption DBRS used in its NCF analysis to achieve an NRI directly in line with the T-12 period ending August 2018.
Structured Finance: CMBS 77 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
Springdale General Austin, TX
Loan Snapshot Seller MSMCH Ownership Interest Fee Trust Balance ($ million) $24.5 Loan psf/Unit $148 Percentage of the Pool 2.5% Loan Maturity/ARD January 2029 Amortization COLLATERAL SUMMARY Interest Only DBRS Property Type Office Year Built/Renovated 2018 DBRS Term DSCR 1.84x City, State Austin, TX Physical Occupancy 99.4% DBRS Refi DSCR SF 165,457 Physical Occupancy Date December 2018 0.90x DBRS Debt Yield This loan is secured by the borrower’s fee interest in Springdale General, a 165,457-sf 8.9% Class B office building campus located in Austin, Texas. The 15-building property DBRS Exit Debt Yield was recently built in 2018 and is currently 99.4% occupied. Whole-loan proceeds of 8.9% $24.5 million refinanced approximately $19.9 million of existing debt, returned roughly Competitive Set $1.8 million to the sponsor and covered closing costs and reserves of $1.5 million. The Office, Large, 787 ten-year fixed-rate loan is fully IO for the entire loan term. The sponsor completed Median Debt Yield development of the subject property in 2018 at a cost of approximately $31.7 million, 9.1% which includes $1.5 million to acquire the land. To help facilitate the funding of the Median Loan PSF/Unit property, the sponsor secured $2.1 million of New Market Tax Credit (NMTC) equity, $138 which includes $7.8 million of tax credit obligations including $5.7 million of borrower Debt Stack ($ million) equity. At closing, the borrower will have approximately $4.8 million or 16.6% of equity Trust Balance remaining in the property. See the Sponsorship section for further detail. $24.5 Pari Passu The rent roll is granular with 42 tenants in place spanning a variety of industries, $0.0 including technology, non-profits, art and design studios, fitness studios, restaurants B-Note and coffee shops. The largest tenant at the property is Notley Ventures (Notley), which $0.0 occupies 61,729 sf at the subject. The company is a venture capital firm that focuses on Mezz $0.0 social engagement and assists non-profit organizations. The tenant operates its Center Total Debt for Social Innovation (CSI) at the property, which it subleases to its portfolio companies. $24.5 The tenant has a ten-year lease at the subject, which matures in September 2028. The Loan Purpose owners of Notley are also investors in the subject property with 10% ownership in the Refinance subject. The second- and third-largest tenants at the property are Creative Action and Equity Contribution/ Jones-Dilworth, Inc. (JDI), respectively. Creative Action is a non-profit organization (Distribution) ($ million) that specializes in arts education in the Central Texas area. The tenant operates its $0.0 headquarters at the property in Building 3, a 10,340-sf space which includes art studios, media labs and teaching classrooms. Jones-Dilworth is a boutique consulting firm
Structured Finance: CMBS 78 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
SPRINGDALE GENERAL – AUSTIN, TX based in Austin that focuses on assisting new companies with market research, public relations, business development and customer development, etc. The company occupies 9,383 sf at the property with a ten-year lease term set to expire in November 2028.
TENANT SUMMARY
% of Total DBRS Base DBRS Base Investment Tenant SF % of Total NRA Rent PSF Rent Lease Expiry Grade? (Y/N)
Notley - Center for Social Innovation 61,729 37.3% $17.75 37.2% September 2028 N
Creative Action 10,340 6.2% $17.50 6.1% December 2023 N
Jones-Dilworth, Inc. (JDI) 9,383 5.7% $17.75 5.7% November 2028 N
Sky Candy 6,813 4.1% $17.50 4.1% October 2028 N
Caffe Medici - Roasting & Coffee Shop 5,133 3.1% $6.00 1.0% February 2029 N
Subtotal/Wtd. Avg. 93,398 56.4% $17.06 54.1% Various N
Other Tenants 71,078 43.0% $18.98 45.9% Various N
Vacant Space 981 0.6% n/a n/a n/a n/a
Total/Wtd. Avg. 165,457 100.0% $17.78 100.0% Various N
SPONSORSHIP The sponsor of this loan is an SPE jointly owned by Sola Management, LLC (Sola; 36.5%), 1023 Family LLC (31.5%), Notley CSI (5.0%), The Notley Fund (5.0%) and five additional members comprising a total of 22.0%. Sola is owned by its managing member, Daryl Kunik, who also serves as manager of the sponsor. Mr. Kunik is the owner of Central Austin Management Group, a real estate investment company based in Austin that specializes in property management and real estate development. Central Austin Management Group is also the property manager for the subject. The company has developed 20 commercial properties spanning over 350,000 sf of space in Texas. 1023 Family LLC is owned by its managing member, Abe Zimmerman, who has 50.0% in the company. Mr. Zimmerman is a local real estate investor with a portfolio of nine commercial properties valued at more than $150.0 million, in which he owns a $21.0 million interest. Mr. Kunik and Mr. Zimmerman are joint and carve-out guarantors for the subject loan.
To help facilitate funding of the development, the borrower secured $2.1 million of NMTC equity through a structure that includes $7.8 million of tax credit obligations that expire in March 2024. The obligations carry a 1.0% annual interest payment. The $7.8 million of obligations include $5.7 million of equity from the sponsor with interest payments flowing back to them. At the end of the NMTC compliance period in March 2024, the $7.8 million of obligations will burn off without principal repayment. The NMTC obligations are guaranteed by Mr. Kunik, Mr. Zimmerman and five additional guarantors. The obligations are not secured by the subject property or sponsor.
Structured Finance: CMBS 79 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
SPRINGDALE GENERAL – AUSTIN, TX
DBRS ANALYSIS SITE INSPECTION SUMMARY DBRS toured the interior and exterior of the property on January 3, 2019, around 9:30 a.m. Based on the DBRS site inspection and management meeting, DBRS found the property quality to be Average (+).
The subject comprises 15 two-story office buildings, spanning a total NRA of 165,457 sf. The collateral is located off Springdale Road in East Austin, approximately 2.5 miles east of the Austin CBD. The subject has quick access to the downtown area heading west on 7th Street, which is located a quarter mile south of the property on Springdale Road. The city serves as the state capital of Texas and is known for its live music scene and recent revitalization led by a prominent tech industry presence. The University of Texas-Austin is also located approximately 3.0 miles northwest of the subject property and serves as a large demand driver to the metro area. Because of the near proximity of both downtown Austin, the university and local lakes, the area is home to many amenities for residents and visitors including stadiums, parks, hiking trails and boating. Development in the local area is a mix of commercial and residential properties with a large number of office and industrial parks with a larger focus on the former over the past five years.
Built in two phases between April and December 2018, the Class B office property is currently 99.4% occupied across 42 tenants, per the December 2018 rent roll, with only one vacant unit. The property exhibits average curb appeal that falls in line with the surrounding area. Although leased, many units were still under construction during the time of the site inspection meeting including most of Building 1, which is scheduled to complete in April 2019. Nonetheless, the spaces are rented out and in the final stage of construction. Building 1, once complete, will contain a coffee shop, co-working space, a barbershop as well as office space located on the ground floor and second floor. Per the property manager, spaces in Building 1 will be complete in February 2019 and fully finish in April 2019. The rectangular-shaped buildings range in similar size of 9,383 sf to 10,617 sf, aside from Building 1, which totals 23,701 sf. Buildings 3 and 5 are fully occupied by Creative Action (10,340 sf ) and JDI (9,383 sf ), respectively. The exterior of the buildings is composed of metal and wood with wood framing with a concrete foundation. The tenant roster at the property is mainly small to medium-sized businesses that include technology, non-profits, art and design studios, fitness studios, restaurants and coffee shops. Parking at the property was found to be adequate with a total of 459 parking spaces spread across the site. Landscaping at the property is minimal with newly planted trees and plants located in the front and sides of the buildings. The subject also features a pair of electric-car chargers as well as solar panels that are outfitted near the entrance, which provide power to the common areas of Building 1. Overall, the property was found in good condition with no deferred maintenance.
Structured Finance: CMBS 80 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
SPRINGDALE GENERAL – AUSTIN, TX
DBRS NCF SUMMARY
NCF ANALYSIS
Issuer NCF DBRS NCF NCF Variance
GPR $2,976,565 $2,962,045 -0.5%
Recoveries $877,456 $1,758,518 100.4%
Other Income $0 $0 0.0%
Vacancy -$308,322 -$472,056 53.1%
EGI $3,545,699 $4,248,507 19.8%
Expenses $877,456 $1,758,518 100.4%
NOI $2,668,243 $2,489,989 -6.7%
Capex $33,091 $33,091 0.0%
TI/LC $228,331 $286,119 25.3%
NCF $2,406,821 $2,170,779 -9.8%
The DBRS NCF is based on the DBRS North American Commercial Real Estate Property Analysis Criteria. The resulting NCF was $2,170,779, a variance of -9.8% from the Issuer’s NCF. The primary drivers of the variance are vacancy and LCs. DBRS estimated a vacancy rate of 10.0% based on a holistic view of the asset class, submarket vacancy levels and consideration of a newly built development in a burgeoning market. The Issuer concluded to an 8.0% vacancy rate based on the appraiser’s assumption of market vacancy. For LCs, DBRS accepted the appraiser’s market assumptions of 6.0%/4.0% for new/renewal leases while the Issuer used 4.0%/2.0%.
DBRS VIEWPOINT The subject property represents a well-located Class B office complex in East Austin, approximately 2.5 miles east of downtown Austin. The near fully occupied property sits in a campus setting and comprises 15 two-story office buildings that were recently built in 2018. The property is currently 99.4% leased among a granular rent roll of 42 total tenants and benefited from the growing Austin market and strong tenant demand, having preleased approximately 90.0% prior to completion. The largest tenants at the property are Notley (37.3% of total NRA), Creative Action (6.1% of total NRA) and JDI (5.7% of total NRA). The tenant roster is composed of small to medium-sized businesses that include technology companies, design studios, non-profits, workshops and retail shops. Overall, the property appears in good condition with average curb appeal and a modern appearance that fits well within the local area based on the site inspection. DBRS gave credit to the property’s quality with an Average (+) designation, which improved the POD. Because of the loan’s fully IO nature, the DBRS Term DSCR is favorable at 1.84x and also offers a relatively strong DBRS Debt Yield of 8.9%.
DOWNSIDE RISKS • Rollover risk is present with 96.3% of total NRA and 99.0% of total DBRS Base Rent expiring within the loan term with 46.9% of DBRS Base Rent expiring in 2028. The largest tenant, Notley, expires in 2028, one year prior to loan expiration.
STABILIZING FACTORS • The property resides in a strong Austin market that has been growing steadily over the past decade and exhibits healthy demand in the office sector. The property is currently 99.4% occupied by a granular rent roll of 42 tenants that span a variety of industries, including technology, non-profits, art and design, fitness and retail. The subject is recently built and had preleased approximately 90.0% prior to completion. In addition, Notley operates its headquarters at the property and works with local non-profit organizations to which it subleases space at the subject. Furthermore, the loan
Structured Finance: CMBS 81 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
SPRINGDALE GENERAL – AUSTIN, TX
is structured with an ongoing $0.75 psf TI/LC reserve as well as a cash flow sweep that is triggered if the loan’s DSCR falls below 1.20x for six consecutive months or if Notley vacates the property prior to lease maturity. The sweep would provide approximately $20.60 psf, which will comfortably cover re-tenanting the space per the appraiser’s estimated TIs of $8/$4 psf on new/renewal leases; however, the challenge of filling a large amount of space all at once remains.
Structured Finance: CMBS 82 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
Hancock Plaza Colorado Springs, CO
Loan Snapshot Seller WFB Ownership Interest Fee Trust Balance ($ million) $21.4 Loan psf/Unit $118 Percentage of the Pool 2.2% Loan Maturity/ARD November 2028 Amortization COLLATERAL SUMMARY 30 Years DBRS Property Type Anchored Retail Year Built 1980/2017 DBRS Term DSCR 1.06x City, State Colorado Springs, CO Physical Occupancy 96.8% DBRS Refi DSCR Units/SF 181,321 Physical Occupancy Date 10/2018 0.82x DBRS Debt Yield The loan is secured by the borrower’s fee interest in Hancock Plaza, a 7.2% 181,321 sf neighborhood retail center located in southeast Colorado Springs, Colorado, DBRS Exit Debt Yield approximately five miles from the CBD. The collateral was built in 1980 and is 8.0% composed of seven retail buildings, 964 parking spaces and a fuel station spread across Competitive Set a 27.7-acre lot. The property is 96.8% leased to 29 tenants as of January 2019 and is Anchored Retail, Medium, 809 anchored by a King Soopers. Other tenants at the property include junior anchors Median Debt Yield Arc Thrift Stores, Ace Hardware and Dollar Tree, while the remaining 25 tenants are 10.0% represented by a mixture of in-line and fronting retail space. The borrower purchased Median Loan PSF/Unit the property in 1997 for nearly $5.9 million and has a total cost basis of $9.8 million. $90 The $21.4 million loan will refinance approximately $10.0 million of existing debt on Debt Stack ($ million) the property, return nearly $11.0 million of cash equity to the borrower, and cover Trust Balance closing costs of $250,000. The loan allows for the partial release of two undeveloped $21.4 pad sites when they are legally platted post-closing. There would be no release price, Pari Passu and the remaining collateral would consist of approximately 25 acres, including and $0.0 all seven retail buildings. The ten-year loan is IO for three years and amortizes on a B-Note 30-year schedule thereafter. $0.0 Mezz $0.0 The sponsor acquired the property, which was 79.0% occupied, in 1997 for $5.85 million. Total Debt At that time, anchor tenants included Decorators Furniture Warehouse, Fantastic Sams $21.4 and Plaza 4 Theater. Since then the sponsor has steadily replaced and improved the Loan Purpose tenant profile. In 2003 King Soopers, who occupies 61,453-sf (33.9% of NRA) and Refinance recently executed a 12-year lease renewal, was relocated to the subject from the retail Equity Contribution/ center directly across the street. Subsequently, the sponsor was able to bring in Dollar (Distribution) ($ million) Tree, Arc Thrift Stores and Ace Hardware in 2003, 2004 and 2011, respectively. The $5.8 collateral is located in a residential area of the growing Colorado Springs MSA. The area’s population growth is forecasted to continue growing at a rate of 1.6% per year
Structured Finance: CMBS 83 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
HANCOCK PLAZA – COLORADO SPRINGS, CO through 2022. The tenant mix at the property is diverse including a grocery store, hardware store, nine restaurants, a dental office, and a bank, among others. CoStar indicates there are 4 neighborhood/community centers within a 1-mile radius of the subject, however the property is the only grocery anchored shopping center. Three other grocery stores, one Safeway and two Walmarts, are located within a three-mile radius of the collateral with no new grocery stores planned or under construction.
TENANT SUMMARY
DBRS Base % of Total Investment Tenant SF % of Total NRA Rent PSF DBRS Base Rent Lease Expiry Grade? (Y/N)
King Soopers 61,453 33.9% $5.40 16.5% 8/31/2030 N
ARC Thrift Stores 25,392 14.0% $8.40 10.6% 2/28/2020 N
Dollar Tree 16,200 8.9% $8.47 6.8% 5/31/2020 N
Ace Hardware 10,920 6.0% $9.50 5.2% 2/28/2021 N
Rainbow USA Inc. 5,150 2.8% $17.60 4.5% 1/31/2020 N
Subtotal/Wtd. Avg. 119,115 65.7% $7.36 43.7% Various N
Other Tenants 56,354 31.1% Various 56.3% Various N
Vacant Space 5,852 3.2% $16.00 n/a n/a n/a
Total/Wtd. Avg. 181,321 100.0% $11.06 100.0% Various N
The subject has historically been well-occupied with an average occupancy of 93% between 2010 and 2018, bottoming out at 89% in 2012. Of the 29 tenants, 15 tenants representing 66% of total NRA are national tenants. King Soopers, which is a supermarket brand of Kroger headquartered in Denver, recently renewed their lease for 12 years. In April 2018, Kroger announced plans to add approximately 600 jobs and invest $500 million in wages, training, and development across its Colorado stores over the next three years. The loan is structured with a cash flow sweep in the event that King Soopers goes dark, vacates, or fails to occupy the premise. The second largest tenant, Arc Thrift Stores, is a locally operated non- profit store chain. The company strives to support children and adults with intellectual and developmental disabilities and, per loan originator discussions with the store manager, sales have been trending up over recent years and they anticipate staying in the location long term given the favorable neighborhood demographics. Arc Thrift Stores, Dollar Tree and Ace Hardware, a combined 29.0% of NRA and 24.5% of base rent, have leases that will roll within the first three years of the loan term.
SPONSORSHIP The sponsor for this transaction is John S Buckley, Jr. Mr. Buckley has over 25 years of experience as a local real estate investor, developer, and operator. His portfolio includes four multi-family properties, seven retail properties, and one pad site. Mr. Buckley reported a total net worth of $150.5 million ($33.0 million of which is held in liquid assets). Inclusive of the subject property the sponsor’s real estate portfolio reports an estimated market value of $239.6 million with a WA LTV and DSCR of 60.0% and 1.48x, respectively. Property management will be provided by a third-party management company for a contractual rate of 3.5% of EGI.
Structured Finance: CMBS 84 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
HANCOCK PLAZA – COLORADO SPRINGS, CO
DBRS ANALYSIS SITE INSPECTION SUMMARY DBRS toured the interior and exterior of the property on Friday, December 28, 2018 at approximately 2:00pm. Based on the site inspection, DBRS found the property quality to be Average (-).
The collateral is comprised of a 181,321-sf grocery-anchored retail center located approximately 5.8 miles south-east of the downtown CBD in Colorado Springs, Colorado. The property is ideally situated at the intersection of South Academy Boulevard and the Hancock Expressway, which are both well-trafficked thoroughfares. The general area is characterized primarily by retail along South Academy Boulevard with restaurant and commercial uses as well as large concentrations of single family residential communities to the east and northwest. The immediate vicinity appeared to be of the lower- middle income demographic which further supports the subject as an ideal location for the second largest tenant, Arc Thrift Store. A Walmart anchored neighborhood center is positioned approximately one mile to the north along South Academy Boulevard. The Citadel, a regional shopping mall anchored by JC Penney, Dillards and Burlington Coat Factory, lies approximately four miles north of the subject along the same roadway. Overall, the retail properties in the area appeared to be well-occupied and were diversified across several different local and national retailers.
The property is well positioned at the northeast quadrant of the two arterial thoroughfares that experiences a traffic count in excess of 34,000 cars per day. While signage is good from both fronting roadways, visibility is somewhat obstructed along both South Academy Boulevard and the Hancock Expressway due to a variety of trees and vegetation along each route. While the PCR did not identify any meaningful immediate repair items DBRS noted numerous areas throughout the parking lot with extensive alligatoring and spalling throughout, which is likely exacerbated by the severe winter weather experienced in the region. The King Soopers and Jr. anchor tenants all appeared moderately busy at the time of inspection. Store interiors were clean and well-kept with aisles free of debris and restaurant tenants seemingly particularly busy with customers. Exteriors were slightly aged in appearance as the property looked as though it had not received meaningful renovation since it was originally built in 1980, although some renovation work was completed in 2017. Overall, while the subject had Average (-) curb appeal and could benefit from resurfacing of the parking lot, it was mostly similar in quality as other retail centers in the area.
Structured Finance: CMBS 85 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
HANCOCK PLAZA – COLORADO SPRINGS, CO
DBRS NCF SUMMARY
NCF ANALYSIS
T-12 October 2015 2016 2017 2018 Issuer NCF DBRS NCF NCF Variance
GPR $1,779,929 $1,832,739 $1,882,845 $1,942,803 $2,083,274 $2,019,956 -3.0%
Recoveries $463,216 $310,384 $381,550 $370,249 $381,119 $644,904 69.2%
Other Income $150 $300 $4,694 $200 $1,336 $0 -100.0%
Vacancy $0 $0 $0 $0 -$104,164 -$206,069 97.8%
EGI $2,243,295 $2,143,423 $2,269,089 $2,313,252 $2,361,565 $2,458,792 4.1%
Expenses $481,467 $425,219 $430,100 $437,329 $431,603 $693,814 60.8%
NOI $1,761,827 $1,718,204 $1,838,989 $1,875,923 $1,929,962 $1,764,978 -8.5%
Capex $0 $0 $0 $0 $27,198 $36,264 33.3%
TI/LC $0 $0 $0 $0 $90,657 $191,324 111.0%
NCF $1,761,827 $1,718,204 $1,838,989 $1,875,923 $1,812,107 $1,537,390 -15.2%
The DBRS NCF is based on the DBRS Commercial Real Estate Property Analysis Criteria. The resulting DBRS NCF was $1,536,188, representing a -15.2% variance from the Issuer’s NCF of $1,812,107. The primary drivers of the variance included vacancy and leasing costs. DBRS estimated a 7.7% vacancy loss based on the actual in-place economic vacancy at the property per the rent roll provided, assuming two of the three MTM tenants to be vacant. The remaining MTM tenant has been at the property 25 years and is paying less than half of the DBRS concluded market rent based on recent leasing. DBRS additionally estimated aggregate leasing costs of $1.06 psf compared to the issuer’s concluded aggregate leasing costs of $0.50 psf. DBRS new TILC assumptions were generally in-line with the appraisal with the exception of TI’s on the property’s small inline space, which were based on recent actual tenant improvements provided. DBRS further estimated renewal TI’s equal to 50.0% of new TI’s across all other space types, which was greater than the appraisers estimated renewal TI’s of $0.
DBRS VIEWPOINT The neighborhood center is ideally positioned along a heavily trafficked intersection in growing area surrounded by dense residential neighborhoods. The sponsor’s gradual upgrade to the tenant mix which began with the 2003 relocation of the King Soopers from the adjacent retail center into the subject and was followed by the addition of junior anchors Dollar Tree, Arc Thrift Stores and Ace Hardware has added significant value to the center. The subject does have a significant amount of leases rolling over the first three years of the loan term, with 41.7% of total NRA expiring including all three junior anchors. This is mitigated by the fact that Arc Thrift Stores and Dollar Tree have already renewed once, have slightly below market rent, and all three junior anchors along with several inline tenants at the subject are considered to be more insulated from ecommerce and therefore more likely to renew. Furthermore, the center has averaged 93.0% occupancy over the last nine years with a low point of 89.0% in 2010 coming out of the great recession. The loan is structured with three years of IO which results in elevated refinance risk for the property based on the DBRS Refi DSCR and DBRS Exit Debt Yield of 0.82x and 8.0%, respectively. While the sponsor will retain no cash equity in the deal at close, the appraiser’s as-is valuation of $30.4 million implies going-in and exit LTV’s of 70.4% and 62.9%, respectively. The sponsor is local, well capitalized and, with all seven owned retail assets located in the Colorado Springs and greater Denver markets, has good visibility into, and a strong understanding of, the local market.
Structured Finance: CMBS 86 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
HANCOCK PLAZA – COLORADO SPRINGS, CO
DOWNSIDE RISKS • Fourteen tenants, representing 41.7% of total NRA, have leases rolling over the first three years of the loan term. • The sponsor will be fully cashed out with no remaining cash equity in the deal.
STABILIZING FACTORS • Arc Thrift Stores and Dollar Tree represent 22.9% of the NRA rolling within the first three years of the loan term. Arc Thrift Store (14.0% NRA) and Dollar Tree (8.9% NRA), which have been at the property for 14 and 13 years, respectively, have both already renewed once and are an ideal fit given the demographics of the surrounding neighborhood. While neither tenant is required to report sales, both store managers have indicated positive sales trending up in recent years. Eleven of the 14 tenants rolling over the first three years have already renewed once, eight of which have been in occupancy more than ten years. • Sponsorship is local and has owned the asset for 22 years. After acquiring the subject at 79.0% occupancy in 1997 and successfully repositioning/leasing up the property, the subject has maintained an average occupancy of 93.0% since 2010. • According to Real Capital Analytics, there have been six grocery-anchored retail trades within ten miles of the subject since December 2013 that averaged a sales price of $174 psf, which is above the loan’s initial last-dollar exposure of $118 psf and well above the maturity exposure of $105 psf.
Structured Finance: CMBS 87 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
Transaction Structural Features
Credit Risk Retention: The risk retention interest (RR Interest) represents the Eligible Vertical Interest to meet the risk retention requirements of Section 15G of the Securities Exchange Act. Wells Fargo Bank National Association is acting as the retaining sponsor, known as the risk retention consultation party, under the credit risk retention rules. Wells Fargo Bank, N.A. (rated AA with a Stable trend by DBRS) will be permitted to offset the amount of its required risk retention by the portions of the RR Interest acquired by each of Bank of America, N.A. (rated A (high) with a Positive trend by DBRS) Morgan Stanley Bank, N.A. (rated A (high) with a Stable trend by DBRS) and National Cooperative Bank, N.A. as originators of one or more of the securitized assets.
Operating Advisor: This transaction has an operating advisor that will have consultation rights with the special servicer on major decisions during the period when a control termination event has occurred and is continuing (see definitions below in the Directing Certificateholder/Controlling Class Rights section). In addition, the operating advisor will be required to review certain operational activities related to specially serviced loans in general and on a platform-level basis. Furthermore, during these periods, the operating advisor will be required to complete an annual report assessing the special servicer’s performance. The report is to be delivered to the rating agencies, the trustee and the certificate administrator, who will be required to make the report available through its website. After the occurrence and continuance of a consultation termination event (see definitions below in the Directing Certificateholder/Controlling Class Rights section), if the operating advisor determines that the special servicer is not performing its duties as required under the PSA or is otherwise not acting in accordance with the servicing standard, the operating advisor may recommend the replacement of the special servicer. The operating advisor is entitled to a fee of 0.00198% per annum (p.a.) with respect to each mortgage loan and any successor REO loan. The operating advisor is also entitled to a $10,000 fee with respect to each major decision on which it is required to consult, but it is only payable to the extent that it is paid by the related borrower. Other expenses incurred by the operating advisor will be payable from funds on deposit in the collection account out of amounts otherwise available to make distributions on the certificates.
Appraisal Reduction/Realized Loss: Any interest that is not advanced on as part of the appraisal-reduction mechanism will not be recovered as part of the loan waterfall upon realization of the collateral. Interest not advanced on because of an appraisal reduction will likely have permanent interest impairment if the net proceeds of the loan in question do not exceed the outstanding principal (plus fees) at the time of liquidation. The special servicer shall attempt to obtain the appraisal to be used for appraisal-reduction purposes within 60 days of an appraisal-reduction event. The time frame for an appraisal to be used for appraisal-reduction purposes is no fewer than 12 months.
Pari Passu Loan Combinations: The One AT&T whole loan, the Regions Tower whole loan, the Carriage Place whole loan and the Residence Inn National Portfolio whole-loan will be serviced pursuant to the PSA for this transaction. The Millennium Partners Portfolio, the Penske Distribution Center and the Prudential Digital Realty Portfolio whole-loan combinations will be serviced according to the PSAs for the MSC 2018-MP, MSC 2018-H4 and BANK 2018-BNK14 transactions, respectively.
Directing Certificateholder/Controlling Class Rights: The transaction’s most subordinate bonds are controlled by the most subordinate bondholders. The controlling class certificateholder (or its representative) will be the controlling class certificateholder selected by more than a specified percentage of the controlling class certificateholders (by certificate balance, as certified by the certificate registrar from time to time as provided for in the pooling and servicing agreement). The controlling class is the most subordinate of the Class F, Class G, Class H and Class J certificates (the Control Eligible Certificates) then outstanding, which has a principal amount (net of appraisal-reduction amounts) that is at least 25.0% of the initial certificate amount of such class. For so long as at least one of the Control Eligible Certificates has a principal amount (net of appraisal-reduction amounts) that is at least 25.0% of the initial certificate amount of the respective certificates, the directing holder may terminate the special servicer without cause. A control termination event exists
Structured Finance: CMBS 88 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019 when the Class G certificates have an aggregate principal balance of less than 25.0% of the initial certificate balance (net of appraisal-reduction amounts) provided that, during such time as the Class G certificates would be the controlling class, the holders of such certificate will have the right to irrevocably waive their right to appoint a directing certificateholder or to exercise any of the rights of the controlling class certificateholder. A successor controlling class certificateholder may choose to reinstate such rights. A consultation termination event will occur at such time as none of the Class F, Class G, Class H and Class J certificates have a certificate balance at least equal to 25.0% of the initial certificate balance (without regard to appraisal reductions). Prior to a consultation termination event, but after a control termination event, the special servicer cannot be replaced, except for cause, and is subject to a vote by all bondholders.
Excluded Loan: If the special servicer becomes a borrower party with respect to any mortgage loan, it will be required to resign. The directing certificateholder (prior to the occurrence and continuance of a control termination event) will be entitled to appoint a special servicer that is not a borrower party with respect to such loan; however, if the controlling class representative or any majority controlling class certificateholder is a borrower party of such loan, the largest controlling class certificateholder (by certificate balance) that is not a borrower party will be entitled to appoint the special servicer for such loan. This mechanism is in place to mitigate conflicts of interest that can arise between the special servicer and/ or controlling class representative in their respective roles within the trust and their roles as borrower parties.
Special Servicing Fees: The liquidation fee is equal to 1.0% of the net liquidation proceeds. The workout fee is 1.0% of all payments of P&I received on each corrected loan so long as it remains a corrected loan. Both fees are subject to a minimum fee of $25,000. The special servicer fee is equal to the greater of 0.25000% or the p.a. rate that would result in a special servicing fee of (1) $3,500 or (2) for any mortgage loan with respect to which the risk retention consultation party is entitled to consult with the special servicer, for so long as the related mortgage loan is a specially serviced loan during the occurrence and continuance of a consultation termination event, $5,000 in each case, for the related month. With respect to NCB, the special servicing fee is equal to the greater of 0.25000% or the p.a. rate that would result in a special servicing fee of $1,000 for the related month on mortgage loans to which a special servicing transfer has occurred.
Disclosable Special Servicing Fees: Each collection period, the special servicer is required to provide the certificate administrator with an itemized report of all disclosable special servicing fees. These fees are defined as any compensation or remuneration (including, but not limited to, commissions, brokerage fees, rebates and any fee-sharing arrangement) received or retained by the special servicer or any of its affiliates that is paid in connection with the disposition or workout of the trust mortgage loan (or REO property, in the event of default and foreclosure on the subject property).
Rating Agency Confirmations: This transaction contemplates waivers of RACs. It is DBRS’s intent to waive loan-level RACs, yet to receive notice upon their occurrence. DBRS will review relevant loan-level changes as part of its surveillance. DBRS will not waive RACs that affect any party involved in the operational risk of the transaction (i.e., replacement of special servicer, master servicer, etc.).
Surveillance
DBRS will perform surveillance subject to North American CMBS Surveillance Methodology.
CMBS Rating Methodology – Highlights
The North American CMBS Multi-borrower Rating Methodology, Rating North American CMBS Interest-Only Certificates and DBRS Commercial Real Estate Property Analysis Criteria were employed to rate this transaction. DBRS begins the rating process by picking a statistically relevant sample for diversified pools by property type, loan originator and geographic
Structured Finance: CMBS 89 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019 location. DBRS reviews all third-party reports, including engineering and environmental reports, to ensure no significant contingencies exist, such as environmental contamination, structural faults or deferred maintenance. The appraisal is reviewed for historical usages, market dynamics and competitive property statistics. DBRS determines a stabilized NCF for each asset. Once the stabilized NCF is determined (in which DBRS makes certain market assumptions), one must consider how stable the cash flow is likely to be throughout the loan term.
DSCR DSCR is used to measure of the default risk of a loan as it incorporates the current operating performance of the property (NCF) and its capacity to service debt.
SUBORDINATION LEVELS DBRS sizes diversified pooled transactions (defined as those with greater than 20 loans with multiple borrowers) on a POD and loss-given-default (LGD) basis using the DBRS Large Pool Multi-borrower Parameters. The rating of a diversi- fied pooled CMBS transaction is the sum of the weighted-average loan-level credit enhancement (or expected losses) at the respective rating categories. DBRS determines the expected loss of an individual loan by multiplying its assigned POD by its assigned loss severity for each of the rating categories.
Loan Credit Enhancement = Probability of Default x Loss Severity Given Default
Transaction Credit Enhancement = ∑ of [Loan Credit Enhancement x Current Percent of Pool]
PROBABILITY OF DEFAULT Using DBRS stabilized NCF, a loan’s POD is primarily driven by the more conservative/constraining of its DBRS Refi DSCR and its DBRS Term DSCR. The constraining DSCR is used to reference the DBRS POD curve, which assigns a POD for any given DSCR. The POD curve used by DBRS is based on a combination of jurisdictional studies of cash flow volatility where available and publicly available data for commercial mortgage defaults.
PROBABILITY OF DEFAULT ADJUSTMENT FACTORS The POD is adjusted for several different factors, some quantitative and others that reflect an analyst’s assessment of property qualities. Adjustment factors include concentration risk, recourse, property quality, sponsorship strength and single tenancy.
LOSS SEVERITY GIVEN DEFAULT DBRS estimates a loss given default based on the recoverable proceeds of each loan. The estimate of recoverable proceeds is governed by a loan’s cash flow and leverage as illustrated by its DBRS Debt Yield. DBRS assumes that upon default a loan will only be able to recover what the market has historically supported in terms of debt yield plus the typically required equity portion.
Recoverable Proceeds = Cash Flow/Debt Yield Benchmark + $ Equity Requirement
Loss % Given Default = 1 - [Loanís Applicable Debt Yield/(Debt Yield Benchmark * (1 - Equity Requirement as % of Value))]
Structured Finance: CMBS 90 PRESALE REPORT — BANK 2019-BNK16 JANUARY 2019
APPLICABLE DEBT YIELD If the loan’s constraining DSCR is its term coverage, then the debt yield used when estimating recovery will be its current debt yield. If the loan’s constraining DSCR is its refinance coverage, then the debt yield used when estimating its recovery will be its maturity (or Exit) Debt Yield.
SEVERITY OF LOSS ADJUSTMENT FACTORS Loss given default is adjusted for several different factors, some quantitative and others that reflect an analyst’s assess- ment of certain property qualities. Adjustment factors include market, owner occupancy and loan size.
OPERATIONAL RISK REVIEWS DBRS reviews loan originators, servicers and operating advisors apart from transaction analytics and determines whether they are acceptable parties.
RATINGS DBRS CMBS ratings address the likelihood of timely payment of interest and ultimate payment of principal to the cer- tificates by the final rated maturity date. DBRS does not rate to the expected or scheduled maturity date set forth by the issuer; therefore, while DBRS will identify transactions and certificates that have considerable extension risk, the ratings are not affected as loans extend.
The methodology for DBRS ratings on IO certificates is detailed in Rating North American CMBS Interest-Only Certificates.
The North American CMBS Rating Methodology and DBRS’s Commercial Real Estate Property Analysis Criteria provides DBRS’s processes and criteria and is available by contacting us at [email protected] or by clicking on Methodologies at www.dbrs.com.
Notes: All figures are in U.S. dollars unless otherwise noted.
This report is based on information as of January 29, 2019. Subsequent information may result in material changes to the rating assigned herein and/or the contents of this report.
The DBRS group of companies consists of DBRS, Inc. (Delaware, U.S.)(NRSRO, DRO affiliate); DBRS Limited (Ontario, Canada)(DRO, NRSRO affiliate); DBRS Ratings GmbH (Frankfurt, Germany)(CRA, NRSRO affiliate, DRO affiliate); and DBRS Ratings Limited (England and Wales)(CRA, NRSRO affiliate, DRO affiliate). For more information on regulatory registrations, recognitions and approvals, please see: http://www.dbrs.com/research/highlights.pdf.
© 2019, DBRS. All rights reserved. The information upon which DBRS ratings and other types of credit opinions and reports are based is obtained by DBRS from sources DBRS believes to be reliable. DBRS does not audit the information it receives in connection with the analytical process, and it does not and cannot independently verify that information in every instance. The extent of any factual investigation or independent verification depends on facts and circumstances. DBRS ratings, other types of credit opinions, reports and any other information provided by DBRS are provided “as is” and without representation or warranty of any kind. DBRS hereby disclaims any representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability, fitness for any particular purpose or non-infringement of any of such information. In no event shall DBRS or its directors, officers, employees, independent contractors, agents and representatives (collectively, DBRS Representatives) be liable (1) for any inaccuracy, delay, loss of data, interruption in service, error or omission or for any damages resulting therefrom, or (2) for any direct, indirect, incidental, special, compensatory or consequential damages arising from any use of ratings and rating reports or arising from any error (negligent or otherwise) or other circumstance or contingency within or outside the control of DBRS or any DBRS Representative, in connection with or related to obtaining, collecting, compiling, analyzing, interpreting, communicating, publishing or delivering any such information. Ratings and other types of credit opinions issued by DBRS are, and must be construed solely as, statements of opinion and not statements of fact as to credit worthiness or recommendations to purchase, sell or hold any securities. A report with respect to a DBRS rating or other credit opinion is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. DBRS may receive compensation for its ratings and other credit opinions from, among others, issuers, insurers, guarantors and/or underwriters of debt securities. DBRS is not responsible for the content or operation of third party websites accessed through hypertext or other computer links and DBRS shall have no liability to any person or entity for the use of such third party websites. This publication may not be reproduced, retransmitted or distributed in any form without the prior written consent of DBRS. ALL DBRS RATINGS AND OTHER TYPES OF CREDIT OPINIONS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AT http://www.dbrs.com/about/disclaimer. ADDITIONAL INFORMATION REGARDING DBRS RATINGS AND OTHER TYPES OF CREDIT OPINIONS, INCLUDING DEFINITIONS, POLICIES AND METHODOLOGIES, ARE AVAILABLE ON http://www.dbrs.com.
Structured Finance: CMBS 91 Glossary
ADR average daily rate IO interest only P&I principal and interest ARA appraisal reduction amount LC leasing commission POD probability of default ASER appraisal subordinate entitlement reduction LGD loss severity given default PIP property improvement plan BOV broker’s opinion of value LOC letter of credit PILOT property in lieu of taxes
CAM common area maintenance LOI letter of intent PSA pooling and servicing agreement capex capital expenditures LS Hotel limited service hotel psf per square foot CBD central business district LTC loan-to-cost R&M repairs and maintenance CBRE CB Richard Ellis LTCT long-term credit tenant REIT real estate investment trust CMBS commercial mortgage-backed securities LTV loan-to-value REO real estate owned CoStar CoStar Group, Inc. MHC manufactured housing community RevPAR revenue per available room CREFC CRE Finance Council MTM month-to-month sf square foot/square feet DPO discounted payoff MSA metropolitan statistical area STR Smith Travel Research DSCR debt service coverage ratio n.a. not available SPE special-purpose entity EGI effective gross income n/a not applicable TI tenant improvement EOD event of default NCF net cash flow TIC tenants in common F&B food & beverage NNN triple net T-12 trailing 12 months FF&E furniture, fixtures and equipment NOI net operating income UW underwriting FS Hotel full service hotel NRA net rentable area WA weighted average G&A general and administrative NRI net rental income WAC weighted-average coupon GLA gross leasable area NR – PIF not rated – paid in full x times GPR gross potential rent OSAR operating statement analysis report YE year-end HVAC heating, ventilation and air conditioning PCR property condition report YTD year-to-date
Definitions
Capital Expenditure (capex) NNN (triple net) Costs incurred in the improvement of a property that will have a life of more than A lease that requires the tenant to pay operating expenses such as property taxes, one year. insurance and maintenance, in addition to the rent.
DBRS Refi DSCR Net Operating Income (NOI) A measure that divides DBRS stabilized NCF by the product of the loan’s maturity The revenues earned by a property’s ongoing operations less the expenses balance and a stressed refinance debt constant. associated with such operations but before mortgage payments, tenant improvements, replacement reserves and leasing commissions. DBRS Term DSCR A measure that divides DBRS stabilized NCF by the actual debt service payment Net Rentable Area (NRA) The area (sf) for which rent can be charged. NRA includes the tenant’s premises Debt Service Coverage Ratio (DSCR) plus an allocation of the common area directly benefiting the tenant, such as A measure of a mortgaged property’s ability to cover monthly debt service common corridors and restrooms. payments, defined as the ratio of net operating income (NOI) or net cash flow (NCF) to the debt service payments. Revenue Per Available Room (RevPAR) A measure that divides revenue by the number of available rooms, not the number Effective Gross income (EGI) of occupied rooms. It is a measure of how well the hotel has been able to fill rooms Rental revenue minus vacancies plus miscellaneous income. in the off-season, when demand is low even if rates are also low, and how well it fills the rooms and maximizes the rate in the high season, when there is high Issuer UW demand for hotel rooms. Issuer underwritten from Annex A or servicer reports. Tenant Improvements (TIs) Loan-to-Value (LTV) The expense to physically improve the property or space, such as new The ratio between the principal amount of the mortgage balance, at origination improvements or remodelling, paid by the borrower. or thereafter, and the most recent appraised value of the underlying real estate collateral, generally from origination. Weighted Average (WA) Calculation is weighted by the size of each mortgage in the pool. Net Cash Flow (NCF) The revenues earned by a property’s ongoing operations less the expenses associated Weighted-Average Coupon (WAC) with such operations and the capital costs of tenant improvements, leasing commissions The average coupon or interest payment on a set of mortgages, weighted by the and capital expenditures (or reserves). Moreover, NCF is net operating income (NOI) size of each mortgage in the pool. less tenant improvements, leasing commissions and capital expenditures.