JULY 2019
STRUCTURED FINANCE: CMBS PRESALE REPORT Citigroup Commercial Mortgage Trust 2019-GC41 Table of Contents
Capital Structure 3 Transaction Summary 4 Rating Considerations 5 DBRS Credit Characteristics 7 Largest Loan Summary 8 Transaction Concentrations 12 Loan Structural Features 13 30 Hudson Yards 18 Millennium Park Plaza 23 USAA Office Portfolio 29 The Lincoln Apartments 34 Post Ranch Inn 38 Grand Canal Shoppes 44 Moffett Towers II Buildings 3 & 4 50 The Zappettini Portfolio 56 Delong Self Storage 63 Powered Shell Portfolio - Manassas 68 Summit Technology Center 73 U.S. Industrial Portfolio V 78 City Center Plaza 84 505 Fulton Street 89 Wind Creek Casino & Resort Bethlehem 94 Transaction Structural Features 101 Methodologies 103 Operational Risk Reviews 103 Surveillance 103
Tucker Rhodes David Fackler Senior Financial Analyst Vice President +1 312 845 2264 +1 312 332 9457 [email protected] [email protected]
Kevin Mammoser Erin Stafford Managing Director Managing Director +1 312 332 0136 +1 312 332 3291 [email protected] [email protected] PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
Capital Structure
Description Rating Action Balance Subordination DBRS Rating Trend
Class A-1 New Rating - Provisional $11,825,000 30.000% AAA (sf) Stable
Class A-2 New Rating - Provisional $128,097,000 30.000% AAA (sf) Stable
Class A-3 New Rating - Provisional $10,112,000 30.000% AAA (sf) Stable
Class A-4 New Rating - Provisional TBD4 30.000% AAA (sf) Stable
Class A-5 New Rating - Provisional TBD4 30.000% AAA (sf) Stable
Class A-AB New Rating - Provisional $19,494,000 30.000% AAA (sf) Stable
Class X-A New Rating - Provisional $972,004,000 - AAA (sf) Stable
Class A-S New Rating - Provisional $109,370,000 21.125% AAA (sf) Stable
Class B New Rating - Provisional $69,319,000 15.500% AA (high) (sf) Stable
Class X-B New Rating - Provisional $120,152,000 - AA (low) (sf) Stable
Class C New Rating - Provisional $50,833,000 11.375% A (high) (sf) Stable
Class D New Rating - Provisional $32,349,000 8.750% BBB (high) (sf) Stable
Class X-D New Rating - Provisional $58,536,000 - BBB (high) (sf) Stable
Class E New Rating - Provisional $26,187,000 6.625% BBB (sf) Stable
Class F New Rating - Provisional $26,187,000 4.500% BB (high) (sf) Stable
Class X-F New Rating - Provisional $26,187,000 - BBB (low) (sf) Stable
Class G-RR New Rating - Provisional $12,324,000 3.500% B (high) (sf) Stable
Class J-RR New Rating - Provisional $43,131,964 0.000% NR n/a
Notes: 1. NR = Not Rated. 2. The Class X-A, X-B, X-D, and X-F and balances are notional. The notional balance of the Class X-A certificates will be equal to the aggregate Certificate Balanec of the Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class A-AB and Class A-S certificates. The notional balance of the Class X-B certificates will be equal to the aggregate Certificate Balances of the Class B and Class C certificates. The notional balance of the Class X-D certiicates will be equal to the aggregate Certificate Balance of the Class D and Class E certificates. 3. The notional amounts of the Class X-A, Class X-B and Class X-D certificates may vary depending upon the final pricing of the classes of the Principal Balance Certificates. 4. The exact initial certificate balances of the Class A-4, and A-5 Certificates are unknown and will be determined based on the final pricing of those classes of certificates. The aggregate initial certificate balance of the Class A-4 and A-5 Certificates is expected to be approximately $693,106,000 subject to a variance of plus or minus 5%.
Structured Finance: CMBS 3 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
Transaction Summary
POOL CHARACTERISTICS
Trust Amount $1,276,634,964 Wtd. Avg. Interest Rate 3.866%
Number of Loans 43 Wtd. Avg. Remaining Term 113
Number of Properties 100 Wtd. Avg. Remaining Amortization 371
Average Loan Size $29,689,185 Total DBRS Expected Amortization3 2.7%
Wtd. Avg. DBRS Term DSCR 2.18 Wtd. Avg. DBRS Term DSCR Whole Loan 2.49x
Top Ten Loan Concentration 49.3% Avg. DBRS NCF Variance -13.9%
1. Excludes mortgage loans that are IO for the entire term.
PARTICIPANTS
Depositor Citigroup Commerical Mortgage Securities Inc.
Mortgage Loan Sellers Goldman Sachs Mortgage Company (GSMC - 20 loans, 42.3% of pool)
Citi Real Estate Funding Inc. (CREFI - 11 loans, 24.0% of pool)
German American Capital Corporation (GACC - 10 loans, 21.5% of pool)
Goldman Sachs Mortgage Company/German American Capital Corporation (GSMS/GACC - 2 loans, 12.2% of pool)
Master Servicer Midland Loan Services, a Division of PNC Bank, National Association
Special Servicer Rialto Capital Adviors, LLC
Certificate Administrator Citibank, N.A.
Trustee Wilmington Trust, National Association
Custodian Citibank, N.A.
Structured Finance: CMBS 4 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
Rating Considerations
The collateral consists of 43 fixed-rate loans secured by 100 commercial and multifamily properties. The transaction is a sequential-pay pass-through structure. 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. Four loans, representing a combined 18.0% of the pool, are shadow-rated investment grade by DBRS. When the cut-off loan balances were measured against the DBRS Stabilized NCF and their respective actual constants, two loans, representing a combined 1.7% of the pool, had a DBRS Term DSCR below 1.15x, a threshold indicative of a higher likelihood of mid-term default. The pool additionally includes seven loans, representing a combined 10.2% of the pool by allocated loan balance, with issuance LTVs in excess of 67.1%, a threshold historically indicative of above-average default frequency. The WA LTV of the pool at issuance was 58.4%, and the pool is scheduled to amortize down to a WA LTV of 56.5% at maturity.
STRENGTHS • The collateral features four loans, representing a combined 18.0% of the pool, that are shadow-rated investment grade by DBRS: 30 Hudson Yards, Grand Canal Shoppes, Moffett Towers II Buildings 3 and 4 and The Centre. 30 Hudson Yards exhibits credit characteristics consistent with an A (high) shadow rating, Grand Canal Shoppes exhibits credit characteristics consistent with a BBB (high) shadow rating, Moffett Towers II Buildings 3 and 4 exhibits credit characteristics consistent with a AA shadow rating and The Centre exhibits credit characteristics consistent with a BBB (high) shadow rating. For more information on 30 Hudson Yards, Grand Canal Shoppes and Moffett Towers II Buildings 3 and 4, please see pages 18, 44 and 50, respectively. • Sixteen loans, representing a combined 50.9% of the pool by allocated loan balance, exhibit issuance LTVs of less than 59.3%, a threshold historically indicative of relatively low-leverage financing and generally associated with below-average default frequency. • Only one loan, representing 0.9% of the pool by allocated loan balance, was assigned Average (-) property quality, while no properties were deemed Below Average or Poor quality. Additionally, 11 loans, representing 46.6% of the pool by allocated loan balance, exhibited Average (+), Above Average or Excellent property quality. The pool’s largest loan, 30 Hudson Yards, is secured by collateral that DBRS deemed to be of Excellent property quality. • Ten loans, representing a combined 35.3% of the pool, are located in areas with a DBRS Market Rank of 6, 7 or 8, which are characterized as urbanized locations. These markets benefit from increased liquidity that is driven by consistently strong investor demand. Such markets therefore tend to benefit from lower default frequencies than less dense suburban, tertiary and rural markets. Areas with a DBRS Market Rank of 7 or 8 are especially densely urbanized and benefit from significantly elevated liquidity. Nine loans, representing 30.6% of the pool by allocated loan balance, are located in areas with a DBRS Market Rank of 7 or 8.
CHALLENGES AND CONSIDERATIONS • Seven loans, representing 33.6% of the aggregate pool balance, are secured by properties that are either fully or partially leased to a single tenant. The largest single-tenant property by proportion of pool balance (30 Hudson Yards) represents 7.8% of the aggregate pool balance, and five of the top ten loans by proportion of pool balance are either fully or partially leased to a single tenant. –– DBRS sampled six of the seven loans secured by single-tenant properties. Additionally, two of the seven loans leased to a single tenant are shadow-rated investment grade by DBRS (30 Hudson Yards and Moffett Towers II Buildings 3 and 4). –– Six of the seven identified properties are leased to single tenants that DBRS considers to be investment-grade rated: 30 Hudson Yards, USAA Office Portfolio, Moffett Towers II Buildings 3 and 4, Powered Shell Portfolio – Manassas, Powered Shell Portfolio – Ashburn and Comcast Building Tucson. –– The Zappettini Portfolio is secured by ten individual real estate properties that, while individually may be either fully or partially leased to a single tenant, are occupied by 13 tenants across eight separate leases at the time of loan closing.
Structured Finance: CMBS 5 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
• The pool has a relatively high concentration of loans secured by office properties, as evidenced by 11 loans, representing 33.3% of the pool by allocated loan balance, being secured by such properties. DBRS considers office properties to be a riskier property type with a generally above-average default frequency. –– Of the 11 loans secured by office properties, two loans, representing 9.5% of the pool by allocated loan balance, are shadow- rated investment grade by DBRS: 30 Hudson Yards and Moffett Towers II Buildings 3 and 4. –– Two of the 11 identified loans, representing 8.5% of the pool by allocated loan balance, are secured by office properties located in areas with a DBRS Market Rank of 8, which is characterized as a highly dense, urbanized area such as New York or San Francisco. These markets benefit from increased liquidity that is driven by consistently strong investor demand. Such markets therefore tend to benefit from lower default frequencies than less dense suburban, tertiary and rural markets. –– The WA expected loss of the nine loans secured by office properties that are not located in DBRS Market Rank 8 or are shadow-rated investment grade is more than two times the WA expected loss of the overall pool. As a result, the risk of these loans is reflected in the credit enhancement levels of the pool. • Twenty-seven loans, representing a combined 80.5% of the pool by allocated loan balance, are structured with full-term IO periods. Expected amortization for the pool is only 2.7%, which is substantially less than recent conduit securitizations. –– Of the 27 loans structured with full-term IO periods, eight loans, representing 29.1% of the pool by allocated loan balance, are located in areas with a DBRS Market Rank of 7 or 8. These markets benefit from increased liquidity that is driven by consistently strong investor demand. Such markets therefore tend to benefit from lower default frequencies than less dense suburban, tertiary and rural markets. –– Four of the 27 identified loans, representing 18.0% of the pool by allocated loan balance, are shadow-rated investment grade by DBRS: 30 Hudson Yards, Grand Canal Shoppes, Moffett Towers II Buildings 3 and 4 and The Centre. –– The full-term loans are for the most part pre-amortized, as the WA issuance LTV for these loans is low at 55.7%. • The pool features a relatively high concentration of loans secured by properties located in less favorable suburban market areas, as evidenced by 18 loans, representing 29.8% of the pool by allocated loan balance, being secured by properties located in areas with a DBRS Market Rank of either 3 or 4. –– Ten of the identified loans, representing 46.5% of the pool balance that is secured by properties located in areas with a DBRS Market Rank of either 3 or 4, will amortize over the loan term, which can reduce risk over time. The WA expected amortization of these loans is 14.0%, which is notably higher than the pool’s total WA expected amortization of 2.7%.
Structured Finance: CMBS 6 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
DBRS Credit Characteristics
DBRS TERM DSCR
DSCR % of the Pool (Trust Balance1)
0.00x-0.90x 0.8%
0.90x-1.00x 0.9%
1.00x-1.15x 2.0%
1.15x-1.30x 4.3%
1.30x-1.45x 1.1%
1.45x-1.60x 6.6%
1.60x-1.75x 12.8%
>1.75x 71.4%
Wtd. Avg. 2.18x
DBRS ISSUANCE LTV DBRS BALLOON LTV
Issuance LTV % of the Pool (Trust Balance1) Balloon LTV % of the Pool (Trust Balance1)
0.0%-50.0% 18.4% 0.0%-50.0% 19.9%
50.0%-55.0% 13.4% 50.0%-55.0% 17.9%
55.0%-60.0% 21.3% 55.0%-60.0% 23.5%
60.0%-65.0% 27.7% 60.0%-65.0% 28.1%
65.0%-70.0% 11.2% 65.0%-70.0% 7.0%
70.0%-75.0% 4.4% 70.0%-75.0% 3.5%
>75.0% 3.5% >75.0% 0.0%
Wtd. Avg. 58.4% Wtd. Avg. 56.5%
1. Includes pari passu debt, but excludes subordinate debt.
Structured Finance: CMBS 7 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
Largest Loan Summary
LOAN DETAIL
Loan Name Trust Balance % of Pool DBRS Shadow Rating Appraised LTV DBRS DSCR (x)
30 Hudson Yards $100,000,000 7.8% A (high) 50.91% 3.19
Millennium Park Plaza $70,000,000 5.5% n/a 65.83% 1.73
USAA Office Portfolio $62,400,000 4.9% n/a 63.79% 2.27
The Lincoln Apartments $60,420,000 4.7% n/a 57.22% 1.75
Post Ranch Inn $60,000,000 4.7% n/a 42.34% 4.03
Grand Canal Shoppes $60,000,000 4.7% BBB (high) 46.34% 2.28
Moffett Towers II Buildings 3 & 4 $55,250,000 4.3% AA 44.30% 3.23
The Zappettini Portfolio $55,000,000 4.3% n/a 64.03% 1.65
Delong Self Storage $54,300,000 4.3% n/a 60.33% 1.76
Powered Shell Portfolio - Manassas $51,550,000 4.0% n/a 55.87% 2.07
Summit Technology Center $51,500,000 4.0% n/a 50.49% 2.65
U.S. Industrial Portfolio V $50,000,000 3.9% n/a 64.37% 2.24
City Center Plaza $46,850,000 3.7% n/a 55.18% 2.53
505 Fulton Street $45,000,000 3.5% n/a 48.57% 2.51
Wind Creek Casino and Resort Bethlehem $45,000,000 3.5% n/a 84.99% 1.26
Powered Shell Portfolio - Ashburn $40,800,000 3.2% n/a 58.17% 2.07
PROPERTY DETAIL
Maturity DBRS Property Year Loan per Balance per Loan Name Type City State Built SF/Units SF/Units SF/Units 30 Hudson Yards Office New York New York 2019 1,463,234 $68 $68
Millennium Park Plaza Multifamily Chicago Illinois 1982 560,083 $125 $125
USAA Office Portfolio Office Various Various Various 881,490 $71 $71
The Lincoln Apartments Multifamily Brooklyn New York 2017 141 $428,511 $428,511
Post Ranch Inn Full Service Hotel Big Sur California 1992 39 $1,538,462 $1,538,462
Grand Canal Shoppes Retail Las Vegas Nevada 1999 759,891 $79 $79
Moffett Towers II Buildings 3 & 4 Office Sunnyvale California 2019 701,266 $79 $79
The Zappettini Portfolio Office Mountain View California Various 251,575 $219 $219
Delong Self Storage Self Storage Flushing New York 2014 166,294 $327 $327
Powered Shell Portfolio - Manassas Other Manassas Virginia Various 728,460 $71 $71
Summit Technology Center Office Lee's Summit Missouri 1961 494,449 $104 $104
U.S. Industrial Portfolio V Industrial Various Various Various 3,585,623 $14 $14
City Center Plaza Office Boise Idaho 1978 387,371 $121 $121
505 Fulton Street Retail Brooklyn New York 1890 114,209 $394 $394
Wind Creek Casino and Resort Bethlehem Full Service Hotel Bethlehem Pennsylvania 2009 NAP NAP NAP
Powered Shell Portfolio - Ashburn Other Ashburn Virginia 2016 445,740 $92 $92
Structured Finance: CMBS 8 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
DBRS Sample
DBRS SAMPLE RESULTS
DBRS Prospectus DBRS NCF DBRS Major Variance Property ID Loan Name % of Pool DBRS NCF Variance Drivers Quality 1 30 Hudson Yards 7.8% $112,510,831 -7.6% Rent Steps, Vacancy Excellent
2 Millennium Park Plaza 5.5% $13,468,166 -13.9% Vacany, TI/LCs Average
3 USAA Office Portfolio 4.9% $18,834,048 -19.8% Rent Steps, Vacancy Average +
4 The Lincoln Apartments 4.7% $4,226,062 -6.0% Concessions Average +
Occupancy, Management 5 Post Ranch Inn 4.7% $8,064,204 -17.4% Excellent Fee
Above 6 Grand Canal Shoppes 4.7% $65,721,665 -7.4% Markdowns, Vacancy Average
7 Moffett Towers II Buildings 3 & 4 4.3% $43,189,930 -6.6% Rent Steps Excellent
8 The Zappettini Portfolio 4.3% $8,347,198 -12.6% Vacancy, TI/LCs Average
9 Delong Self Storage 4.3% $4,035,363 -12.8% Concessions, Vacancy Average
Powered Shell Portfolio - 10 4.0% $6,412,126 -20.6% Rent Steps, Vacancy, TI/LCs Average + Manassas
11 Summit Technology Center 4.0% $5,084,858 -17.0% Vacancy, Other Income Average
Vacancy, TI/LCs, 12 U.S. Industrial Portfolio V 3.9% $11,204,404 -9.9% Average Management Fee
13 City Center Plaza 3.7% $4,373,156 -20.5% TI/LCs, Vacancy, Rent Steps Average
14 505 Fulton Street 3.5% $7,628,602 -6.2% Rent Steps, TI/LCs Average +
Wind Creek Casino and Resort 15 3.5% $10,298,213 -1.0% Management Fee Average + Bethlehem
Powered Shell Portfolio - 16 3.2% $5,324,896 -20.1% Rent Steps, Vacancy, TI/LCs Average + Ashburn
21 Burbank Collection 1.6% $1,692,280 -7.8% TI/LCs, Markdowns Average
25 6265 Gunbarrel Avenue 1.3% $1,256,531 -21.6% TI/LCs, Vacancy Average
26 Oakwood Commons 1.2% $1,232,857 -15.4% Vacancy, TI/LCs Average
Above 27 The Centre 1.2% $7,587,120 -3.0% Real Estate Taxes Average
31 Crescent Ridge 0.9% $635,389 -33.4% Vacancy Average
32 Home2 Suites Florence 0.9% $1,374,400 -14.5% Occupancy Average
33 Federal Highway Self Storage 0.9% $987,335 -7.5% Vacancy, Management Fee Average -
36 Bushwood Office Building 0.8% $501,650 -39.3% TI/LCs, Real Estate Taxes Average
38 Powell Court Apartments 0.6% $576,916 -11.2% Vacancy, Other Income Average
Structured Finance: CMBS 9 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
DBRS SAMPLED PROPERTY TYPE
DBRS DBRS DBRS Cut Off Property DBRS Major Variance Property Loan Property Type Balance % of Sample Quality Drivers Quality 30 Hudson Yards Office $100,000,000 9.7% Excellent Rent Steps, Vacancy Excellent
Millennium Park Plaza Multifamily $70,000,000 6.8% Average Vacany, TI/LCs Average
USAA Office Portfolio Office $62,400,000 6.1% Average + Rent Steps, Vacancy Average +
The Lincoln Apartments Multifamily $60,420,000 5.9% Average + Concessions Average +
Full Service Post Ranch Inn $60,000,000 5.8% Excellent Occupancy, Management Fee Excellent Hotel
Above Above Grand Canal Shoppes Retail $60,000,000 5.8% Markdowns, Vacancy Average Average
Moffett Towers II Buildings Office $55,250,000 5.4% Excellent Rent Steps Excellent 3 & 4
The Zappettini Portfolio Office $55,000,000 5.4% Average Vacancy, TI/LCs Average
Delong Self Storage Self Storage $54,300,000 5.3% Average Concessions, Vacancy Average
Powered Shell Portfolio - Other $51,550,000 5.0% Average + Rent Steps, Vacancy, TI/LCs Average + Manassas
Summit Technology Center Office $51,500,000 5.0% Average Vacancy, Other Income Average
Vacancy, TI/LCs, Management U.S. Industrial Portfolio V Industrial $50,000,000 4.9% Average Average Fee
City Center Plaza Office $46,850,000 4.6% Average TI/LCs, Vacancy, Rent Steps Average
505 Fulton Street Retail $45,000,000 4.4% Average + Rent Steps, TI/LCs Average +
Wind Creek Casino and Full Service $45,000,000 4.4% Average + Management Fee Average + Resort Bethlehem Hotel
Powered Shell Portfolio - Other $40,800,000 4.0% Average + Rent Steps, Vacancy, TI/LCs Average + Ashburn
Burbank Collection Retail $19,900,000 1.9% Average TI/LCs, Markdowns Average
6265 Gunbarrel Avenue Industrial $17,000,000 1.7% Average TI/LCs, Vacancy Average
Oakwood Commons Retail $15,750,000 1.5% Average Vacancy, TI/LCs Average
Above Above The Centre Multifamily $15,000,000 1.5% Real Estate Taxes Average Average
Crescent Ridge Multifamily $12,000,000 1.2% Average Vacancy Average
Home2 Suites Florence Hotel - Other $11,221,606 1.1% Average Occupancy Average
Federal Highway Self Storage Self Storage $11,000,000 1.1% Average - Vacancy, Management Fee Average -
Bushwood Office Building Office $9,737,745 0.9% Average TI/LCs, Real Estate Taxes Average
Powell Court Apartments Multifamily $8,200,000 0.8% Average Vacancy, Other Income Average
Structured Finance: CMBS 10 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
DBRS SITE INSPECTIONS DBRS Sampled Property Quality The DBRS sample included 25 of the 43 loans in the pool, # of % of representing a combined 80.5% of the pool by allocated Loans Sample loan balance. Site inspections were performed on 41 of the Excellent 3 20.9% 64 properties, representing 71.8% of the pool by allocated Above Average 2 7.3% loan balance. DBRS conducted interviews with an on-site Average + 6 29.7% property manager, leasing agent or representative of the Average 13 41.0% borrowing entity for 20 loans, which collectively repre- Average - 1 1.1% sented 59.1% of the pool by allocated loan balance. The Below Average 0 0.0% resulting DBRS property quality scores are highlighted in Poor 0 0.0% the table to the right.
DBRS CASH FLOW ANALYSIS A cash flow review as well as a cash flow stability and structural review was completed on 25 of the 43 loans, representing a combined 80.5% of the pool by allocated loan balance. DBRS generally adjusted cash flows to current in-place rent and, in some instances, applied an additional vacancy or concession adjustment to account for deteriorating market conditions or tenants with above-market rents. In certain instances, DBRS accepted contractual rent bumps if they were within market levels. Most expenses were generally 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 estimate and 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 has an average NCF variance of -13.9% and ranged from -1.0% (Wind Creek Casino and Resort Bethlehem) to -39.3% (Bushwood Office Building). For loans not subject to an NCF review, DBRS applied the average NCF variance of its respective loan seller (excluding certain outliers).
Structured Finance: CMBS 11 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
Transaction Concentrations
DBRS Property Type Geography
# of % of # of % of Property Type Loans Pool State Properties Pool Full Service Hotel 3 9.7% NY 6 23.0% Hotel - Other 3 3.5% CA 17 15.9% Industrial 2 5.2% VA 7 7.2% Limited Service Hotel 1 0.6% FL 10 6.5% Manufactured Housing 1 0.5% IL 5 5.9% Mixed-Use 1 1.6% TX 6 5.4% Multifamily 6 15.0% All Others 49 36.0% Office 11 33.3% Other 2 7.2% Self Storage 3 5.9% Retail 8 15.5% Unanchored Retail 2 1.9%
Loan Size DBRS Market Types
# of % of # of % of Loan Size Loans Pool Market Type Properties Pool Very Large (>$20.0 20 78.6% 1 1 4.7% million) 2 6 7.8% Large ($10.0-$20.0 15 16.8% 3 10 19.9% million) 4 8 9.8% Medium ($5.0-$10.0 8 4.6% million) 5 4 10.6% Small ($2.0-$5.0 0 0.0% 6 1 4.7% million) 7 4 16.0% Very Small (<$2.0 0 0.0% 8 5 14.6% million) Various 4 11.7% Largest Property Location
Property Name City State 30 Hudson Yards New York NY Millennium Park Plaza Chicago IL USAA Office Portfolio Various Various The Lincoln Apartments Brooklyn NY Post Ranch Inn Big Sur CA Grand Canal Shoppes Las Vegas NV Moffett Towers II Buildings 3 & 4 Sunnyvale CA The Zappettini Portfolio Mountain View CA Delong Self Storage Flushing NY Powered Shell Portfolio - Manassas Manassas VA Summit Technology Center Lee's Summit MO U.S. Industrial Portfolio V Various Various City Center Plaza Boise ID 505 Fulton Street Brooklyn NY Wind Creek Casino and Resort Bethlehem Bethlehem PA
Structured Finance: CMBS 12 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
Loan Structural Features
Pari Passu Notes: Thirteen loans, representing a combined 48.7% of the pool by allocated loan balance, have pari passu debt and are identified in the table below.
PARI PASSU NOTES
% of % of Total Pari Controlling Property Name Balance Pool Deal ID Passu Loan Piece (Y/N)
30 Hudson Yards $100,000,000 7.8% CGCMT 2019-GC41 8.9% N
$698,000,000 Hudson Yards 2019-30HY 62.3% N
$104,400,000 TBD 9.3% N
$93,200,000 Benchmark 2019-B12 8.3% N
$84,400,000 TBD 7.5% N
$40,000,000 TBD 3.6% N
$1,120,000,000 n/a n/a 100.0% n/a
Millennium Park Plaza $70,000,000 5.5% CGCMT 2019-GC41 33.3% Y
$140,000,000 TBD 50.0% N
$210,000,000 n/a n/a 100.0% n/a
USAA Office Portfolio $62,400,000 4.9% CGCMT 2019-GC41 25.7% Y
$180,000,000 TBD 74.3% N
$242,400,000 n/a n/a 100.0% n/a
Grand Canal Shoppes $60,000,000 4.7% CGCMT 2019-GC41 7.9% N
$60,000,000 TBD 7.9% N
$60,000,000 MSC 2019-H7 7.9% Y
$50,000,000 BANK 2019-BNK19 6.6% N
$50,000,000 BANK 2019-BNK19 6.6% N
$50,000,000 TBD 6.6% N
$50,000,000 Benchmark 2019-B12 6.6% N
$50,000,000 TBD 6.6% N
$40,000,000 TBD 5.3% N
$40,000,000 TBD 5.3% N
$40,000,000 TBD 5.3% N
$40,000,000 TBD 5.3% N
$25,000,000 TBD 3.3% N
$25,000,000 TBD 3.3% N
$25,000,000 TBD 3.3% N
$20,000,000 TBD 2.6% N
$13,846,154 TBD 1.8% N
$10,384,615 TBD 1.4% N
$10,384,615 TBD 1.4% N
Structured Finance: CMBS 13 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
PARI PASSU NOTES
% of % of Total Pari Controlling Property Name Balance Pool Deal ID Passu Loan Piece (Y/N)
$10,384,616 TBD 1.4% N
$10,000,000 MSC 2019-H7 1.3% N
$10,000,000 TBD 1.3% N
$10,000,000 TBD 1.3% N
$760,000,000 n/a n/a 100.0% n/a
Moffett Towers II Buildings $55,250,000 4.3% CGCMT 2019-GC41 7.9% N 3 & 4
$43,175,000 CGCMT 2019-GC41 12.3% N
$12,075,000 CGCMT 2019-GC41 3.5% N
$65,550,000 TBD 18.7% N
$65,000,000 TBD 18.6% Y
$50,000,000 BANK 2019-BNK19 14.3% N
$49,750,000 TBD 14.2% N
$34,450,000 TBD 9.8% N
$25,000,000 TBD 7.1% N
$2,750,000 MFTII 2019-B3B4 0.8% Y
$1,125,000 MFTII 2019-B3B4 0.3% Y
$1,125,000 MFTII 2019-B3B4 0.3% Y
$350,000,000 n/a n/a 100.0% n/a
The Zappettini Portfolio $55,000,000 4.3% CGCMT 2019-GC41 45.8% N
$65,000,000 Benchmark 2019-B12 54.2% Y
$120,000,000 n/a n/a 100.0% n/a
Powered Shell Portfolio - $51,550,000 4.0% CGCMT 2019-GC41 61.5% Y Manassas
$32,250,000 TBD 38.5% N
$83,800,000 n/a n/a 100.0% n/a
U.S. Industrial Portfolio V $50,000,000 3.9% CGCMT 2019-GC41 38.4% Y
$50,000,000 TBD 38.4% N
$30,358,000 TBD 23.3% N
$130,358,000 n/a n/a 100.0% n/a
505 Fulton Street $45,000,000 3.5% CGCMT 2019-GC41 52.9% Y
$40,000,000 TBD 47.1% N
$85,000,000 n/a n/a 100.0% n/a
Wind Creek Casino and $45,000,000 3.5% CGCMT 2019-GC41 30.7% N Resort Bethlehem
$30,000,000 TBD 20.5% Y
$71,600,000 TBD 48.8% N
$146,600,000 n/a n/a 100.0% n/a
Structured Finance: CMBS 14 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
PARI PASSU NOTES
% of % of Total Pari Controlling Property Name Balance Pool Deal ID Passu Loan Piece (Y/N)
Powered Shell Portfolio - $40,800,000 3.2% CGCMT 2019-GC41 58.5% Y Ashburn
$29,000,000 TBD 41.5% N
$69,800,000 n/a n/a 100.0% n/a
CIRE Equity Retail & $27,160,000 2.1% CGCMT 2019-GC41 21.1% N Industrial Portfolio
$50,000,000 Benchmark 2019-B12 38.9% Y
$22,000,000 WFCM 2019-C51 17.1% N
$29,440,000 TBD 22.9% N
$128,600,000 n/a n/a 100.0% n/a
The Centre $15,000,000 1.2% CGCMT 2019-GC41 11.5% N
$30,000,000 Bechmark 2019-B12 23.1% N
$15,000,000 TBD 11.5% N
$70,000,000 Benchmark 2019-B12 53.8% Y
$130,000,000 n/a 100.0% n/a
Structured Finance: CMBS 15 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
Additional Debt: One loan, representing 4.3% of the pool by allocated loan balance, has existing mezzanine debt. Four loans, representing 18.0% of the pool by allocated loan balance, have subordinate financing secured by the property. One loan, representing 4.7% of the pool by allocated loan balance, has a Preferred Equity piece of nearly $12.6 million (representing 17.2% of the total funding for that specific property). Three loans, representing a combined 10.7% of the pool, permit future mezzanine debt, provided that certain LTV, debt yield and/or DSCR thresholds are met and a lender- approved Intercreditor Agreement and rating agency confirmation are obtained.
Interest Only DBRS Expected Amoritization
# of % of # of % of Loans Pool Loans Pool Full IO 27 80.5% 0.0% 27 80.5% Partial IO 8 9.2% 0.0%-5.0% 1 1.5% Amortizing 8 10.3% 5.0%-10.0% 3 2.3% 10.0%-15.0% 6 9.9% 15.0%-20.0% 5 4.3% 20.0%-25.0% 1 1.5% >25.0% 0 0.0% Note: For certain ARD loans, expected amortization may include amortization expected to occur after the ARD but prior to single/major tenant expiry.
SUBORDINATE DEBT
Mezz/ Unsecured Future Mezz/ Pari Passu B-Note Debt Unsecured Debt Total Debt Loan Name Trust Balance Balance Balance Balance (Y/N) Balance
30 Hudson Yards $100,000,000 $1,020,000,000 $310,000,000 $0 N $1,430,000,000
The Lincoln Apartments $60,420,000 $0 $0 $12,580,000 N $73,000,000
Grand Canal Shops $60,000,000 $700,000,000 $215,000,000 $0 N $975,000,000
Moffett Towers II Buildings 4 & $ $55,250,000 $294,750,000 $155,000,000 $85,000,000 N $590,000,000
The Centre $15,000,000 $45,000,000 $70,000,000 $0 N $130,000,000
Leasehold: Four loans, representing a combined 10.9% of the pool by allocated loan balance, are either fully or partially secured by the borrower’s leasehold interest. These loans include Grand Canal Shoppes, Summit Technology Center, Oglethrope Square and Compass Self Storage Michigan Portfolio (of which the Compass Self Storage Shelby is secured by the borrower’s leasehold interest). In each instance, the ground lease either has an expiration date (inclusive of renewal options) far enough beyond loan amortization to be considered traditionally financeable or the land owner has pledged their property interest as security for the loan.
Structured Finance: CMBS 16 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
Sponsor Strength: DBRS identified four loans, account- DBRS Sponsor Strength ing for 3.5% of the pool by allocated loan balance, to be # of % of associated with a prior voluntary bankruptcy, inadequate Loans Pool commercial real estate experience and/or negative credit Strong 4 19.8% events. DBRS applied POD penalties to mitigate this risk. Average 35 76.7% DBRS additionally identified four loans, representing a Weak 3 2.9% combined 19.8% of the pool by located loan balance, to be Bad/Litigious 1 0.6% associated with Strong sponsorship because of the spon- sors’ extensive experience in the commercial real estate sector and significant wherewithal.
Property Release: Eight loans representing 30.2% of the pool allow for the release of one or more properties or a por- tion of the mortgaged property, subject to release prices in an amount at least equal to the allocated loan amounts of the respective properties and/or certain leverage tests prescribed in the individual loan agreements. One loan (CIRE Equity Retail & Industrial Portfolio) representing 2.1% of the pool provides for the substitution of real property for the mort- gaged property.
Terrorism Insurance: Terrorism insurance is required and in place for all loans.
RESERVE REQUIREMENT BORROWER STRUCTURE
Type # of Loans % of Pool Type Loans % of Pool
Tax Ongoing 34 57.7% SPE with Independent Director and 19 76.5% Non-Consolidation Opinion
Insurance Ongoing 14 25.2% SPE with Independent Director Only 2 2.2%
CapEx Ongoing 7 21.4% SPE with Non-Consolidation Opinion 0 0.0% Only
Leasing Costs Ongoing1 12 0.0% SPE Only 22 21.3%
1. Percent of office, retail, industrial and mixed use assets based on DBRS property types.
Structured Finance: CMBS 17 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
30 Hudson Yards New York, New York
Loan Snapshot Seller GACC/GSMC Ownership Interest Fee Simple Trust Balance ($ million) $100.0 Loan psf/Unit $765 Percentage of the Pool 7.8% Loan Maturity/ARD July 2029 COLLATERAL SUMMARY Amortization n/a DBRS Property Type Office Year Built/Renovated 2019 Issuance DSCR City, State New York, NY Physical Occupancy 100.0% 3.45x SF 1,463,234 Physical Occupancy Date August 2019 Issuance LTV 50.9% Balloon LTV This loan is secured by the Borrower’s condominium interest in 1.5 million sf of Class 50.9% A office space at 30 Hudson Yards. The Borrower’s condominium interest spans Floors DBRS Property Type 16 through 51 of the 30 Hudson Yards building, which stands 68 stories tall and benefits Office from a prominent location within New York’s revitalized Hudson Yards District. Loan DBRS Property Quality proceeds of $1.43 billion, in addition to an equity contribution of $7820.0 million, Excellent financed the Borrower’s nearly $2.2 billion acquisition of the subject collateral and Debt Stack ($ million) funded $57.0 million of closing costs associated with the transaction. The $1.43 billion Trust whole-loan amount is structured as a $1.12 billion Senior A-note and a $310.0 million $100.0 Junior B-note. The Senior A-note is to be bifurcated into 29 pari passu notes, while Pari Passu the Junior B-note will be bifurcated into three pari passu notes. Thirteen pari passu $1,020.0 notes, representing $698.0 million of the Senior A-note and $310.0 million of the Junior B-Note B-note, were securitized in a stand-alone transaction. The $100.0 million trust balance $310.0 represents three non-controlling pari passu notes of the remaining $422.0 million Mezz Senior A-note balance. The ten-year loan is full-term IO and represents a relatively $0.0 modest LTC of 65.0% based on the whole-loan amount of $1.43 billion. As a result of Total Debt the property’s high quality, excellent location and sponsor strength, DBRS considers $1,430.0 the credit quality associated with the senior mortgage to be A (high). Loan Purpose Acquisition The collateral is superbly located along the easternmost boundary of Hudson Yards, Equity Contribution/ (Distribution) ($ million) one of the largest private real estate developments in U.S. history. Hudson Yards broke $782.0 ground in 2008 and, upon completion, will include over 18.0 million sf of commercial and residential space across 26.0 acres. Hudson Yards has been supported by more than $4.0 billion of public investment, which includes a new station on the 7 line of the subway at the base of 30 Hudson Yards that positively enhances the commutability of the collateral. Hudson Yards is situated at the northeasternmost corner of New York’s Hudson Yards District, which was re-zoned to include approximately 25.8 million
Structured Finance: CMBS 18 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
30 HUDSON YARDS – NEW YORK, NY sf of Class A office product; 20,000 residential units; 2.0 million sf of hospitality space; 1.0 million sf of retail space; a 750-seat public school; and over 20 acres of open space. Per Reis, the collateral’s Penn Station submarket is vulnerable to a substantial influx of new supply, with nearly 13.2 million sf of completions estimated to drive submarket vacancy rates as high as 11.9% through YE 2023. Per Reis, however, the collateral’s Penn Station submarket reported the lowest average office submarket vacancy rate of 3.5% among New York metropolitan submarkets as of Q1 2019. Furthermore, the collateral’s location within Hudson Yards makes it is uniquely well positioned to absorb the escalating number of office tenants seeking flight from the historically more prominent subsections of New York’s Midtown submarket in favor of newer-vintage office product, such as the collateral.
LARGEST TENANT SUMMARY
% of Total % of Total DBRS Base DBRS Base Lease Investment Property Tenant SF NRA Rent Rent Expiry Grade
Hudson Yards WarnerMedia 1,463,234 100.0% 75.00 100.0% 06/2034 Y
Total/Wtd. Avg. 1,463,234 100.0% 75.00 100.0% n/a n/a
The collateral is 100.0% leased to and occupied by WarnerMedia, which will consolidate all of its primary business divisions — Turner Broadcasting System, Inc., including Cable News Network (CNN), TNT, TBS, truTV, etc.; Home Box Office (HBO), including Cinemax; and Warner Bros. Entertainment Inc. — at this location. WarnerMedia (formerly Time Warner Inc.) was acquired by AT&T Inc. (AT&T) in June 2018 in a transaction reportedly valued at approximately $85.4 billion. WarnerMedia’s brands operate one of the world’s largest TV and film studios and own a deep library of entertainment titles across all media types. As of December 31, 2017, WarnerMedia had approximately 26,000 employees, approximately 5,000 of which will be based at 30 Hudson Yards.
The WarnerMedia lease is a 15-year NNN lease for the entire WarnerMedia condominium unit with an initial base rent of $75.00 psf, escalating by 2.5% per year. The lease has four five-year extension options, each at 100.0% of fair market rent.
In the fifth year of the lease, WarnerMedia has a contraction option for up to ten floors, or 404,325 sf. For Floors 42 to 51, WarnerMedia has the option to contract by one or more contiguous full floors beginning with the top floor and working down. If WarnerMedia exercises its contraction option, it will be required to pay a contraction payment of $24.0 million per floor (approximately $594 psf ), up to a maximum of $240.0 million to the Lender. Furthermore, if it contracts its space by more than three floors, WarnerMedia will be required to pay an additional $125 psf of the contracted space in excess of the highest three floors, which will be held by the Lender in escrow and released to the Borrower when the contraction space is re-leased. AT&T, which is an investment-grade-rated company, will guarantee the WarnerMedia lease. Because of the AT&T guarantee and the fact that the initial lease term extends five years beyond the loan term, the WarnerMedia lease qualifies for LTCT status per the DBRS North American Commercial Real Estate Property Analysis Criteria. While DBRS gave full LTCT treatment to the entire collateral space for vacancy and TI/LC estimates, it excluded the contraction space from straight-line rent credit. For more detail, please see the DBRS NCF Summary.
SPONSORSHIP The Sponsor of the loan is a joint venture among Arizona State Retirement System (ASRS; 49.9%), two affiliates of Allianz SE (Allianz; 49.0%) and The Related Companies, L.P. (Related; 1.01%).
ASRS administers a pension plan, a long-term disability plan, retiree health insurance plans and other benefits to qualified government workers for the state of Arizona. The ASRS total fund is currently at approximately $39.0 billion in assets under management (AUM).
Structured Finance: CMBS 19 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
30 HUDSON YARDS – NEW YORK, NY
Allianz is a European financial services company headquartered in Munich, with core businesses in insurance and asset management. The Allianz Global Investors division had approximately EUR 1,961 billion of AUM, as of March 31, 2019.
Related owns and manages a portfolio of assets valued at over $60.0 billion, including 32 luxury rental buildings with over 13,000 apartments; over 30.0 million sf of commercial space; 5,500 luxury condominium residences; and approximately 60,000 affordable and workforce housing units located throughout the United States.
DBRS ANALYSIS SITE INSPECTION SUMMARY DBRS toured the exterior of 30 Hudson Yards and the interior space occupied by WarnerMedia on June 6, 2019, at 10.00 a.m. Based on the site inspection, DBRS found the property quality to be Excellent.
Located just steps from the 34th Street–Hudson Yards station with access to the 7 subway line, 30 Hudson Yards is a newly built 68-story 2.6 million sf office building. The building is 0.5 miles west of Penn Station, which provides access to NJ Transit, Long Island Railroad and six subway lines. The subject also has easy access to the Lincoln Tunnel for connection to New Jersey.
As part of the 26-acre Hudson Yards District, 30 Hudson Yards is divided into the Eastern and Western Yards with approximately 13.0 acres each. Upon completion of the adjacent 50 Hudson Yards building (estimated in 2024), the Eastern Yards development will be complete, at which time the development of the Western Yards, expected to be predominantly residential, will commence. Other occupants at 30 Hudson Yards include KKR & Co. Inc., which is relocating its headquarters to the building; Wells Fargo Securities (Wells Fargo); DNB ASA; and Related, which will also house its headquarters at the property. At nearly 1,300 feet, 30 Hudson Yards is the second-tallest building in Manhattan and is instantly iconic as it redefines the Manhattan skyline. From the ground, the property looks imposing and has excellent curb appeal.
WarnerMedia occupies the collateral 1.5 million sf on Floors 16 to 51 on a long-term lease expiring in June 2034. The WarnerMedia space is a mix of traditional office space; studios for various WarnerMedia companies, such as CNN, HBO, etc.; screening theaters; and amenity spaces. The office space consists of open-floorplan layouts and conference rooms along the perimeter with individual offices in the core. DBRS saw office space on Floors 23 and 47. The office space seemed typical for a Class A building with high-end build-outs. DBRS also visited the main amenity floor on Floor 35, which has the main employee cafeteria complete with a full commercial kitchen. Floor 35 also has an outdoor terrace to be used by employees as well as for event space by WarnerMedia. The terrace build-out is not yet complete, and it was not accessible during the site inspection. Floor 36 is also an amenity floor and houses the fitness center and a technology bar. There are
Structured Finance: CMBS 20 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
30 HUDSON YARDS – NEW YORK, NY reportedly six studios at the property, and the property manager said that most of CNN’s prime-time broadcasts are filmed here. All studios were occupied, and DBRS was not able to visit them. Finally, there are two screening rooms/theaters that are currently being built out. Upon completion, they will serve as internal screening rooms for WarnerMedia as well as event space for movie premieres, etc.
The property is connected directly to The Shops & Restaurants at Hudson Yards (Shops & Restaurants), a seven-story 676,229 sf high-end mall also developed by the Sponsor. Shops & Restaurants, which also connects to the nearby 10 Hudson Yards, is anchored by Neiman Marcus’s first New York retail store. Other stores include Cartier, Coach, Zara, H&M, Fendi, etc.
Other developments by the same Sponsor within the Hudson Yards district include the 1.7 million sf 10 Hudson Yards, which was built in 2016 and is the corporate headquarters of L’Oréal SA and Boston Consulting Group, and 15 Hudson Yards, an 800,000 sf 288-unit apartment/condominium building. Upcoming developments by the Sponsor include 35 Hudson Yards, a mixed-use building with high-end condominiums; a 217-room Equinox hotel and 60,000 sf Equinox fitness center; and 50 Hudson Yards, a 2.9 million sf office building in which BlackRock, Inc. will reportedly lease 850,000 sf for its headquarters. Pfizer, Inc. is also reportedly relocating its headquarters to the area, having leased about 820,000 sf at 66 Hudson Boulevard. Upon its completion, the Hudson Yards District will have over 25 million sf of new office space; 20,000 units of housing; 2.0 million sf of retail; and 3.0 million sf of hotel space, park and recreational facilities and cultural amenities.
DBRS NCF SUMMARY
NCF ANALYSIS
Issuer NCF DBRS NCF NCF Variance
GPR $127,104,354 $119,299,588 -6.1%
Recoveries $42,267,893 $41,379,047 -2.1%
Vacancy -$5,081,167 -$4,771,984 -6.1%
EGI $164,291,079 $155,906,651 -5.1%
Expenses $42,267,893 $43,103,173 2.0%
NOI $122,023,186 $112,803,478 -7.6%
Capex $292,647 $292,647 0.0%
NCF $121,730,539 $112,510,831 -7.6%
The DBRS Stabilized NCF is based on the DBRS North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS NCF was $112,611,152, a variance of -7.6% from the Issuer’s NCF of $121,847,959. The main drivers of the variance were rent-step credits and vacancy.
DBRS estimated the EGI based on the WarnerMedia lease in place. Since the WarnerMedia lease extends five years beyond the loan term and is guaranteed by AT&T, an investment-grade-rated company, DBRS gave LTCT treatment for vacancy and TI/LCs. DBRS used a 4.0% vacancy rate and excluded TI/LCs from the analysis. Since WarnerMedia has the option to contract its space by 404,325 sf in the fifth year of the lease, however, DBRS did not include the contraction space in the straight-line rent credit. DBRS did give straight-line rent-step credit through the loan term for the 1,058,909 sf that is non-contractable. Since the property has no operating history, DBRS estimated operating expenses by increasing the Issuer’s expenses by 6.0%, with the exception of management fees, which are capped at $1.0 million. The resulting operating expense of $27.74 psf and expense ratio of 26.5% are broadly in line with other similar Class A office buildings analyzed by DBRS.
Structured Finance: CMBS 21 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
30 HUDSON YARDS – NEW YORK, NY
DBRS VIEWPOINT The 30 Hudson Yards building offers superior Class A finishes with state-of-the-art infrastructure and amenities, including a triple-height lobby, column-free floorplates, floor-to-ceiling windows, several outdoor terraces, an underground connection to the new 7 subway station and a public observation deck offering panoramic city views from approximately 1,000 feet high. The collateral portion is 100.0% leased to WarnerMedia via a 15-year lease scheduled to expire in June 2034. WarnerMedia will be consolidating several of its primary New York–based business arms (i.e., HBO; Turner Broadcasting System, Inc.; and Warner Bros. Entertainment Inc.) to the 30 Hudson Yards building and has reportedly invested approximately $700.0 million ($478 psf ) of its own capital in the build-out of its space. WarnerMedia was acquired by AT&T in 2018, and AT&T will serve as the guarantor on WarnerMedia’s lease within the collateral. DBRS considers AT&T to be investment-grade rated, thereby providing enhanced cash flow stability to the transaction through the duration of the lease term. Wells Fargo and KKR & Co. Inc. have additionally taken occupancy at the 30 Hudson Yards Building, and BlackRock, Inc. recently executed a 20-year lease for 847,081 sf of space at the adjacent 50 Hudson Yards property, further evidencing the superior quality of the asset and enhanced desirability of the Hudson Yards location.
The loan further benefits from exceptionally strong sponsorship through a joint venture among ASRS, two affiliates of Allianz and affiliates of Related. The Sponsors contributed $782.0 million of cash equity to the transaction at closing, representing 35.0% of the aggregate cost basis.
The DBRS-concluded value of $1,730,935,863 represents a 21.3% discount to the collateral’s appraised value of $2.2 billion. The resulting DBRS LTV of 82.6% for the whole loan is relatively high; however, the DBRS LTC for the Senior A-note balance is a more modest 64.7%. In addition, DBRS believes that the subject’s superb location, excellent curb appeal and favorable market dynamic within a strong subsection of a gateway market and financial metropolis will provide stable levels of demand for the collateral through a variety of real estate cycles, thereby dampening downside volatility in years to come. The long-term and investment-grade strength of the collateral’s tenancy should also provide cash flow stability to the asset over the foreseeable future. Furthermore, there is approximately 35.0% of Borrower equity behind the whole- loan amount, and leverage in current market terms is relatively modest. DBRS also estimated the value of the collateral as dark, based on estimated market rents, market vacancies and the costs of stabilizing the collateral to a market occupancy level. The DBRS-concluded dark value was $996,902,098 ($681 psf ), which represents a 39.6% discount to the appraiser’s concluded dark value of $1,650,000,000 ($1,128 psf ). Based on the foregoing considerations, DBRS considers the credit quality associated with the senior mortgage to be A (high).
DOWNSIDE RISKS –– The collateral is 100.0% leased to a single tenant, WarnerMedia, which has a contraction option in the fifth year of its lease for up to ten floors, or 404,325 sf. –– The loan is recourse to the Borrower only, and there is no separate recourse carveout guarantor.
STABILIZING FACTORS ––The WarnerMedia lease is guaranteed by its parent company, AT&T. DBRS considers AT&T to be an investment-grade- rated guarantor, and WarnerMedia’s lease extends five years beyond loan maturity, thereby providing enhanced cash flow stability through the duration of the loan term. Further, if WarnerMedia exercises its contraction option, it will be required to pay an incredibly high contraction payment of $24.0 million per floor (approximately $594 psf ), up to a maximum of $240.0 million to the Lender. Furthermore, if it contracts its space by more than three floors, WarnerMedia will be required to pay an additional $125 psf of the contracted space in excess of the highest three floors, to be held by the Lender in escrow and released to the Borrower when the contraction space is re-leased. ––If the current sponsor is no longer the sponsor in control of the Borrower (and upon certain other events), the Loan Agreement does require a separate replacement guarantor to execute the carveout guaranty. The replacement guarantor will be required to meet a net worth requirement of $500.0 million and a liquidity requirement of $25.0 million.
Structured Finance: CMBS 22 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
Millennium Park Plaza Chicago, Ilinois
Loan Snapshot Seller GSMC Ownership Interest Fee Simple Trust Balance ($ million) $70.0 Loan psf/Unit $375 Percentage of the Pool 5.5% Loan Maturity/ARD August 2029 COLLATERAL SUMMARY Amortization n/a DBRS Property Type Multifamily Year Built/Renovated 1982/2015 Issuance DSCR City, State Chicago, IL Physical Occupancy 99.2% 2.01x Units 557 Physical Occupancy Date May 2019 Issuance LTV 65.8% Balloon LTV This loan is secured by the borrower’s fee simple interest in Millennium Park Plaza, a 65.8% 38-story 557-unit multifamily high rise situated just north of Millennium Park along DBRS Property Type Michigan Avenue in downtown Chicago. The collateral additionally features 85,017 Multifamily sf of office/telecommunications (telecom) space that is spread throughout Floors 2 DBRS Property Quality through 7 and 18,450 sf of ground-floor/mezzanine-level retail space. The remaining Average floors house property amenities and residential units, though a select number of Debt Stack ($ million) office/telecom units are spread throughout the residential portion of the building Trust Balance on Floors 8 through 38. The collateral’s residential portion was 99.2% occupied as of $70.0 May 2019 and has reported annual occupancy rates in excess of 97.0% since 2015. As Pari Passu of loan closing, the collateral’s office and retail subsections were approximately 99.0% $140.0 and 75.6% occupied, respectively. The collateral was previously securitized as part of B-Note WBCMT 2005-C20 with an initial trust balance of $140.0 million, which represented $0.0 an issuance LTV of 80.0% based on the property’s then-current appraised value of Mezz $175.0 million. The previous loan was paid in full at maturity in August 2015. Regarding $0.0 the transaction at hand, loan proceeds of $210.0 million refinanced $208.0 million of Total Debt existing debt on the property, covered $1.0 million of closing costs associated with the $210.0 transaction and funded an upfront replacement reserve of $1.0 million to cover ongoing Loan Purpose capital improvement expenses at the property over the course of the loan term. The Refinance ten-year loan is full-term IO and represents an LTV of 65.8% based on the property’s Equity Contribution/ (Distribution) ($ million) June 2019 appraised value of $319.0 million. Of the $210.0 million whole-loan amount, $0.6 $70.0 million will be contributed to the CGCMT 2019-GC41 trust with the remaining balance to be divided among alternative pari passu notes and contributed as part of future CMBS transactions.
The collateral was originally constructed in 1982 and underwent renovations between 2005 and 2010, during which time the sponsor gut-renovated all 557 residential units,
Structured Finance: CMBS 23 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
MILLENNIUM PARK PLAZA – CHICAGO, IL redesigned the six floors of shared office/telecom space and implemented new modern amenity offerings. Between 2012 and 2017, the sponsor invested an additional $20.0 million into the property to complete redesigning the building lobby, build out a new on-site management/leasing office and add nearly 20,000 sf of ground-floor retail space along the heavily-trafficked Michigan Avenue. The property now features an abundance of common amenities, including a modernized fitness center complete with locker rooms, an indoor pool located on the 38th floor with sprawling views of the surrounding cityscape, a rooftop deck that also provides sweeping views of the surrounding cityscape, a business center, a conference room for on-site office tenants, a tenant lounge and an on-site concierge service. The collateral additionally offers valet parking services via its 200-stall underground parking garage. Per management, residential and office tenants share all common amenities spaces. All residential units feature hardwood floors, full kitchens with modern appliance packages and wood cabinetry. All units are also equipped with Internet and satellite services, which are included in the base rent as amenities. Select units feature dining areas, oversized closets and/or views of Millennium Park. The subject’s unit breakdown consists of 66 studio units averaging 487 sf, 263 one-bedroom units averaging 670 sf, 125 two-bedroom units averaging 983 sf and 103 three-bedroom units averaging 1,218 sf. Per the rent roll dated [XX], the subject’s studio, one-bedroom, two-bedroom and three-bedroom units achieved average monthly rental rates of $1,609; $1,837; $2,657; and $3,357, respectively.
COMPETITIVE SET
Year Built/ Property Location Distance from Subject Units Renovated Occupancy
200 Squared Chicago, IL 0.6 miles 329 1964/2011 100.0%
420 East Ohio Chicago, IL 1.0 miles 263 1990/2017 95.0%
Lake Shore Plaza Chicago, IL 1.0 miles 567 1986 92.0%
McClurg Court Chicago, IL 0.9 miles 1061 1972/1985 87.9%
Columbus Plaza Chicago, IL 0.5 miles 534 1980 94.4%
Millennium Park Plaza Chicago, IL n/a 557 1982/2015 99.3%
* Per Appraisal.
The appraisal identified five competitive properties within a 1.0-mile radius of the collateral. At the time of DBRS inspection, management indicated that the collateral distinguished itself by offering below-market rents relative to the abundance of surrounding multifamily supply. Per the appraisal, monthly rents across the competitive set averaged $1,789; $1,948; $2,797; and $3,683 for studio, one-bedroom, two-bedroom and three-bedroom units, respectively. Though considerably dated, the collateral’s vintage is generally in line with its identified competitive set, and the subject has benefited from more recent renovations than all but one of the appraisal-identified competitors (420 East Ohio). While the appraisal identified several new residential developments under construction in the downtown Chicago area, the new developments are primarily Class A luxury towers with considerably higher asking rents indicative of divergent renter pools.
The collateral is located in The Loop submarket of the greater Chicago metropolitan area. Reis reported an average asking rent and submarket vacancy rate of $2,266 and 7.4%, respectively, for The Loop submarket as of Q1 2019. For properties of similar vintage as the collateral (properties constructed between 1980 and 1989), Reis reported a more favorable asking rent and vacancy rate of $2,322 and 6.3%, respectively. The collateral is somewhat dated for its submarket, as evidenced by only 31.0% of submarket inventory having been constructed before 1989 and 48.0% of submarket inventory having been constructed after 2009 as of Q1 2019. Reis forecasts The Loop will experience an annualized inventory growth rate of 1.6% over the five-year period ending 2023, representing a dramatic shift from the annualized 5.8% growth rate exhibited over the five-year period ending December 2018. Reis estimates absorption to maintain a balanced pace with new construction throughout The Loop subject over the five-year period ending December 2023, ultimately inducing a
Structured Finance: CMBS 24 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
MILLENNIUM PARK PLAZA – CHICAGO, IL decline in submarket vacancy rates with average asking rents forecast to grow an average of 1.3% annually over the same period. As the submarket appears to be predominantly Class A product, the collateral’s Class B/C status makes it uniquely equipped to offer competitive rental rates for tenants who would otherwise be priced out of The Loop submarket.
TENANT SUMMARY
DBRS UW % of Total Gross Rent DBRS UW Tenant SF % of Total NRA PSF Gross Rent Lease Expiry
Ferrero USA Inc 2,785 2.7% 202.50 10.0% 05/2027
Centurylink,Inc. 9,128 8.8% 45.47 7.4% 09/2023
Broadwing Communications 6,000 5.8% 66.00 7.1% 07/2019
Stan's Donuts 2,058 2.0% 171.82 6.3% 05/2027
Nandos Of Michigan Ave LLC 4,055 3.9% 75.22 5.4% 10/2032
Gps Millennium Park LLC Garrett Popcorn 1,540 1.5% 169.79 4.7% 10/2024
Pb Restaurants LLC 1,476 1.4% 134.48 3.5% 12/2024
Angelini & Ori LLC DBA Angelini Ori Abate Law 3,900 3.8% 36.58 2.5% 11/2025
Hat World Inc 809 0.8% 174.84 2.5% 12/2024
Davids Tea(Usa) Inc 777 0.8% 175.05 2.4% 11/2024
Subtotal/Wtd. Avg. 32,528 31.4% 28.16 51.9% Various
Other Tenants 57,083 55.2% 47.35 48.1% Various
Vacant Space 13,856 13.4% n/a n/a n/a
Total/Wtd. Avg. 103,467 100.0% 54.28 100.0% Various
Per the rent roll dated May 31, 2019, the collateral’s retail, office and telecom subsections were approximately 9.4%, 0.3% and 0.0% economically vacant, respectively. The collateral’s office component benefits from a highly granular rent roll, comprising 113 leases with no single tenant accounting for more than 6.0% of total office NRA or 5.4% of total office base rent. Office suites range in size from 100 sf to 3,900 sf with an average suite size of only 570 sf across the property. The collateral’s telecom subsection comprises 14 tenant leases, eight of which entail physically occupied space. The largest telecom tenant, CenturyLink, represents 44.4% of telecom space and 8.8% of the collateral’s non-residential NRA. Retail tenants comprise the majority of the ten largest tenants at the property, accounting for only 17.8% of total NRA but 35.5% of total DBRS Gross Rent. Nearly all of the collateral’s retail tenants feature frontage along Michigan Avenue, providing excellent exposure to the city’s downtown foot traffic. Given the relatively short-term nature of the tenant leases, the collateral exhibits moderate exposure to near-term lease rollover concentrations. In the first five years of the loan term, more than 100 leases, representing 68.2% of the property’s total NRA and 61.2% of the total DBRS Base Rent, are scheduled to roll. The collateral’s retail subsection is particularly vulnerable to lease rollover concentrations, with four leases representing 24.9%/33.4% of the property’s total retail NRA/DBRS Gross Retail Rent scheduled to roll at the end of 2024 and two leases representing 26.2%/41.6% of total retail NRA/DBRS Gross Retail Rent scheduled to roll in May 2027.
SPONSORSHIP The sponsor for this transaction is Donal P. Barry, Sr., of BJB Partners (BJB), a family-owned investment management company specializing in the acquisition, renovation and repositioning of multifamily properties throughout the greater Chicago metropolitan area. As of loan closing, BJB’s portfolio was valued at approximately $1.7 billion and included 80 assets comprising more than 6,000 apartment units; 200,000 sf of retail space; and more than 200,000 sf of office space. The sponsor, Donal P. Barry, Sr., reported a net worth and liquidity of $280.7 million and $27.4 million as of January 2019, respectively.
Structured Finance: CMBS 25 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
MILLENNIUM PARK PLAZA – CHICAGO, IL
Property management services are provided by Millennium Park Living, Inc., an affiliate of BJB, for a contractual rate equal to 3.0% of the collateral’s annual EGI. All management fees are subordinate to the collateral’s debt service payments.
DBRS ANALYSIS SITE INSPECTION SUMMARY DBRS toured the interior and exterior of the property on Tuesday, July 16, 2019, at approximately 10:30 a.m. Based on the site inspection, DBRS found the property quality to be Average.
The collateral consists of a 38-story 557-unit multifamily high rise that is conveniently located on the east side of The Loop in downtown Chicago. The collateral additionally includes 85,017 sf of office/telecom space that is spread throughout Floors 2 through 7 and 18,450 sf of ground-floor/mezzanine-level retail space. The property is situated just south of The Magnificent Mile along Michigan Avenue, which provides excellent visibility and above-average foot-traffic exposure for the subject’s ground-floor retail storefronts. The property additionally benefits from proximity to Millennium Park, which is located directly adjacent to the property’s south and features such attractions as the Jay Pritzker Pavilion (which is known to host free movies and concerts in the summer), McCormick Tribune Plaza (which is converted into an ice-skating rink during the winter season) and the Cloud Gate (which is commonly recognized as Chicago’s infamous Bean). The property’s location provides excellent commutability with several access points to Chicago’s public Chicago Transit Authority (CTA) system located within a few-blocks radius and a CTA bus stop located directly out front of the collateral’s Michigan Avenue lobby entrance. The property’s location also provides a well-rounded variety of retail, dining and entertainment options. Given its location in the heart of downtown Chicago, the collateral’s surrounding area is densely infilled by a number of alternative office and residential high rises with similar ground-floor retail layouts. Relative to immediately surrounding buildings such as Prudential Plaza and Michigan Plaza, the collateral is relatively unpronounced but showed well at the time of DBRS inspection. Per management, Chicago’s East Loop has undergone an influx of new multifamily supply in recent years. However, management indicated that the new supply is predominantly Class A in nature and non-competitive with the collateral given the subject’s generally below-market-rent offerings.
The collateral was originally constructed in 1982 and features a brick and masonry exterior facade with ground-floor retail spaces lining the westernmost base along Michigan Avenue. The ground-floor retail spaces featured well-pronounced signage and appeared well-built-out with a variety of finish qualities at the time of DBRS inspection. The collateral featured a small entry lobby along Michigan Avenue as well, though a separate lobby with access to the subject’s office and residential floors is alternatively accessible along North Beaubien Court to the property’s east. The lobby along North Beaubien Court serves as the primary office and retail access point and featured a tenant/guest reception desk with a full-time attendant. The lobby was well finished, featuring modern wood paneling and tasteful steel accents. The
Structured Finance: CMBS 26 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
MILLENNIUM PARK PLAZA – CHICAGO, IL collateral’s office spaces were generally spread throughout Floors 2 through 7 and featured a variety of finishes inclusive of either tile, vinyl wood plank or carpeted flooring; custom lighting accents; drop-tile acoustic ceilings; and glass doors. Most tenant suites were relatively small, as management indicated that the property predominantly catered to tenants seeking suites of fewer than 1,000 sf. All office floors featured open kitchen areas for shared use, and the seventh floor additionally featured an executive conference room with two smaller break-out conference rooms available for tenant use. The collateral’s residential units generally began on the eighth floor and spanned upward to the 38th floor, where the subject’s modern fitness center and indoor swimming pool are located. Unit finishes appeared to be consistent throughout the property and generally featured hardwood flooring with tiled flooring in the kitchens, stainless steel appliances and wood cabinetry. Select units featured oversized closets, carpeting in the bedroom areas and/or views of Millennium Park. Additional property amenities include a sundeck with views of Millennium Park and the surrounding cityscape, a business center, on-site laundry facilities and several study rooms. The property also offers valet parking services in an underground parking garage that is accessible from Lower Beaubien Court. Overall, the property was excellently located and appeared relatively well maintained at the time of DBRS inspection.
DBRS NCF SUMMARY
NCF ANALYSIS
2016 2017 2018 T-12 May 2019 Issuer NCF DBRS NCF NCF Variance
GPR $18,722,175 $19,642,079 $20,836,035 $14,972,622 $15,260,112 $15,260,112 0.0%
Other Income $754,502 $767,780 $939,866 $7,222,056 $7,150,912 $6,371,290 -10.9%
Vacancy & $0 $0 $0 $0 $0 -$961,387 0.0% Concessions
EGI $19,476,677 $20,409,859 $21,775,900 $22,194,678 $22,411,024 $20,670,014 -7.8%
Expenses $5,920,924 $6,198,041 $6,410,039 $6,549,845 $6,752,423 $6,806,564 0.8%
NOI $13,555,753 $14,211,818 $15,365,862 $15,644,833 $15,658,602 $13,863,451 -11.5%
Capex $0 $0 $0 $0 $11,400 $70,290 516.6%
TI/LC $0 $0 $0 $0 $0 $324,995 100.0%
NCF $13,555,753 $14,211,818 $15,365,862 $15,644,833 $15,647,202 $13,468,166 -13.9%
The DBRS NCF is based on the DBRS North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS NCF was $13,468,166, representing a -13.9% variance from the Issuer’s NCF of $15,647,202. The primary drivers of the variance included residential vacancy, commercial vacancy, leasing costs, mark-to-market rent adjustments and replacement reserves.
DBRS estimated a 6.3% residential vacancy loss at the property compared with the Issuer’s estimate of 0.0%. Per Reis, the collateral’s submarket exhibited an average vacancy rate of 7.4% as of Q1 2019, though properties of similar vintage to the collateral exhibited a slightly tighter average vacancy rate of 6.3%. Reis forecasts continued absorption throughout the collateral’s submarket, in addition to a decline in new supply deliveries, to cause submarket vacancy rates to fall as low as 5.2% by YE2023, and the collateral operated in excess of 97.0% occupancy annually over the three-year period ending December 2018. DBRS estimated a blended commercial vacancy rate of 12.8% for the collateral’s retail, office and telecom space compared with the Issuer’s 0.0% vacancy estimate. The DBRS Blended Commercial Vacancy Rate was based on the utilization of a 14.6% office and telecom vacancy rate and a 10.0% retail vacancy rate. The DBRS office/telecom vacancy rate was generally in line with the Reis-reported submarket vacancy rate of 14.6% as of Q1 2019. While the collateral’s office space was approximately 99.2% occupied as of loan closing, Reis reported a relatively high submarket vacancy rate of 22.3% for alternative Class B/C office properties within the East Loop office submarket. The DBRS retail vacancy rate of 10.0% was generally in line with the collateral’s in-place economic vacancy of 9.4% reported as of loan closing. DBRS applied blended TI/LCs of $0.58 psf, while the Issuer did not estimate any leasing cost deductions. DBRS generally
Structured Finance: CMBS 27 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
MILLENNIUM PARK PLAZA – CHICAGO, IL based retail leasing costs on the appraisal and applied new/renewal TIs and LCs of $3.0 and $1.5 psf p.a. and 5.0% and 2.5%, respectively, for all office-space types. DBRS applied total rent markdown adjustments of $238,134, with the largest adjustments attributed to CenturyLink, Broadwing Communications and Ferrero USA Inc. The majority of the DBRS rent-markdown adjustments were concentrated throughout the collateral’s office spaces fewer than 100 sf and telecom spaces, for which DBRS estimated annual market rents of $49.50 psf and $60.00 psf, respectively. DBRS, lastly, estimated total replacement reserves of $170,290 based on a blended cost of $250 per residential unit and $0.30 psf for all retail, office and telecom space. The Issuer estimated total replacement reserves of $111,400.
DBRS VIEWPOINT The collateral is exceptionally well located along Michigan Avenue, which provides superb exposure to the collateral’s ground-floor retail spaces. The collateral’s downtown location additionally provides exceptional commutability to residential and office tenants, as well as proximity to a plethora of downtown retail, dining and entertainment offerings. The collateral’s residential submarket has undergone a significant influx of new supply in recent years, as evidenced by the Reis-reported annualized inventory growth rate of 6.2% over the three-year period ending December 2018. However, per management, much of the new supply added to the collateral’s submarket has been predominantly Class A product that is relatively non-competitive. Though the subject is relatively dated compared with its submarket (as evidenced by 69.0% of inventory having been constructed after 2000), the subject underwent full-gut renovations between 2005 and 2010. Additionally, per management, the subject serves as an average-quality product at a lower price point, which is unique to the submarket and has enabled the subject to maintain strong occupancy figures historically. Per Reis, the collateral’s office submarket exhibited a relatively high average vacancy rate of 14.6% as of Q1 2019, with Class B/C office product reporting an even wider submarket vacancy rate of 22.3% over the same period. However, management indicated that the collateral’s average office suite size of 570 sf is a competitive advantage, as it distinguishes it from traditional office space that is more prevalent in the submarket. This is supported by the fact that, at loan closing, the property’s office space was approximately 99.7% occupied. The loan is moderately leveraged with an issuance LTV of 65.8% based on the property’s June 2019 appraised value of $319.0 million. The transaction represents cash neutral financing with no cash equity being returned to the borrower at loan closing.
DOWNSIDE RISKS –– The loan is full-term IO. –– The collateral exhibits relatively high near-term lease rollover concentrations with more than 100 leases, representing approximately 68.2% of the property’s total NRA and 61.2% of the total DBRS Base Rent, scheduled to roll within the first five years of the loan term. The collateral’s retail subsection is particularly vulnerable to lease rollover concentrations, with four leases representing 24.9%/33.4% of the property’s total retail NRA/DBRS Gross Retail Rent scheduled to roll at the end of 2024 and two leases representing 26.2%/41.6% of total retail NRA/DBRS Gross Retail Rent scheduled to roll in May 2027.
STABILIZING FACTORS –– The loan represents cash-neutral financing and exhibits a relatively high DBRS Issuance DSCR of 1.72x, which is indicative of decreased default frequency. –– The collateral benefits from a relatively granular rent roll, comprising nearly 140 separate leases with no individual tenant accounting for more than 8.8% of total NRA or 9.1% of total DBRS Gross Rent. On average, each tenant accounts for approximately 0.8% of the property’s total NRA and 0.7% of total DBRS Gross Rent. Furthermore, though the collateral is especially prone to retail lease rollover concentrations, DBRS believes that the collateral’s prominent location along Michigan Avenue in downtown Chicago will continue to be highly conducive to retail business operations and, in turn, will continue to elicit demand from future prospective tenants.
Structured Finance: CMBS 28 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
USAA Office Portfolio Various
Loan Snapshot Seller GSMC Ownership Interest Fee Simple Trust Balance ($ million) $62.4 Loan psf/Unit $275 Percentage of the Pool 4.9% Loan Maturity/ARD August 2029 COLLATERAL SUMMARY Amortization n/a DBRS Property Type Office Years Built 1999-2019 Issuance DSCR City, State Various Physical Occupancy 100.0% 2.84x SF 881,490 Physical Occupancy Date August 2019 Issuance LTV 63.8% Balloon LTV This loan is secured by the borrower’s fee-simple interest in the USAA Office Portfolio, 63.8% a five-property portfolio that covers 881,490 sf of Class A office space in Plano, Texas, DBRS Property Type and Tampa, Florida. Loan proceeds of approximately $242.2 million and borrower Office equity of $133.0 million will be used to acquire the properties for $375.0 million and DBRS Property Quality cover closing costs of $383,640. The ten-year loan is IO in its entirety and is structured Average + with a cash-flow sweep if the United Services Automobile Association (USAA) Debt Stack ($ million) surrenders, cancels or materially modifies any of its leases 12 months prior to lease Trust Balance expiration. The loan also allows for the release of one or more of the properties from $62.4 the mortgage, provided that no default exists and subject to certain qualifications set Pari Passu forth in the loan agreement. Based on the appraisal reports, the portfolio’s overall as-is $180.0 market value of $380.0 million represents an LTV of 63.8%. B-Note $0.0 Mezz $0.0 Total Debt $242.4 Loan Purpose Acquisition Equity Contribution/ (Distribution) ($ million) $133.0
Structured Finance: CMBS 29 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
USAA OFFICE PORTFOLIO – VARIOUS
PORTFOLIO SUMMARY
Cut-Off Date Loan % of Loan City, Property % of Year Built/ Largest Property Amount 1 Amount State Type SF NRA Renovated Occupancy Tenant
Legacy Corporate I & II $18,843,564 30.2% Plano, TX Office 238,926 27.1% 1999 100.0% USAA
Legacy Corporte III $10,708,911 17.2% Plano, TX Office 145,145 16.5% 2019 100.0% USAA
Crosstown Center I $17,401,980 27.9% Tampa, FL Office 260,869 29.6% 2015 100.0% USAA
Crosstown Center II $15,445,545 24.8% Tampa, FL Office 236,550 26.8% 2018 100.0% USAA
Total/Wtd. Avg. $62,400,000 100.0% n/a n/a 881,490 100.0% n/a 100.0% n/a
1. Reflects the pari passu portion in the subject transaction.
The properties, which were originally constructed between 1999 and 2019, consist of five suburban office buildings located in two business parks – one in Plano and one in Tampa. The properties in Texas lie within the Legacy submarket of Plano and are made up of Legacy Corporate Center I, II and III. All adjacent to each other off Parkwood Boulevard, these office properties total 384,071 sf. Crosstown Center I and II are located adjacent to each other off Delaney Creek Boulevard in the East Tampa submarket, approximately 8.5 miles east of Tampa’s CBD, and total 497,419 sf. The portfolio is 100% leased to USAA (rated AA+ and Aaa by S&P and Moody’s, respectively) with a WA lease term of 12.4 years. Legacy Corporate Center III as well as Crosstown Center I and II were all custom built for USAA while Legacy Corporate Center I and II were originally built for AT&T Inc. (AT&T) until USAA occupied the corporate center starting in January 2015. USAA is a Texas-based financial services company which offers insurance, investing and banking to people and families who currently serve, or have served, in the U.S. military. The company is currently ranked the #101 Fortune 500 Company with over 33,600 employees nationwide.
TENANT SUMMARY
% of DBRS UW % of Total Total Base Rent DBRS UW Long Term Credit Tenant Property SF NRA PSF Base Rent Lease Expiry Tenant? (Y/N)
USAA Legacy Corporate I & II 238,926 27.1% $23.20 29.1% 12/2029 N
USAA Legacy Corporte III 145,145 16.5% $22.66 25.8% 10/2033 Y
USAA Crosstown Center I 260,869 29.6% $25.08 28.8% 08/2030 N
USAA Crosstown Center II 236,550 26.8% $23.49 16.4% 12/2033 Y
Total/Wtd. Avg. n/a 881,490 100.0% $23.75 100.0% n/a n/a
SPONSORSHIP The subject’s sponsor and carveout guarantor for this transaction is JDM Real Estate Funds, LLC (JDM Real Estate), a Phoenix, Arizona-based full service real estate firm which operates in 17 states across the United States. The firm specializes in the acquisition, development and management of office and retail properties as well as the past ownership of multiple professional sports franchises, including the National Basketball Association’s Phoenix Suns and the Women’s National Basketball Association’s Phoenix Mercury. The company also developed Chase Field, a 48,686-seat baseball stadium located in Phoenix and home to Major League Baseball’s Arizona Diamondbacks. JDM Partners currently owns $2.3 billion in office, commercial, industrial, resort and residential assets, totaling 8.5 million sf. The company did not disclose a total net worth or liquidity, but background checks showed no cases of bankruptcies, foreclosures and/or defaults.
The properties are self-managed by USAA and directly contracts operations. JDM Real Estate is responsible for maintenance of structural elements of the portfolio while USAA is responsible for recurring operating expenses.
Structured Finance: CMBS 30 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
USAA OFFICE PORTFOLIO – VARIOUS
DBRS ANALYSIS SITE INSPECTION SUMMARY DBRS conducted a tour on two of the four properties, Crosstown Center I and II, on July 17, 2019, between 10:30 a.m. and 12:30 p.m. Based on the site inspection, DBRS found the portfolio’s overall property quality to be Average (+).
In aggregate, the portfolio is uniform in vintage, construction quality and exterior appearance. Legacy Corporate Center I, II and III in Plano host USAA’s mission-critical software and technology innovation centers while Crosstown Center I and II in Tampa serves as a strategic command center for USAA’s customer service operations.
CROSSTOWN CENTER I AND III
Crosstown Center I and III is composed of two office properties totaling 497,419 sf located 8.3 miles east of downtown Tampa. The two properties that make up the office park are 100% occupied by USAA and share a private drive that connects the office campus to Delaney Creek Boulevard. The immediate surrounding area consists of office buildings to the north and east, retail properties to the west and Selmon Expressway directly south of the property. There are a number of new multifamily complexes scattered throughout the nearby area, but the property manager noted that they were not a major housing source for the company’s workforce and they did not have any corporate contracts. The previous owner of this property sold a parcel of land directly northwest of the property on Delaney Creek Boulevard that is currently under development as a garden-style apartment complex that began construction in May 2019. The property manager expressed the desirability of this location for USAA because of its close proximity to Selmon Expressway and I-75, which allows for an easy commute from Tampa and St. Petersburg from which the company recruits many of its employees. USAA has two other offices in the Tampa area – one office is three miles away and was used to accommodate employees while Crosstown Center II was under construction while the other office is 16 miles from the subject and serves various functions for USAA. The property manager mentioned that the Crosstown Office Campus targets an 85% capacity rate at the property (the property is currently below this figure and hopes to achieve this capacity rate by December 2021) to avoid overcrowding employee space. Both Tampa properties serve as strategic command centers for USAA’s customer service operations and are largely used as call centers with a small portion of each building serving as classrooms to train USAA’s employees in the Tampa market.
The property’s facade has a clean modern look and consists of light-beige concrete with darker tan accents and large glass windows. The property’s landscaping was well maintained and consisted of large palm trees, bushes and flower beds that added to the overall look and feel of the property. Each building has its own six-story parking garage with 1,285 parking spaces connected to its respective building with a bridge. Crosstown Center I has a large cafeteria with various serving
Structured Finance: CMBS 31 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
USAA OFFICE PORTFOLIO – VARIOUS stations, a small medical clinic with a reception area and six patient rooms as well as a 24-hour fitness center with full locker room and laundry facilities, all of which are available to all employees on campus. All employee amenities were new and well maintained, showing very well at the inspection. Security on campus was prevalent with large keycard- enabled turnstiles at every entrance, a sensor that recognizes unauthorized cars in the parking garage and a reception area at the main entrance. The office space was of similar quality as typical Class A office space with cubicles arranged throughout and private offices lining the perimeter of the space. Each floor had its own break room with a kitchenette and eating area, game room with various activities, relaxation areas with massage rooms and nap areas as well as convenience stores offering snacks, personal care items and company apparel for sale. Overall, DBRS found the property to be well maintained at the time of inspection.
DBRS NCF SUMMARY
NCF ANALYSIS
Issuer NCF DBRS NCF NCF Variance
GPR $25,889,861 $22,013,304 -15.0%
Recoveries $6,939,575 $6,939,575 0.0%
Vacancy -$1,285,912 -$1,894,409 47.3%
EGI $31,543,524 $27,058,470 -14.2%
Expenses $7,885,881 $8,021,914 1.7%
NOI $23,657,643 $19,036,556 -19.5%
Capex $176,298 $202,508 14.9%
NCF $23,481,345 $18,834,048 -19.8%
The DBRS NCF is based on the DBRS North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS NCF was $18,860,258, representing a -19.7% variance from the Issuer’s NCF of $23,481,345. The primary drivers of the variance include treatment of rent steps and vacancy. DBRS treated two of the four USAA leases as LTCT since they have qualifying rating requirements and leases extending at least three years past loan maturity, thereby straight-lining those rent steps over the entire loan term. The two USAA leases that do not extend three years past loan maturity do not receive LTCT treatment and rent steps are only accepted through January 2020. DBRS estimated a 9.1% economic vacancy loss compared with the Issuer’s estimated vacancy loss of approximately 3.9%. The DBRS estimated vacancy loss was based on a blend of 1% vacancy assumption for the leases with LTCT treatment and 15% vacancy for the remaining leases, which is supported by Reis submarket vacancy rates.
DBRS VIEWPOINT The subject portfolio comprises Class A office space that is 100% occupied by a credit tenant with a WA loan term of 12.4 years. This loan features a cash-flow sweep structure that goes into effect if USAA surrenders, terminates or materially modifies its lease. The properties are well located within their respective markets in close proximity to major interstates and were built-to-suit assets that serve as important locations in USAA’s future business functions. The sponsor contributed significant equity of $133.0 million, 35.4% of the total purchase price, which shows a strong commitment to the portfolio. Overall, the loan exhibits strong metrics, boasting a LTV of 63.8% and a DBRS DSCR of 2.27.
DOWNSIDE RISKS –– The loan is full-term IO. –– The portfolio is 100% leased to a single tenant.
Structured Finance: CMBS 32 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
USAA OFFICE PORTFOLIO – VARIOUS
STABILIZING FACTORS –– JDM Partners is an experienced sponsor with 16 business parks currently in its portfolio, one of which is a USAA facility located in Phoenix in which the sponsor has developed a business relationship with USAA. The sponsor also invested $133.0 million into the acquisition of the portfolio. –– The investment-grade tenant has a Fortune 500 rank of #101 with over $155 billion in assets under management with all four leases expiring after the loans maturity.
Structured Finance: CMBS 33 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
The Lincoln Apartments Brooklyn, New York
Loan Snapshot Seller CREFI Ownership Interest Fee Simple Trust Balance ($ million) $60.4 Loan psf/Unit $428,511 Percentage of the Pool 4.7% Loan Maturity/ARD August 2029 COLLATERAL SUMMARY Amortization n/a DBRS Property Type Multifamily Year Built/Renovated 2017 Issuance DSCR City, State Brooklyn, NY Physical Occupancy 76.6% 1.58x Units 141 Physical Occupancy Date June 2019 Issuance LTV 57.2% Balloon LTV The loan is secured by the borrower’s fee-simple interest in a 141-unit multifamily 57.2% complex located in the Prospect Park section of Brooklyn, New York, which is DBRS Property Type approximately ten miles south of Manhattan. Loan proceeds of $60.4 million were Multifamily used to refinance the property and pay for closing costs in June 2019. The ten-year DBRS Property Quality fixed-rate loan is IO for the entire period. Average + Debt Stack ($ million) The high-rise multifamily community complex, which was constructed in phases in Trust Balance 2017 and 2018, consists of two buildings – 510 Flatbush Avenue and 33 Lincoln Road. $60.4 The property is immediately adjacent to the Prospect Park subway station, which Pari Passu offers access to the B, S and Q subway lines. The property-wide amenities include a $0.0 doorman, tenant storage, residence lounge, fitness center, laundry facility and roof B-Note deck. Unit features include stainless steel appliances and hardwood floors. The unit $0.0 breakdown for 510 Flatbush Avenue consists of 20 studio units (480 sf ), ten one- Mezz bedroom units (623 sf ) and 21 two-bedroom units (850 sf ). The unit breakdown for $0.0 33 Lincoln Road consists of 20 studio units (458 sf ), 19 one-bedroom units (610 sf ), Total Debt 49 two-bedroom units (806 sf ) and two three-bedroom units (1,220 sf ). There is also $60.4 18,868 sf of commercial space that is 100% leased to four tenants. Loan Purpose Refinance The New York 70/30 program is a 35-year 421-a tax abatement program that allows Equity Contribution/ (Distribution) ($ million) for a three-year construction period followed by a 35-year post completion period in ($3.3) which taxes are abated. Full market-rate taxes will be phased in over a ten-year period after a 25-year exemption period. The benefit at 510 Flatbush Avenue ends on July 30, 2052, while the benefit at 33 Lincoln Road does not end until June 30, 2053.
The buildings were a combined 76.6% occupied as of the July 23, 2019, rent roll. The property benefits from a 421 – a tax abatement program which grants certain
Structured Finance: CMBS 34 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
THE LINCOLN APARTMENTS – BROOKLYN, NY exemptions from real estate tax, but also partially subjects the property to New York City affordable housing requirements. Consequently, 98 of the units may be rented at market rates with the remainder at reduced rents to qualifying residents. The affordable units are filled via a lottery system administered by the city rather than by the property management staff. The property vacancy is primarily the result of the city’s process for renting affordable units.
There were five identifiable multifamily properties in the local market that are direct competitors with the subject. For more information, please refer to the table below.
COMPETITIVE SET
Year Built/ Property Location Distance from Subject Units Renovated Occupancy
The Plex Brooklyn, NY 1.0mi 98 2009 n.a.
The Parkline Brooklyn, NY 0.2mi 203 2016 n.a.
The Parkside Brooklyn Brooklyn, NY 0.6mi 96 2014 n.a.
The Clark Brooklyn, NY 1.0mi 170 2018 n.a.
Hello Lenox Brooklyn, NY 1.0mi 55 2016 n.a.
The Lincoln Apartments Brooklyn, NY n/a 141 2017 76.6%
*Per Appraisal.
SPONSORSHIP The Sponsor, Alexander Goldin, is an experienced owner and operator of commercial assets throughout the tri-state area. Over his career, Mr. Goldin has been responsible for development and/or financing throughout New York.
DBRS ANALYSIS SITE INSPECTION SUMMARY DBRS toured the interior and exterior of the property on July 11, 2019, at 2.00 p.m. Based on the site inspection and management meeting, DBRS found the property quality to be Average (+).
The collateral consists of two apartment buildings located just east of Prospect Park in Brooklyn. One of the buildings has frontage on Lincoln Road and the other fronts Flatbush Avenue. The two buildings are connected at the basement level and share amenities and parking. The Prospect Park subway station is adjacent to the property and provides access to the B and Q lines as well as a shuttle line to the Franklin Avenue subway station with service on the C line. There is also a bus
Structured Finance: CMBS 35 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
THE LINCOLN APARTMENTS – BROOKLYN, NY stop in front of the Lincoln Road building. Flatbush Avenue is a major commercial thoroughfare and there are a number of restaurants, bars and other retail, including a gas station, near the property. Lincoln Road also has restaurants and bars near the property. There are two gourmet grocery stores on the same block as the property, including Lincoln Market, which is a commercial tenant in the Lincoln Road building. The ground-level retail in the Flatbush Avenue building has been leased to a restaurant and a wellness center, both of which were under construction at the time of DBRS’s tour. According to management, the build-out for both the restaurant and the wellness center is expected to be completed by the end of Q3 2019.
The unit mix at the property comprises studio, one-bedroom and two-bedroom units and DBRS toured each unit type. All units have hardwood floors in the living areas and tiles in the kitchens and bathrooms. The one- and two-bedroom units have walk-in closets and all units have stainless steel kitchen appliances. Some units have balconies or terraces, which are equal or larger than the unit size; according to management, these command rent premiums of up to $500 per month depending on the size of the balcony or terrace. In addition, there is a roof deck with panoramic views of Prospect Park, Manhattan and Brooklyn that is accessible to all the tenants. The roof deck has outdoor seating and landscaping as well as electric grills for tenants’ use. Tenants also have access to a fitness center, a tenant lounge and a coin-operated laundry at the basement level. There is underground reserved parking, including bike racks, which is a significant marketing advantage. The parking fee is $275 per month for cars and $125 per month for bikes. Finally, the basement has a tenant storage facility, which can be rented for $60 per month.
According to management, the market-rate units at the property were 99.0% leased. Management indicated that the city- administered lottery for the affordable units was complete and the first tenants to occupy those units had moved in with priority given to tenants with disabilities.
The property was very well maintained and there were no signs of deferred maintenance. Although both buildings have mid-block locations, they have good visibility and curb appeal because they are taller and their facades are distinct from adjacent buildings. The Lincoln Market grocery store was also very busy at the time of the site inspection.
DBRS NCF SUMMARY
NCF ANALYSIS
Budget 2019 Issuer NCF DBRS NCF NCF Variance
GPR $5,982,064 $5,902,396 $5,874,654 -0.5%
Other Income $442,660 $228,477 $228,477 0.0%
Vacancy & Concessions -$223,648 -$295,120 -$505,325 71.2%
EGI $6,201,075 $5,835,753 $5,597,806 -4.1%
Expenses $1,276,395 $1,268,078 $1,281,610 1.1%
NOI $4,924,680 $4,567,676 $4,316,196 -5.5%
Capex $0 $39,024 $39,024 0.0%
TI/LC $0 $31,765 $51,110 60.9%
NCF $4,924,680 $4,496,887 $4,226,062 -6.0%
The DBRS Stabilized NCF is based on the DBRS North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS Stabilized NCF was $4,226,062, a variance of -6.0% from the Issuer’s NCF of $4,496,887. The main drivers of the variance were concessions, vacancy, operating expenses and TI and LC costs. DBRS estimated concessions for the market-rate units only based on an average of the actual concessions offered during the lease-up of the property. The DBRS concession estimate of 5.4% is lower than the submarket average of 6.7%, according to Reis. A vacancy rate of 10.0%
Structured Finance: CMBS 36 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
THE LINCOLN APARTMENTS – BROOKLYN, NY was used for the market-rate units and the in-line retail space. A 5.0% vacancy was assumed for the grocery anchor and no vacancy was taken for the affordable-rate units. Given the absence of historical operating information, DBRS inflated the budgeted operating expenses by 6.0%. DBRS estimated TIs for the retail space at $20.00 psf for new leases and $10.00 psf for renewals. LCs were estimated at 4.0% and 2.0%, respectively, assuming a 65.0% renewal probability and ten-year lease terms.
DBRS VIEWPOINT DBRS expects the property to perform well and generate a stable cash flow over the loan term. DBRS’s estimate of EGI reflects conservative estimates of vacancy for the market-rate units and retail space as well as market rents. The New York multifamily market remains stable and affordable units are traditionally fully leased, given the high cost of housing in the city.
The market-rate units have leased well, given the property’s location adjacent to a subway station and to Prospect Park. During the site visit, the Lincoln Market grocery store was very busy and the restaurant and the wellness center in the Flatbush Avenue building are expected to perform well, taking advantage of complementary retail nearby. The availability of underground parking and tenant storage is also a selling point for the property.
The 56.3% LTV loan has low going-in leverage and suggests low refinance risk, even though there is no amortization over the loan term. Although property taxes will eventually phase in and increase the property’s expenses, the phase-in will not begin until 2042 at the earliest and will not affect cash flow for this loan.
DOWNSIDE RISKS –– The affordable units at the property are 74.4% vacant.
STABILIZING FACTORS –– According to the management, the city-administered lottery for the affordable units has been completed and the tenants for those units should be in occupancy soon. Per management, the applications for the affordable units were heavily oversubscribed and it is likely that they will be 100.0% occupied during the loan term. –– The loan is structured with a $1.0 million holdback to be held subject to a debt-yield test and achievement of a 95.0% stabilized occupancy across the property.
Structured Finance: CMBS 37 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
Post Ranch Inn Big Sur, California
Loan Snapshot Seller GACC Ownership Interest Fee Simple Trust Balance ($ million) $60.0 Loan psf/Unit $1,538,462 Percentage of the Pool 4.7% Loan Maturity/ARD August 2029 COLLATERAL SUMMARY Amortization n/a DBRS Property Type Full-Service Hotel Year Built/Renovated 1992/2018 Issuance DSCR City, State Big Sur, CA T-12 RevPAR $1,478 4.88x Keys 39 T-12 RevPAR Date May 2019 Issuance LTV 42.3% Balloon LTV The loan is secured by the borrower’s fee-simple interest in Post Ranch Inn, a 39-key 42.3% luxury resort hotel located in Big Sur, California. Situated on 90.336 acres of land, the DBRS Property Type sponsor developed the property in 1992 on an irreplaceable location on the cliffs of Full Service Hotel the Big Sur coastline and expanded in 2007-2008. Furthermore, the property went DBRS Property Quality under a series of renovations from 2015 through 2018 for a combined $10.0 million. Excellent Loan proceeds of $60.0 million were used to refinance $50.0 million of debt that was Debt Stack ($ million) previously securitized in the CMBS transaction COMM 2014-CCRE19, cover closing Trust Balance costs and return $9.1 million of equity to the sponsor. The loan is structured with an $60.0 ARD of August 6, 2029, after which it will hyper-amortize to the stated maturity date Pari Passu on August 6, 2034. The sponsor is permitted to obtain future mezzanine debt if certain $0.0 credit metrics are met, including a combined LTV of 55% and a combined DSCR of not B-Note less than 3.60x, among other requirements. The loan is IO for the entire ten-year term. $0.0 Mezz The hotel is only one of two luxury hotels located in Big Sur and is located on the $0.0 historic California State Route 1. The hotel features an extensive amenities package Total Debt that includes an outdoor swimming pool, two outdoor infinity heated basking pools, $60.0 a fitness room, an outdoor yoga and meditation deck, private hiking trails, a library, Loan Purpose a retail outlet known as the Mercantile, the award-winning Sierra Mar restaurant, Refinance art gallery (Post Gallery), spa, organic garden, complimentary vehicles and driving Equity Contribution/ (Distribution) ($ million) service to and from the Bay Area airports. Since developing the property in 1992, the ($9.1) sponsor expanded the property by building ten additional keys in 2008 and converting a room into a spa in 2009. From 2015 through 2018, the sponsor spent $20.0 million ($255,200 per key) including the construction of 12 new employee housing units, new property-wide wastewater system and emergency generator, renovation of the Mercantile, 17 guest rooms, 40 employee housing units, the Post Gallery, the old manager’s headquarters, fitness center, a full rebuild of the Sierra Mar bar, refinishing
Structured Finance: CMBS 38 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
POST RANCH INN – BIG SUR, CA of all outdoor teak furniture and pool upgrades. The collateral is undergoing a two-year, $6.3 million capital improvement plan and thesponsor plans to spend $2.5 million in 2019 alone to renovate a number of things, including the renovation of ten additional rooms with new tubs, fixtures, lighting, redwood walls and tiling.
The sponsor was able to expand the property via a lot-line adjustment with the neighboring owner (Mark and Karen Sullivan), which requires the sponsor to pay an annual fee of 1.25% of gross revenue associated with those units until the death of the owners with a lifetime minimum payout of $400,000. Other agreements in place at the property are with the Mercantile to operate a retail outlet at the property for 10% of gross annual sales and with Mr. Sullivan to operate a wood-working shop to produce furniture and other related items on site for the hotel as well as to sell to third parties for no rent. Mr. Sullivan must reimburse utilities. The term of the loan extends to the earlier of the death of Mr. Sullivan or the termination of wood-working activities for six consecutive months. Lexus has agreed to provide the hotel with six hybrid vehicles, which are used to shuttle guests throughout the property and as complimentary for the guests visiting the surrounding destinations. In return, Lexus receives ten complimentary room nights, corporate rates during the low season, brochures in the vehicles, an added Lexus link to the hotel website and the right to host two paid-out corporate events per year.
COMPETITIVE SET
Property City, State Distance Key1 Occupancy ADR RevPAR
Auberge Du Soleil Rutherford, CA 203 miles 50 60% - 65% $1,325 - $1,350 $850 - $875
Calistoga Ranch Calistoga, CA 211 miles 50 70% - 75% $1,150 - $1,175 $850 - $875
Casa Palmero Pebble Beach Pebble Beach, CA 34.2 miles 20 50% - 55% $1,200 - $1,225 $650 - $675
Ventana Big Sur Big Sur, CA 1.1 miles 74 65% - 70% $975 - $1,000 $625 - $650
Post Ranch Inn Big Sur, CA n/a 39 83.00% $1,666.71 $1,382.54
Total / Wtd. Avg. Various Various 194 69.20% $1,265.07 $876.05
Per appraisal. 1. Ventana Big Sur includes 59 room sand 15 glamping sites.
According to December 2018 STR report, the subject’s STR REPORT SUMMARY occupancy rate of 83.0% and ADR of $1,668 outperform the competitive set at 69.4% and ADR at $1,047, resulting Occupancy ADR RevPAR in the property ranking first in terms of RevPAR with a Subject 83.0% $1,666.71 $1,382.54 strong penetration of 190.3%. Since 2009, the subject has Competitive Set 69.4% $1,046.78 $726.57 outperformed the competitive set in terms of RevPAR Index 119.5% 159.2% 190.3% penetration with a minimum index of 104.2% in 2017, Note: For the T-12 Period ending December 31, 2018. per the appraisal. Excluding 2017, the minimum RevPAR penetration was 181.6% in 2016 with an overall average of 191.2%. The large drop-off in 2017 was caused by the Pfeiffer Canyon Bridge closing after heavy rains forced the bridge supports to collapse in February 2017. The bridge was subsequently demolished in March 2017, resulting in the property becoming inaccessible from the north by road until the bridge was rebuilt in October 2017. Full access to Big Sur did not occur until mid-2018 when access from the south was reopened after being shut down for more than a year. From March 2017 to October 2017, the property was only accessible via helicopter, causing occupancy and RevPAR to drop by approximately 44.4% and 42.8%, respectively, from the prior period. To take advantage of the depressed period, the sponsor embarked on an approximately $3.0 million room renovation on seven rooms as well as other portions of the property. Other environmental factors that hindered performance was the Soberanes wildfire in 2016, which shut down the property for nearly two weeks; however, the impact on overall performance was minimal compared with 2017. The
Structured Finance: CMBS 39 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
POST RANCH INN – BIG SUR, CA appraisal noted that there is no new construction in the immediate area, which is largely because the majority of the surrounding land is protected by either the state or the federal government.
HISTORICAL PERFORMANCE
T-12 Ending 2009 2010 2011 2012 2013 20141 2015 2016 2017 2018 May 2019
Occupancy 68.80% 73.00% 74.90% 81.80% 85.00% 87.08% 90.13% 82.82% 46.07% 82.95% 81.64%
ADR $987.24 $1,074.09 $1,131.40 $1,181.95 $1,305.19 $1,321.79 $1,471.06 $1,547.58 $1,592.19 $1,754.02 $1,810.63
RevPAR $679.22 $784.09 $847.42 $966.84 $1,109.41 $1,151.01 $1,325.86 $1,281.66 $733.52 $1,454.97 $1,478.27
1. Represents the T-12 period ending April 2014 2. The Pfeiffer Canyon Bridge closed in February 2017 after heavy rains caused hillside supports to collapse, making the Hotel inaccessible except via helicopter. The old bridge was demolished and the new bridge opened in October 2017. During the period in which the bridge was down, Hotel ownership completed a $3.0 million guestroom renovation. Acces from the south to Big Sur did not reopen until Mid 2018.
SPONSORSHIP The guarantors for the loan are Peter Heinemann and Michael S. Freed, the co-founders and managing directors of Passport Resorts LLC (Passport Resorts). Established in 1990, Passport Resorts is a hotel management and marketing firm based in the Bay Area specializing in developing and operating high-end resorts. Currently, the firm only has two resorts within its portfolio; however, Passport Resorts has owned or managed a number of other award-winning resorts, including the Travaasa Hana, Maui (formerly the Hotel Hana Maui) in Hawaii, Jean-Michel Cousteau Fiji Resort, the Sea Ranch Lodge in California and the Skylonda Lodge in Woodside, California. The other resort within its portfolio is Cavallo Point Lodge in Sausalito, California. The property is managed by an affiliate for a contractual management fee of 3.0% EGI and an incentive fee of 5.0% of gross operating profit, which is subordinated to the debt. The company is an affiliate of the borrower and includes an on-site manager.
DBRS ANALYSIS SITE INSPECTION SUMMARY Based on the DBRS site inspection and management meeting conducted on July 17, 2019, DBRS found the property quality to be Excellent.
The luxury resort is has an irreplaceable location along the world-renowned California State Route 1 in Big Sur, approximately 150 miles south of San Francisco and 295 miles north of Los Angeles. The sprawling 58-building property
Structured Finance: CMBS 40 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
POST RANCH INN – BIG SUR, CA is situated on the cliffs of the Big Sur coastline with expansive views of the Pacific Ocean, the Santa Lucia Mountains and the Ventana Wilderness of Los Padres National Forest. Because of its location on California State Route 1, the property has poor accessibility as this is the only route to access the hotel. The surrounding area predominantly consists of the surrounding wilderness and small retail, gas stations and motels along California State Route 1.
Upon entering the property, one is greeted by a kiosk to give directions throughout the property. The reception building is located on a hill with a circle drive and guests are greeted by valet attendants. Guests are not allowed to drive on the other portions of the property and are driven to their rooms by the attendants in complimentary vehicles by Lexus. The 27 room buildings along with the restaurant, spa, library and two meditation pools are located on a path along the coastline, a short drive from the reception center. The Post Gallery and garden are located just off the main road en route to reception and the fitness room. Mercantile, yoga desk and the large swimming pool can be accessed by a secondary drive near the entrance to the property. The property is very environmentally friendly as the garden produces the majority of the vegetables used in the restaurant and there is a solar panel array that provides the property with approximately 80.0% of the hotels energy and a habitat restoration area is on site as well. The employee housing and the Big Sur fire department are located just past Mercantile on the eastern edge of the property. The property has numerous hiking trails that span the length of the property leading into the forest on the north end of the site, around the pond and open prairies in the central and southern portion of the property.
The property features eight different room types spread across 27 buildings. The buildings were designed to maximize the environment and natural light with floor-to-ceiling windows and are more similar to residential homes than traditional hotel guest rooms. The rooms are designed to have a private setting with a maximum of five rooms per building and the majority of the buildings only have one or two rooms. Each building is unique in appearance and is named after the picturesque views observed at the individual suites. The northern guest rooms were built in 1992 and consist of two Ocean Houses, ten Coast Houses, seven Tree Houses, five Butterfly Houses and two Mountain Houses, which were built when the property was first constructed. The southern guest rooms were built in 2008 when the property expanded and consist of two Cliff Houses, two Peak Houses and six Pacific Suite buildings. The Ocean, Coast, Cliff and Pacific Suite Houses feature views of the Pacific Ocean, whereas the Mountain and Peak Houses feature views of the mountains and wilderness while the Tree House and Butterfly rooms feature views of both the ocean and wilderness. Each building and room has a unique design with a modern cabin decor and is very spacious, ranging in size from 500 sf to over 900 sf. Each hotel room featured a custom king-sized bed and furniture built on the property, a wood-burning fireplace, either a private patio or deck, mini-bar with a Nespresso machine, complimentary snacks and non-alcoholic beverages as well as a Sonos speaker sound system and iPad. The southern guest rooms also feature an outdoor two-person stainless steel hot tub. The guest-room bathrooms have dual vanities with stone countertops, heated floors and either a walk-in shower or a shower-in-tubs with a deep whirlpool tub. Soft goods are custom made and are replaced regularly if they do not meet
Structured Finance: CMBS 41 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
POST RANCH INN – BIG SUR, CA specific standards. Precautionary room maintenance is done every week or two to help the property maintain its high standards, which includes painting and polishing floors.
When the Pfeiffer Canyon Bridge closed, the property contracted a helicopter service to transport guests and send/receive supplies from Monterey, California. The hotel absorbed the brunt of the cost and was only able to pass through $250 per person for round-trip transportation from Monterey. Of the competitive set, management noted that the property primarily competes with Ventana Big Sur across the street from the property; however, all the properties within the competitive set are unique and offer a different overall experience. Ventana Big Sur is substantially larger than collateral in terms of total land with nearly 160 acres and 79 rooms, including 15 glamping sites (luxury camping). One of the largest differences is the overall experience at Ventana Big Sur as the majority of its rooms and amenities are located in and/or around one building whereas the subject property is spread out with no more than five rooms per building and the majority featuring only one per building. Additionally, the Ventana Big Sur is a pet-friendly site and have TVs within each room whereas the collateral does not. Although the properties are competitors, the hotels share some of their workforce because the nearest town is roughly one hour away. According to management, the property has an average length of stay of two or three nights and approximately 50% of all guests are from California. Overall, all areas of the hotel appeared to be exceptionally maintained and the property has a very knowledgeable staff.
DBRS NCF SUMMARY
NCF ANALYSIS
T-12 May NCF 2016 2017 2018 2018 Issuer NCF DBRS NCF Variance
Occupancy 82.8% 46.1% 83.0% 81.6% 81.6% 77.5% -5.1%
ADR $1,548 $1,592 $1,754 $1,811 $1,811 $1,811 0.0%
RevPAR $1,282 $734 $1,455 $1,478 $1,478 $1,403 -5.1%
Total Departmental Revenue $26,876,682 $15,185,638 $29,080,736 $29,758,597 $29,758,597 $28,248,198 -5.1%
Total Deparmental Expense $11,265,848 $6,703,602 $10,085,111 $11,006,426 $11,006,426 $10,447,794 -5.1%
Total Departmental Profit $15,610,834 $8,482,036 $18,995,625 $18,752,171 $18,752,171 $17,800,404 -5.1%
Total Undistributed Expense $6,076,751 $4,783,451 $6,290,130 $6,409,077 $6,409,077 $7,213,712 12.6%
Total Fixed Expense $575,488 -$2,222,285 $877,668 $946,252 $1,392,214 $1,392,560 0.0%
NOI $8,958,595 $5,920,870 $11,827,827 $11,396,842 $10,950,880 $9,194,132 -16.0%
FF&E $1,075,067 $607,426 $1,163,229 $1,190,344 $1,190,344 $1,129,928 -5.1%
NCF $7,883,527 $5,313,444 $10,664,597 $10,206,498 $9,760,536 $8,064,204 -17.4%
The DBRS NCF is based on the DBRS North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS NCF was $8,064,204, which represents a -17.4 % variance from the Issuer’s NCF. The main drivers for the variance are a MM&F and rooms’ revenue., DBRS applied a plug to achieve a minimum MM&F of 9.5%. DBRS capped the hotel’s occupancy at 77.5%, given the late state of the lodging/general real estate cycle and that the property is exposed to environmental factors. The DBRS estimated occupancy is below the appraiser’s estimate of 82.0% and the T-12 period ending May 31, 2019, figure of 81.6%. The resulting DBRS RevPAR of $1,403.24 falls below the YE2018 level of $1,454.97, but well above the YE2016 level of $1,281.66.
DBRS VIEWPOINT The loan is secured by a luxury full-service resort with an irreplaceable location along the historic California State Route 1 on the cliffs of the Big Sur coastline. The property benefits from its location in a severely constrained market with high barriers of entry because the majority of the surrounding land is government protected; in addition to non-protected
Structured Finance: CMBS 42 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
POST RANCH INN – BIG SUR, CA land, there are strict zoning laws, which will limit any on-site development or expansion in the future, if desired, but will also limit new competitive supply. While property performance is nearly immune to new supply because of the high barriers of entry, performance has been hindered by environmental factors, including the Soberanes wildfire in 2016 that shut down the hotel for approximately two weeks and heavy rains in 2017 that collapsed a bridge, rendering the property inaccessible by land for six months. Although the wildfires only caused a small blip in performance, the bridge collapse caused RevPAR and NCF to decline by 42.0% and 32.6%, respectively, from 2016 to 2017; however, even during the low period, the property was able to produce a RevPAR penetration of 104.2%, per the appraisal. In addition, management was able to maximize the low period to renovate seven guest rooms, the restaurant and the pool as well as to refinish outdoor furniture, which would have been nearly impossible in those months without interrupting day-to-day operations. From 2009 to 2018, the property had an average RevPAR penetration of 191.2%, per the appraisal. The property benefits from a committed and experienced sponsor that developed the property in 1992 and spent $10.0 million in renovations from 2015 to 2018 with a planned $2.5 million in capex for 2019, which includes the renovations of a number of rooms. The LTV of 42.0% and DBRS Term DSCR of 4.03x are indicative of low-leverage financing.
DOWNSIDE RISKS –– The property is exposed to environmental factors that have affected historical performance. The property was shut down for nearly two weeks in 2016 because of a forest fire and, in 2017, the property was inaccessible by land for approximately six months. At that time, the YE2017 NCF dropped by 32.6% and the RevPAR declined by 42.8% from the YE2016 levels.
STABILIZING FACTORS –– While environmental factors have affected performance, the property has been able to maintain performance with a RevPAR penetration during 2016 and 2017 of 181.6% and 104.22%, respectively. Furthermore, the property’s lowest reported NCF was $2.5 million in 2009, which is 75.7% lower than the T-12 level, 53.4% lower than YE2017 and 69.3% lower than the DBRS NCF. If cash flows declined to this level, the DBRS Term DSCR would still be at a 1.24x coverage. –– The property benefits from a committed and experienced sponsor who has owned the property since it was first built in 1992.
Structured Finance: CMBS 43 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
Grand Canal Shoppes Las Vegas, Nevada
Loan Snapshot Seller GSMC Ownership Interest Fee Simple/Leasehold Trust Balance ($ million) $60.0 Loan psf/Unit $1,000 Percentage of the Pool 4.7% Loan Maturity/ARD July 2029 COLLATERAL SUMMARY Amortization n/a DBRS Property Type Retail Year Built/Renovated 1999/2007 Issuance DSCR City, State Las Vegas, NV Physical Occupancy 94.0% 2.46x SF 759,891 Physical Occupancy Date May 2019 Issuance LTV 46.3% Balloon LTV This loan is secured by the borrower’s fee-simple and leasehold interests in The Grand 46.3% Canal Shoppes and The Shoppes at The Palazzo (collectively, the Canal Shoppes), which DBRS Property Type comprise two contiguous anchored retail centers totaling 759,891 sf of retail, restaurant Retail and entertainment space within the base of the Venetian Resort Hotel and Casino (The DBRS Property Quality Venetian) and The Palazzo in Las Vegas, Nevada. The collateral additionally includes Above Average a 84,743-sf space that was occupied by Barneys New York (Barneys) at the time of Debt Stack ($ million) DBRS’s inspection, although Barneys is reportedly exploring bankruptcy filings and Trust Balance will be moving its flagship Las Vegas location to ARIA Resort & Casino in January 2020. $60.0 Though the space will serve as collateral for this transaction, the sponsor will be given Pari Passu a free-release right subject to certain provisions, including the requirement that the $700.0 borrower, or any borrower-affiliate, does not incentivize, solicit, recommend or help B-Note facilitate the relocation of any existing tenant at the subject property, among others; $215.0 however, this does not preclude any future third-party owner of the Barneys space Mezz from pursuing tenants at the subject collateral. No income or value was associated $0.0 with the Barneys space as part of DBRS’s analysis. The borrower, Brookfield Properties Total Debt REIT Inc. (Brookfield Properties), acquired the collateral in 2004 for approximately $975.0 $776.0 million and sold a 49.9% joint-venture interest to Nuveen Real Estate in 2013 at a Loan Purpose gross valuation of $1.4 billion. The collateral was previously securitized in 2012 as part Refinance of the DBRS-rated GS Mortgage Securities Corporation Trust 2012-SHOP transaction Equity Contribution/ (Distribution) ($ million) with a trust balance of $625.0 million, representing a going-in LTV of 49.0% based on ($333.0) the then-current appraised value of nearly $1.3 billion. With regard to this transaction, A-note proceeds of $760.0 million in addition to a mezzanine loan of $215.0 million refinanced the $627.3 million existing CMBS loan, returned $333.0 million of equity to the borrower, funded $13.5 million of reserves and covered $1.1
Structured Finance: CMBS 44 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
GRAND CANAL SHOPPES – LAS VEGAS, NV
million of closing costs associated with the transaction. The $975.0 million whole-loan amount has been broken into several pari-passu notes with $60.0 million of proceeds contributed to the CGCMT 2019-GC41 trust. Additional notes have been contributed to several alternative transactions with the controlling $60.0 million note held as part of the MSC 2019-H7 trust and $695.0 million of outstanding debt to be contributed as part of future securitizations. The ten-year loan is full-term IO and represents an issuance LTV of 46.3% (excluding the $215.0 million in mezzanine debt) based on the collateral’s April 2019 appraised value of approximately $1.6 billion. DBRS considers the credit quality associated with the senior A-note attributed to this transaction to be BBB (high).
Located within The Venetian, the Grand Canal Shoppes contains 499,247 sf of retail, restaurant, entertainment and office space. The Venetian and Grand Canal Shoppes opened in 1999 on the site of the former Sands Hotel, a Las Vegas fixture for over 40 years. Improvements at the collateral include cobblestone walkways, painted sky ceilings and a Renaissance Venice streetscape motif. A quarter-mile long grand canal traverses the subject with gondola rides available for visitors. The collateral additionally features a life-sized replica of St. Mark’s Square, the famed center of Venice, Italy. The Shoppes at the Palazzo are situated at the base of the Palazzo Hotel and contain 316,340 sf of luxury retail, restaurant and entertainment space. The Shoppes at The Palazzo opened concurrently with the Palazzo in 2007 and boast a modern European design, highlighted by a 60-foot glass-dome lobby and two-story fountain. The Grand Canal Shoppes and The Shoppes at The Palazzo were ultimately connected and rebranded as the Grand Canal Shoppes following the previous securitization in 2012. Both The Venetian and The Palazzo feature separate casino-level spaces that serve as collateral for this transaction, but are subject to separate master ground-lease agreements. The ground lease for the casino-level space under The Venetian expires in 2093, requires annual rent payments of $1.00 and grants the sponsor the right to acquire the casino- level space for a cost of $1.00 at expiration. The ground lease for the casino-level space under The Palazzo expires in 2097, requires annual rent payments of $1.00 and grants the sponsor the right to acquire the casino-level space for a cost of $1.00 at expiration. The collateral is additionally subject to a Walgreens Air Rights Lease, which refers to the air rights above the third-party-owned Walgreens and expires in 2064 with one 40-year extension option. The sponsor is responsible for 20.0% of the air rights rent with the remaining 80.0% paid by The Venetian. Excluding the two casino-level spaces and the Walgreens Air Rights Lease space, the remaining collateral is owned in fee.
TENANT SUMMARY
% of Total DBRS UW DBRS UW DBRS % of Total Gross Gross Lease Occupancy Tenant SF NRA Rent PSF Rent Expiry T-12 Sales Sales PSF Cost The Venetian Resort 14,300 1.9% 375.93 5.7% 05/2029 n.a. n.a. n.a. (Showroom / Theater)
Emporio D'Gondola 922 0.1% 4,481.01 4.3% 05/2029 n.a. n.a. n.a.
Regis Galerie 7,909 1.0% 221.58 1.8% 05/2025 7,010,021 886.33 32.8%
Grand Lux Café 19,100 2.5% 111.26 2.2% 12/2029 21,992,535 1,151.44 9.7%
Cut by Wolfgang Puck 12,247 1.6% 157.08 2.0% 05/2028 14,171,737 1,157.16 13.6%
Mercato Della Pescheria 16,479 2.2% 80.19 1.4% 11/2025 9,158,574 555.77 14.4%
Bellusso Jewelry 2,999 0.4% 562.16 1.8% 11/2022 8,173,547 2,725.42 14.6%
Golden Gai 12,820 1.7% 119.22 1.6% 12/2029 n.a. n.a. n.a.
Tao Asian Bistro 15,175 2.0% 171.87 2.7% 01/2025 35,724,404 2,354.16 7.3%
Peter Lik Gallery 4,394 0.6% 219.58 1.0% 08/2021 3,859,320 878.32 35.9%
Subtotal/Wtd. Avg. 106,345 14.0% 220.20 24.6% Various Various Various 23.9%
Other Tenants 597,715 78.7% 119.80 75.4% Various Various Various 21.9%
Structured Finance: CMBS 45 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
GRAND CANAL SHOPPES – LAS VEGAS, NV
TENANT SUMMARY
% of Total DBRS UW DBRS UW DBRS % of Total Gross Gross Lease Occupancy Tenant SF NRA Rent PSF Rent Expiry T-12 Sales Sales PSF Cost
Vacant Space 55,831 7.3% n/a n/a n/a n/a n/a n/a
Total/Wtd. Avg. 759,891 100.0% 125.05 100.0% Various Various Various 22.4%
Per the rent roll dated May 31, 2019, the collateral was approximately 94.0% physically occupied by approximately 215 tenants. The subject generated roughly $427.6 million in gross sales over the T-12 period ending February 28, 2019, with reported in-line sales of $1,182 psf from tenants occupying less than 10,000 sf of space. The property generates more than 60.0% of its revenue from restaurant and entertainment offerings, including Tao Asian Bistro (which features a day and night beach club), Grand Lux Cafe, SUSHISAMBA, Delmonico Steakhouse and CUT by Wolfgang Puck. The property additionally features a 14,300-sf showroom/theatre space that hosts live performances by artists such as the Blue Man Group and Tony Bennett. Though somewhat restaurant and entertainment dominant, the collateral benefits from a relatively diverse tenant roster as no single tenant accounts for more than 4.5% of total NRA or 5.7% of Total DBRS Gross Rent. The collateral additionally exhibits only moderate lease rollover risk with rollover most concentrated in 2025 when 24 leases, representing 19.3% of total NRA and 14.4% of gross rent, are scheduled to roll per the rent roll dated May 31, 2019, . On average, 18 leases, representing 6.7% of total NRA and 7.3% of gross rent, are scheduled to roll annually through YE2028.
SPONSORSHIP The sponsor for this loan is a joint venture between Brookfield Properties (50.1%) and Nuveen Real Estate (49.9%). Brookfield Properties is one of the largest retail real estate companies in the United States with a national portfolio that includes more than 146 million sf of retail space across 163 locations in 42 states. Brookfield Properties reported ownership interests in more than 600 office, retail, multifamily and hospitality properties globally as of July 2019 with 28 projects additionally under construction. Nuveen Real Estate is considered to be one of the largest real estate investment managers globally with $125.0 billion in assets under management reported as of loan closing. Nuveen Real Estate offers more than 80 years of investment expertise and employs more than 500 real estate professionals across over 20 cities throughout the United States, Europe and Asia.
Structured Finance: CMBS 46 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
GRAND CANAL SHOPPES – LAS VEGAS, NV
DBRS ANALYSIS SITE INSPECTION SUMMARY DBRS toured the interior and exterior of the property on Wednesday, May 5, 2019, at approximately 2:00 p.m. Based on the site inspection, DBRS found the property quality to be Above Average.
The collateral comprises 759,891 sf of luxury retail, restaurant and entertainment space situated between the base of The Venetian and The Palazzo in Las Vegas. The property is favorably located at the intersection of Spring Mountain Road/ Sands Avenue and Las Vegas Boulevard, which is globally renowned as the vibrant Las Vegas Strip (the Strip). Much of Las Vegas’s downtown development has remained concentrated within a two-mile stretch along the Strip and, in recent years, the northern portion of the Strip – where the collateral is situated – has emerged as the dominant end. The collateral benefits from excellent exposure along the Strip, which is highly conducive to the ongoing retail, restaurant and entertainment operations. Per management, the Strip’s northernmost section around the collateral will continue to undergo performance-enhancing development in the near future with new additions including the MSG Sphere Las Vegas (a performance venue currently under development by Madison Square Garden Company and Las Vegas Sands Corporation) and a monorail system. The collateral additionally benefits from proximity to the Sands Expo Convention Center (Sands Expo), which is located directly east of the subject. Management indicated that the Sands Expo was a key driver of tourism-generated foot traffic for the property and the northernmost portion of the Strip. Alternative casino hotels within proximity of the collateral include Treasure Island, The Mirage and Caesars Palace, which features the directly competitive Forum Shops at Caesars Palace. The subject is also just over one mile north of the upscale The Shops at Crystals, which management also identified as somewhat competitive with the collateral, although much smaller and more boutique in design.
The property’s prominence along the Strip is emphasized by an abundance of pronounced exterior signage, an outdoor canal complete with a bridge and gondolas, lush and well-manicured landscaping accents and intricate exterior facade work of European influence. Access to the subject is provided through the front entrance of the casino at The Venetian while the entrance at The Palazzo requires a walk through the hotel lobby and the casino. While heavy traffic levels on the Strip make driving to the subject difficult, free valet and self-parking are provided via a subterranean garage that is accessible from the subject’s north side along Sands Avenue. Given the subject’s prominent location along the Strip, the property benefits from excellent walkability for customers walking. The casino floors at both The Venetian and The Palazzo were bustling with activity and in generally good condition at the time of DBRS’s inspection, featuring carpeted flooring and attractive marble accents. The portion of the collateral situated at the base of The Venetian (originally The Grand Canal Shoppes) was constructed to resemble the streets of Venice, including cobblestone walkways, a life-sized replica of St. Mark’s Square and a canal with gondola rides and singing gondoliers. The tenants surrounding the St. Mark’s
Structured Finance: CMBS 47 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
GRAND CANAL SHOPPES – LAS VEGAS, NV
Square replica were predominantly restaurants, some featuring patio seating along the indoor square. The barrel-vaulted ceilings are painted to resemble a blue sky with white clouds, which creates an outdoor feel and brightens the otherwise windowless indoor space. Storefronts resemble old buildings with select restaurant and retail spaces benefiting from canal views. The space additionally features a traditional food court that was somewhat tucked away from the more predominantly trafficked retail corridors of the shopping center. The portion of the collateral beneath The Venetian and The Palazzo is connected by a triple-height traditional mall plaza, which featured several water features, elegant polished- stone flooring, well-manicured interior landscaping and an eye-catching three-dimensional “LOVE” art piece flanked by escalators that provided transition between the first- and second-floor levels. The portion of the collateral situated at the base of The Palazzo (originally The Palazzo Shoppes) did not feature a distinct theme, such as the Italian-influenced shops at the base of The Venetian, but was decorated in a more traditional manner and boasted elegant finishes, including polished-stone flooring, mirror-covered and chandelier-accented ceilings as well as attractive storefronts. Retail and restaurant spaces for individual tenants appeared well built out, which displayed significant investment into individual spaces. DBRS observed an immense number of conference goers throughout the property, identified by the various identification lanyards worn around the neck, which further emphasized the importance of the event and convention business to the collateral. The shops at the base of The Venetian appeared to be busier at the time of DBRS’s inspection, though the shops at the base of The Palazzo were more predominantly occupied by high-end retailers, which management indicated have helped to balance sales productivity. Overall, the collateral showed well and appeared to be favorably located at the time of DBRS’s inspection.
DBRS NCF SUMMARY
NCF ANALYSIS
T-12 March 2016 2017 2018 2019 Issuer NCF DBRS NCF NCF Variance
GPR $79,845,200 $78,718,666 $76,482,660 $76,604,367 $76,697,658 $75,209,920 -0.9%
Recoveries $31,633,869 $27,875,777 $25,766,223 $25,166,107 $26,539,087 $28,350,564 6.5%
Other Income $1,175,997 $991,885 $861,770 $702,962 $792,589 $792,589 0.0%
Vacancy $0 $0 $0 $0 $0 -$4,726,395 100.0%
EGI $112,655,066 $107,586,327 $103,110,653 $102,473,435 $104,029,334 $99,626,678 5.6%
Expenses $33,296,436 $33,160,381 $31,784,180 $31,007,624 $31,007,624 $31,007,624 0.0%
NOI $79,358,630 $74,425,947 $71,326,473 $71,465,811 $73,021,709 $68,619,054 8.0%
Capex $0 $0 $0 $0 $0 $151,978 -20.0%
TI/LC $0 $0 $0 $0 $2,023,806 $2,745,410 36.7%
NCF $79,358,630 $74,425,947 $71,326,473 $71,465,811 $70,997,903 $65,721,665 -7.4%
The DBRS NCF is based on the DBRS North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS NCF was $65,721,665, representing a -7.4% variance from the Issuer’s NCF of $70,997,903. The primary drivers of the variance included occupancy cost adjustments, leasing cost assumptions, vacancy and capex. DBRS applied approximately $3.2 million of occupancy cost adjustments based on tenant sales provided for the T-12 period ending February 2019. The largest occupancy cost adjustments were applied to Regis Galerie, Peter Lik Gallery, Tommy Bahama, Michael Kors and Tory Burch, which all reported sales exceeding $825.0 psf for the T-12 period ending February 2019. The average annual sales psf for all tenants that received an occupancy cost markdown from DBRS was $717.77 with a range of $255.20 psf to $1,244.75 psf for the T-12 period ending February 2019. DBRS applied TIs and LCs of $2.22 psf and $1.40 psf, respectively, compared with the Issuer’s estimates of $0.61 psf and $2.05 psf, respectively. DBRS applied new/renewal TIs of $30.0/$7.5 psf for all office spaces and $50.0/$12.5 psf for all retail and restaurant spaces on a ten-year lease term. DBRS applied new/renewal LCs of 3.0%/1.0% for all space types. DBRS estimated a 4.5% economic vacancy loss at the property, which
Structured Finance: CMBS 48 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
GRAND CANAL SHOPPES – LAS VEGAS, NV was generally in line with the subject’s in-place vacancy per the May 2019 rent roll. DBRS lastly estimated capex of $0.20 psf while the Issuer did not apply capex losses.
DBRS VIEWPOINT The collateral benefits from a favorable location at the heart of the globally renowned Strip, which offers excellent foot traffic and visibility to the collateral from such neighboring properties as Wynn Las Vegas, Treasure Island, The Mirage, The Bellagio and Caesars Palace. The collateral’s location is further enhanced by its direct adjacency and connectivity to the Sands Expo, The Venetian and The Palazzo. The Venetian, The Palazzo and Sands Expo resort complex is the largest on the Strip and will continue to grow with the addition of the MSG Sphere Las Vegas, which is scheduled to open in 2020 and will include an 18,000-seat performance venue, state-of-the-art audio and visual systems highlighted by a 70,000-sf display and a monorail system. The subject’s superb location and numerous demand drivers have proven to be highly conducive to steadily improving performance as evidenced by sales growth of 21% since 2015 and reported in-line sales of $1,182 psf from tenants occupying less than 10,000 sf over the T-12 period ending February 2019. Despite the strong growth trends evidenced by the collateral’s locality in recent years, the subject remains relatively dependent on the tourism industry as the vast majority of the property’s consumer base lives outside Las Vegas. The Las Vegas Convention and Visitors Authority (LVCVA) reports that approximately 20.0% of visitors to the region were from foreign countries in 2018. While the U.S. Recession in 2008 and 2009 resulted in a sharp downturn in domestic tourism for the region, visitors from foreign countries helped to bolster the region’s economy with international visitors rising by 35.4% between 2007 and 2011 per LVCVA. Per the appraisal, Las Vegas achieved three consecutive years of record-high visitors between 2014 and 2016, peaking in 2016 at 42.9 million visitors. Visitor volumes declined between 2016 and 2017 but, per the LVCVA, experienced another year of growth between 2017 and 2018, finishing 2018 at a reported 42.1 million visitors. The appraisal estimates that more than two-thirds of all visitors to the region visit local major retail destination points, of which the collateral is generally one of the most prominent.
DOWNSIDE RISKS –– The loan is full-term IO and returned approximately $333.0 million of cash equity to the borrower at closing. DBRS research has shown evidence that loans with increasing IO periods generally experience increasing losses given default. –– Barneys will be moving its flagship store from the collateral to ARIA Resort & Casino in January 2020. The sponsor will be given a free-release right subject to certain release provisions identified in the loan documents; however, the conditions do not prohibit a third-party purchaser of the Barneys space from poaching tenants at the subject collateral.
STABILIZING FACTORS –– Based on the collateral’s April 2019 appraised value of approximately $1.6 billion, the transaction represents relatively low-leverage financing with a modest A-note LTV of 46.3% and a relatively high A-note DBRS DSCR of 2.28x at issuance. Lower issuance LTVs mildly translate to reduced patterns of losses given a default and increasing DSCR ranges generally correspond to decreasing default frequencies. –– No income and, therefore no value, was attributed to the Barneys space as part of DBRS’s analysis. Furthermore, Barneys occupies a prominent three-story space with an entrance on the main circle drive for The Palazzo with favorable visibility from the Strip. The space is considered to be extremely desirable and DBRS believes that Barneys’ struggles are not a result of the space it occupies. At the time of DBRS’s inspection, management indicated that an LOI was out for the entirety of the existing space.
Structured Finance: CMBS 49 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
Moffett Towers II Buildings 3 & 4 Sunnyvale, California
Loan Snapshot Seller GSMC/GACC Ownership Interest Fee Simple Trust Balance ($ million) $55.3 Loan psf/Unit $499 Percentage of the Pool 4.3% Loan Maturity/ARD July 2029 COLLATERAL SUMMARY Amortization n/a DBRS Property Type Office Year Built/Renovated 2019 Issuance DSCR City, State Sunnyvale, CA Physical Occupancy 100.0% 3.46x SF 701,266 Physical Occupancy Date August 2019 Issuance LTV 44.3% Balloon LTV The loan is secured by the Borrower’s fee simple interest in Moffett Towers II – 44.3% Building 3 and Building 4, two Class A office buildings totaling 701,266 sf. While not DBRS Property Type part of the collateral, the Tenant has access to and pays rent on 23,860 sf of allocated Office amenity space. Building 3 is located at 1190 Discovery Way (350,633 sf ) and Building DBRS Property Quality 4 is located at 900 5th Avenue (350,633 sf ) in Sunnyvale, California. Loan proceeds Excellent of $590.0 million refinanced $408.9 million of existing construction debt, returned Debt Stack ($ million) approximately $114.3 million of sponsor cash equity, funded $39.8 million of upfront Trust Balance TI/LCs and free rent reserves and covered closing costs of $27.0 million. The $590.0 $55.3 million debt package is composed of a $350.0 million A-note, a $155.0 million B-note Pari Passu and $85.0 million of mezzanine debt. This transaction contains approximately $55.3 $294.8 million of A-note proceeds in the trust. The fixed-rate financing has a ten-year term, B-Note is fully IO and represents a relatively high LTV of 74.7%, based on the appraised value $155.0 of $790.0 million. The loan has been structured with an anticipated repayment date Mezz (ARD) after ten years and a final maturity date approximately five years beyond the $85.0 ARD. This five-year tail allows for substantial principal repayment estimated by DBRS Total Debt at $158.9 million prior to when the Facebook, Inc. (Facebook) leases expire in 2034. $590.0 Loan Purpose Situated on 13.4 acres of land, the collateral consists of two nearly identical office Refinance buildings that each contain 350,633 sf. The two subject office towers were the most Equity Contribution/ (Distribution) ($ million) recently constructed projects within the Moffett Towers II office park. The Moffett ($114.3) Towers II campus consists of five office buildings totaling 1.8 million sf of office and research and development (R&D) space as well as a 59,200-sf amenity building. Buildings 1 to 4 and the proposed site for Building 6 are situated on the same parcel of land bordered by Moffett Park Drive to the south, Bordeaux Drive to the west, Borregas Avenue to the east and commercial development to the north. Building 5 is situated on its own land parcel adjacent to the other properties and directly west of
Structured Finance: CMBS 50 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
MOFFETT TOWERS II BUILDINGS 3 & 4 – SUNNYVALE, CA
Bordeaux Drive. Building 6 is a proposed addition to the Moffett Towers II campus that has yet to begin construction, though plans for the addition are currently being explored and will be finalized within the next 24 months. Building 6 would be located on the northeast corner of the lot near the intersection of 5th Avenue and Discovery Way. Buildings 1 to 4 are arranged around a central courtyard, which includes the amenity building, a three-story parking structure and outdoor common-area space. Building 1 and Building 2 are leased to Amazon.com, Inc. (Amazon), and Building 3, Building 4 and Building 5 are leased to Facebook.
TENANT SUMMARY
DBRS UW % of Total DBRS Investment Tenant SF % of Total NRA Base Rent PSF UW Base Rent Lease Expiry Grade? (Y/N)
Facebook 350,633 48.4% $52.20 48.4% 05/2034 Y
Facebook 11,930 1.6% $52.20 1.6% 05/2034 Y
Facebook 350,633 48.4% $52.20 48.4% 05/2034 Y
Facebook 11,930 1.6% $52.20 1.6% 05/2034 Y
Total/Wtd. Avg. 725,126 100.0% $52.20 100.0% 5/2034 Y
Both buildings are 100.0% pre-leased to Facebook, for which DBRS has performed an internal assessment with a high investment-grade conclusion. Facebook is a leading technology firm that specializes in social media and networking. As of the fiscal year ending December 31, 2018, the company reported total revenues of $58.8 billion and a net income of $22.1 billion. As of June 2019, the company had an equity market capitalization in excess of $500 billion and carries very little debt. Both buildings were turned over to the tenant this past month upon completion of the exterior shells. The interior office and amenity build out process is estimated to take approximately seven months for each building. The firm signed two separate leases for Building 3 and Building 4 that commenced on June 1, 2019, and May 1, 2019, respectively. As the tenant was given seven months of free rent to account for the interior build out process, rent payments began for Building 3 on January 1, 2020, and for Building 4 on December 1, 2019. The tenant will be responsible for all operating expenses associated with its leased units. Both leases are set to expire on May 31, 2034, five years beyond the loan maturity and are structured with two 84-month extension options each at 95% of the fair-market rent with no termination options. The base rent is $52.20 per sf with 3.00% annual increases. It is expected that the landlord will provide TIs of $60.00 psf, which have been reserved for upfront. The sponsor reported that Facebook will spend $200 psf in addition to what the landlord is providing, amounting to a $260 psf build-out cost.
SPONSORSHIP The loan is sponsored by Jay Paul Company, a California-based real estate development and investment management firm. Jay Paul Company has acquired or development more than 13.0 million sf of office space since its founding in 1975 and currently has a portfolio of over 20 properties in the Silicon Valley area. The sponsor is developing the entirety of the Moffett Towers II office park and has thus far been successful in leasing out all buildings to major technology firms. The company specializes in developing superior office product for technology-focused tenants in California markets and previously developed 181 Fremont in the San Francisco CBD for Facebook. Jay Paul Company has previously leased projects to a host of leading technology giants, including Amazon, Apple, Microsoft Corporation, Google and many others. The firm has closed over $13.0 billion in debt and equity financings over the course of its history. The non-recourse carveout guarantor for this transaction is Paul Guarantor LLC, with a current net worth of $980.0 million.
Structured Finance: CMBS 51 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
MOFFETT TOWERS II BUILDINGS 3 & 4 – SUNNYVALE, CA
DBRS ANALYSIS SITE INSPECTION SUMMARY Based on the DBRS site inspection and management meeting on June 10, 2019, DBRS found the property quality to be Excellent.
The subject is located in the fast-growing Sunnyvale submarket, within the larger San Jose-Sunnyvale-Santa Clara MSA. The subject buildings are accessible via three ingress and egress points, two along Discovery Way and one along 5th Avenue. The Moffett office park is located approximately one mile from the intersection of California State Route 237 and U.S. Route 101, which runs north to south along the western shore of the San Francisco Bay. This highway connects San Jose with San Francisco, allowing Moffett Park to be easily accessed by residents across the Bay Area. There is also a light rail stop serving the entirety of Moffett Park that is situated along the campus’s main entrance on West Moffett Park Drive. The collateral is centrally located approximately 9.5 miles northwest of the San Jose CBD and 33.0 miles southeast of the San Francisco CBD. The Sunnyvale submarket is rapidly developing with substantial new office space supply partially because of the strong growth of Silicon Valley and saturation of the downtown San Francisco office market. Google, headquartered in adjacent Mountain View, California, has made substantial investments into the Sunnyvale market in particular. The company’s new campus was visible from the eighth floor of Building 4 and appeared to be in the early stages of construction at the time of inspection. Another locational advantage for the subject is the fact that Stanford University (Stanford) is located 7.5 miles northwest of the Moffett office park in Palo Alto, California. This allows for technology firms in Sunnyvale to easily recruit from the talented Stanford student body.
All office towers within the campus stand nine stories tall and are virtually identical. The subject buildings contain amenity and meeting space on the ground floors, office space on Floors 2 through 8 and mechanical equipment on the ninth floors. The towers’ exterior facades are composed of steel; concrete; and double-paned, thermal glass windows with aluminum frames, similar to the facades of the other buildings in the complex, which were all very attractive with strong curb appeal. The reflective blue-tinted glass windows are particularly eye catching.
The Club at Moffett Towers II (the Club) is the two-story amenity building that serves Buildings 1 through 5 of the Moffett Towers II office park. The Club is ideally located in the middle of the Moffett Towers II campus, allowing for Facebook and Amazon employees at all five properties to easily access the various amenity offerings. The Club features spectacular amenities, including a fitness center, indoor and outdoor basketball courts, an outdoor pool, a tennis court, a cycling room and a yoga studio, among other things. The fitness center is spacious and airy with plenty of cardio and weight-lifting equipment available. Of note, personal trainers, yoga sessions, spin classes and other fitness add-ons are available for purchase by Facebook and Amazon employees. The Club contains a large ground-floor meeting/event space that can be
Structured Finance: CMBS 52 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
MOFFETT TOWERS II BUILDINGS 3 & 4 – SUNNYVALE, CA rented out by either Facebook or Amazon. This meeting room appeared larger than any of the interior breakout rooms featured in Building 3, Building 4 or Building 5.
The Moffett Towers II campus also features 19 acres of outdoor green space and three parking garages. There are minimal local dining options within walking distance of the subject and most retail establishments are concentrated on the south side of U.S. Route 101. Consequently, the Moffett Towers II office buildings are being built to include on-site cafeterias and dining selections. In addition to the ground floor cafeterias in Building 3 and Building 4, the club amenity building will contain a Specialty’s Café & Bakery, providing convenient breakfasts, lunches and baked goods for tenants.
Facebook reportedly plans to move approximately 5,000 to 6,000 employees to Building 3, Building 4, and Building 5 but has yet to share its plans on the office space build-out specifications for Building 3 and Building 4. The tenant has also not shared which units and operations of the company will be moved into the subject buildings. According to the sponsor, employees working in Facebook’s web services division are being moved into Building 5 according to the sponsor. DBRS toured the ground floors and several office floors of Building 3 and Building 4 and toured the interior of Building 5, which was several months into the build out process, in order to get a sense of what the potential office space would look like. Building 5 was delivered to Facebook in February 2019 and the construction process is expected to be completed this August. Building 3 and Building 4 were delivered to the tenant within the last month and are projected to have similar seven-month construction timelines. The ground floors of Building 3 and Building 4 will feature front and rear building security desks and large cafeterias. There will also be ground floor meeting and event space. Office space will be built out on Floors 2 through 8 of the collateral. Floor 3 and Floor 8 contain large outdoor patio spaces that will likely be utilized as event spaces; the patio of the eighth floor in particular offers scenic views of the surrounding area. The office spaces were in raw condition at the time of inspection with exposed concrete floors, unpainted walls and no interior floorplan work yet to be completed. The office space in Building 5 contained exterior facing sit-stand desks that were generally clustered in groups of four; the interior areas of the floor plates contained a mix of breakout rooms and meeting spaces. This build out is typical for a tech tenant as it allows for efficient collaboration between coworkers and allows for many employees to receive natural light at their desks.
The collateral features three on-site parking garages that are shared by the Moffett office park. The parking garage associated with Phase Three of Moffett Towers II, which pertains solely to Building 3 and Building 4, is situated along 5th Avenue and is allocated for use by the Facebook employees in Building 3 and Building 4. There are also several surface parking lots scattered around the property with a large number of outdoor spaces located on the northeast corner of the lot near the intersection of 5th Avenue and Discovery Way. In total, there are 1,157 parking spaces allocated for Building 3 and 1,157 parking spaces allocated for Building 4. Overall, the collateral is best-in-class office space with outstanding amenity offerings and a superior location.
Structured Finance: CMBS 53 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
MOFFETT TOWERS II BUILDINGS 3 & 4 – SUNNYVALE, CA
DBRS NCF SUMMARY
NCF ANALYSIS
Issuer NCF DBRS NCF NCF Variance
GPR $47,847,323 $43,827,513 -8.4%
Recoveries $11,259,997 $11,404,174 1.3%
Vacancy -$1,477,683 -$492,558 -66.7%
EGI $57,629,637 $54,739,129 -5.0%
Expenses $11,259,997 $11,404,174 1.3%
NOI $46,369,641 $43,334,955 -6.5%
Capex $145,025 $145,025 0.0%
NCF $46,224,616 $43,189,930 -6.6%
The DBRS NCF is based on the DBRS North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS NCF was $43,189,930, representing a -6.6% variance from the Issuer’s NCF of $46,224,616. The primary drivers of the variance are GPR and real estate taxes. DBRS estimated GPR based on the contractual leases in place per the rent roll dated May 1, 2019. Facebook is being given LTCT status due to the tenant’s high-investment-grade internal assessment and lease terms that extend more than three years beyond the loan maturity. As a result, DBRS is straight-lining Facebook’s rent over the ten-year loan term. By comparison, the Issuer is giving straight-line rent credit through the lease term, picking up an additional five years of rent credit, establishing a variance of approximately $4.0 million on the GPR figure alone. The DBRS real estate tax figure was calculated by applying the local tax assessment rate of 1.15% to the whole loan amount, resulting in a much higher figure than in place taxes which will remain low because of California’s Proposition 13 statute. There are no TI/LC expenses because of the LTCT nature of the tenant.
DBRS VIEWPOINT The collateral is well positioned within the Bay Area because of its central location in Silicon Valley. Situated strategically between the San Jose and San Francisco MSAs, the subject properties can effectively attract the most talented employees in the Bay Area’s tech workforce. The properties are also closely situated to Stanford University (which is located 7.5 miles west in Palo Alto) and the University of California- Berkeley. Given the stellar quality of the Class A office product, superior amenity offerings and location amidst the talented Silicon Valley workforce, DBRS believes that there would be high levels of demand for this asset through different real estate cycles, which will suppress future downside volatility. In addition, Facebook is expected to spend $200 psf on interior buildout on top of the $60 psf landlord-funded TI allowance, resulting in a world-class property inside and out. The DBRS LTV on the $505.0 million mortgage loan is high at 90.6%, although the high level of curb appeal and strong location bring stability to the value over time.
DBRS considers Facebook to be an LTCT and will occupy 100.0% of the total NRA. The tenant’s two leases extend approximately five years beyond the loan maturity. DBRS performed an internal assessment on Facebook and considers the company to have characteristics consistent with a high investment-grade credit rating. Both Building 3 and Building 4 have been 100.0% leased to Facebook since construction began. Further, Facebook is the third-largest technology tenant in San Francisco with over 6.0 million sf of leased office space across the Bay Area, indicating a strong commitment to Sunnyvale and the greater Bay Area market. Given that all of the collateral’s income is generated by a tenant that DBRS considers investment-grade quality with a long-term lease, cash flow stability is expected to remain high over the foreseeable future.
Structured Finance: CMBS 54 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
MOFFETT TOWERS II BUILDINGS 3 & 4 – SUNNYVALE, CA
DOWNSIDE RISKS –– The loan is full-term IO, providing no reduction to the loan basis over the initial loan term. –– The DBRS NCF analysis is highly dependent upon the investment-grade treatment of Facebook. Any future internal assessment at a non-investment grade level may impact DBRS’s analysis and ratings on this transaction –– Although the subject is located in the booming Sunnyvale submarket, it is located in a competitive office market with high vacancy and availability rates. –– The loan has a high initial loan psf of $696 psf, especially given that the lowest rating on the certificates is high at “A.”
STABILIZING FACTORS –– Facebook’s two leases extend almost five years beyond the initial loan maturity date, providing stable cash flow beyond the loan maturity from an investment-grade-credit tenant. Further, the loan is structured with a five-year ARD period following the initial ten-year loan term. Therefore, if not paid off, the loan is estimated by DBRS to amortize down 31.5% to a maturity balance of $346.1 million, establishing a low DBRS LTV at lease expiry of only 62.1%. –– The appraiser estimates replacement cost of the assets, including land value, at $520 million, which is slightly above the rated debt proceeds of $505 million. The recent construction vintage, high property quality and strong location of the assets would make them highly re-leasable. –– The subject is located in a highly desirable area that is booming with development as many of Silicon Valley’s largest tech firms have moved into the submarket. The collateral offers best-in-class amenities and spectacular Class A office space that should position the properties at the forefront of Sunnyvale office product in the coming years. Although availability rates in the submarket are high, this is primarily a function of an abundance of new supply coming on-line recently; however, the majority of new Class A office buildings in Sunnyvale are build-to-suit developments that are pre-leased to other leading tech firms. –– This initial loan balance of $696 psf is relatively low considering office sales within a ten-mile radius of the subject averaged $1,049 psf across five transactions over the past two years, according to the appraisal. In addition, the subject is of excellent quality and the investment-grade tenant income alone provides for substantial amortization down to a fraction of the replacement cost at $474 psf. Further, considering that the lease doesn’t expire until 2034, the inflation-adjusted maturity exposure psf is more likely to be closer to $350 in today’s dollar terms.
Structured Finance: CMBS 55 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
The Zappettini Portfolio Mountain View, CA
Loan Snapshot Seller CREFI Ownership Interest Fee Simple Trust Balance ($ million) $55.0 Loan psf/Unit $477 Percentage of the Pool 4.3% Loan Maturity/ARD June 2024 COLLATERAL SUMMARY Amortization n/a DBRS Property Type Office Year Built/Renovated Various Issuance DSCR City, State Mountain View, CA Physical Occupancy 100.0% 1.83x Units/SF 251,575 Physical Occupancy Date August 2019 Issuance LTV 64.0% Balloon LTV The loan is secured by the borrower’s fee simple interest in a portfolio of ten Class 64.0% B office/research and development (R&D) properties totaling 251,575 sf located in DBRS Property Type Mountain View, California. The ten buildings were constructed between 1962 and Office 1990, six of which were developed by the sponsor. The sponsor acquired two of the DBRS Property Quality remaining assets in 2016 and the last two in 2018 for a combined total of $56.5 million. Average As of the May 20, 2019, rent roll, the property is 100.0% leased to eight tenants. The Debt Stack ($ million) $120.0 million loan will be used to refinance $76.8 million of existing debt; cash out Trust Balance several equity owners via LP member redemption of $33.7 million; fund upfront $55.0 reserves of $2.4 million, including a $1.7 million TI/LC reserve for future leasing; Pari Passu cover closing costs; and return $6.7 million of equity back to the sponsor. The $55.0 $65.0 million A2 Note will be contributed to this transaction, and the $65.0 million A1 Note B-Note will be contributed to the BMARK 2019-B12 transaction. The loan is IO for the entire $0.0 five-year term. Mezz $0.0 Total Debt $120.0 Loan Purpose Refinance Equity Contribution/ (Distribution) ($ million) ($6.7)
Structured Finance: CMBS 56 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
THE ZAPPETTINI PORTFOLIO – MOUNTAIN VIEW, CA
PROPERTY SUMMARY
Allocated Built/ Loan Appraised Occu- Single Largest Property City, State SF Renovated Balance Value pancy Tenant Tenant
1350 West Middlefield Mountain View, CA 29,670 1975 $7,700,000 $22,700,000 100% Y Egnyte, Inc.
Iridex 1212 Terra Bella Mountain View, CA 37,166 1976 $7,443,333 $26,500,000 100% Y Corporation
850 - 900 North Shoreline Mountain View, CA 31,347 1969 $7,425,000 $24,300,000 100% N Zendesk (X Motors)3
Elementum 1277 Terra Bella Mountain View, CA 24,000 1962/2017 $7,333,333 $22,000,000 100% Y SCM, Inc
Elementum 1215 Terra Bella Mountain View, CA 25,000 1974 $5,343,708 $17,800,000 100% Y SCM, Inc.1
1340 West Middlefield Mountain View, CA 25,000 1970 $5,074,667 $17,300,000 100% Y Nuro, Inc.
1255 Terra Bella Mountain View, CA 17,980 1990 $4,136,458 $14,100,000 100% Y Google, Inc
1305 Terra Bella Mountain View, CA 20,732 1977 $3,588,750 $14,100,000 100% Y Vimo, Inc.
The County 1330 West Middlefield Mountain View, CA 25,000 1975 $3,552,083 $17,000,000 100% Y of Santa Clara
1245 Terra Bella Mountain View, CA 15,680 1965 $3,402,667 $11,600,000 100% Y Google, Inc2
Mountain View, Total / Wtd. Avg. 251,575 Various $55,000,000 $187,400,000 100% Various Various CA
1. The tenant subleased 12,861 SF and 12,139 SF to Firewood Marketing, Inc., and Glowlink Communications Technology, Inc., respectively. 2. Google sold its in-house satellite business ‘Terra Bella’, the occupant of the property, to Planet Labs Inc., which executed a sublease agreement expiring on March 10, 2021. 3. Tenant subleased its space to Xmotors AI, Inc (Xmotors) for a term expiring on December 31, 2019.
The loan is structured with release provisions allowing the borrower to release any of the individual properties subject to a payment of 120.0% of the allocated loan amount, provided that certain credit metrics are met.
Structured Finance: CMBS 57 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
THE ZAPPETTINI PORTFOLIO – MOUNTAIN VIEW, CA
TENANT SUMMARY
% of DBRS UW % of Total Termina- Investment Total Base Rent DBRS UW tion Option Grade? Tenant SF NRA PSF Base Rent Lease Expiry Date4 (Y/N) Building(s)
Elementum SCM, Inc.1 49,000 19.5% $47.87 22.9% Various Various N 1215 Terra Bella / 1277 Terra Bella
Iridex Corporation 37,166 14.8% $36.46 13.3% 02/2022 n/a N 1212 Terra Bella
Google, Inc.2 33,660 13.4% $41.46 13.6% 03/2021 n/a Y 1245 Terra Bella / 1255 Terra Bella
1350 West Egnyte, Inc. 25,670 11.8% $49.80 14.4% 04/2024 4/30/2022 N Middlefield
The County of Santa 1330 West 25,000 9.9% $24.36 6.0% 09/2021 n/a Y Clara Middlefield
1340 West Nuro, Inc. 25,000 9.9% $36.46 8.9% 08/2023 2/1/2022 N Middlefield
Vimo, Inc. 20,732 8.2% $32.40 6.6% 06/2023 n/a N 1305 Terra Bella
850 - 900 North Zendesk (X Motors)3 16,613 6.6% $52.20 8.5% 12/2021 n/a N Shoreline
Vita Insurance 850 - 900 North 14,734 6.0% $40.24 5.8% 12/31/2026 12/31/2020 N Associates, Inc. Shoreline
Notes: 1. At the 1215 Terra Bella building, Elementum subleases 12,861 sf and 12,139 sf to Firewood Marketing, Inc., and Glowlink Communications Technology, Inc., respectively, with lease terms expiring both on January 31, 2021. Elememntum has a termination option on March 1, 2021, and December 1, 2020, at 1215 Terra Bella and 1277 Terra Bella, respectively. 2. At the 1245 Terra Bella building, Google subleases 15,680 sf to Planet Labs Inc., through March 10, 2021. 3. At the 850 N Shoreline building, Zendesk subleases 16,613 sf to Xmotors through December 31, 2019, which at that point Xmotors will be the direct tenant through December 31, 2021. 4. All termination options are mutual options where both the sponsor and tenant have the right to terminate the lease.
Of the ten buildings within the portfolio, nine are leased to single tenants and one building is leased to two tenants. While the portfolio is 100.0% leased to eight tenants predominately in the high-technology (tech) industry, the collateral is occupied by 12 tenants due to three subleases. At the 1215 Terra Bella property, Elementum subleases 12,681 sf to Firewood Marketing, Inc. and 12,139 sf to Glowlink Communications Technology Inc. on sublease terms both expiring on January 31, 2021. In April 2017, Google sold its satellite business Terra Bella to Planet Labs Inc., which subsequently took over the entire 1245 Terra Bella building on a sublease through March 10, 2021. The final sublease is at the 850-900 North Shoreline property where Zendesk vacated the property and subleased 16,613 sf to XMotors.ai (XMotors) through December 31, 2019, and at that time, XMotors will become the direct tenant through December 31, 2021. The portfolio benefits from two investment-grade tenants (Google and the County of Santa Clara) leasing 23.7% of the NRA and producing 19.6% of the DBRS Base Rent. Furthermore, the portfolio’s WA rent is more than 21.0% below market levels based on the appraiser’s estimate of market rent.
HISTORICAL OCCUPANCY
20141 20151 20162 20172 2018 T-12
Average 79.6% 100.0% 97.14% 87.3% 90.1% 100.00%
Notes: 1. Excludes 1245 Terra Bella, 1255 Terra Bella, 1277 Terra Bella and 850-900 North Shoreline. 2. Excludes 1277 Terra Bella and 850-900 North Shoreline.
Due to the majority of the buildings being single tenant, the property has seen large swings in occupancy. The portfolio experienced a dip in performance in 2014 when occupancy declined to 79.6% as the 1215 Terra Bella and 1305 Terra Bella buildings were 50.0% and 0.0% occupied, respectively, and again in 2018 to 87.3% when the 1215 Terra Bella was completely
Structured Finance: CMBS 58 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
THE ZAPPETTINI PORTFOLIO – MOUNTAIN VIEW, CA vacant. Despite these declines in vacancy, the portfolio has displayed the ability to quickly re-tenant the space with minimal downtime. Rollover risk within the loan term is significant, as all existing leases are scheduled to expire prior or shortly after loan maturity in 2024, with a minimum of 14.8% rolling starting in 2021, except in 2025. Additionally, term default risk is amplified as four tenants, representing 46.2% of the NRA, have termination options during the loan term. The loan is structured with a $1.7 million upfront TI/LC reserve for future leasing to mitigate rollover risk.
SPONSORSHIP The loan is sponsored by Zappettini Investment Company, LLC and John Zappettini. Mr. Zappettini serves as the President and Chief Executive Officer of Zappettini Capital Group. Zappettini Capital Group is a private real estate firm established in 1921 that focuses on real estate development, asset management and financial investment in San Francisco and Silicon Valley. Since 2008, the firm has completed over $600 million in real estate transactions and has a portfolio of assets over 500,000 sf. Mr. Zappettini has over 30 years of experience in commercial real estate investment. The sponsor and all of its subsidiaries and family reported a combined minimum net worth of approximately $120.0 million and liquidity of $12.0 million. The portfolio is managed by a sponsor affiliate for a contractual management fee of 3.0% of EGI.
DBRS ANALYSIS SITE INSPECTION SUMMARY Based on the DBRS site inspection and management meeting conducted on July 16, 2019, DBRS found the property quality to be Average.
The collateral buildings are situated on a combined 16.8 acres just west of the U.S. Hwy. 101 and State Route 85 intersection, approximately 13.0 miles northwest of downtown San Jose, California. Terra Bella Avenue, Shoreline Boulevard and Middlefield Road make a loop around the buildings, around which the collateral buildings are situated. Silicon Valley serves as a global hub of tech innovation and is home to many established and start-up tech companies. The property is located less than 1.5 miles south of Google’s Gooplex (global headquarters) and Microsoft’s Silicon Valley campus. Other notable high-tech firms in the immediate area include Clontech Laboratories, Omnicell Inc., Symantec and Teledyne Microwave Solutions. The property has good accessibility to major highways in the area that provide easy access to San Jose area as well as the rest of the Bay Area. The immediate area predominately consists of a mix of office, R&D and light industrial developments with residential uses on secondary roads.
Structured Finance: CMBS 59 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
THE ZAPPETTINI PORTFOLIO – MOUNTAIN VIEW, CA
As the buildings span across numerous vintages, they have various exteriors, except for the three properties located on West Middlefield, which are very similar. Although the improvements are noticeably of older construction except for 1277 Terra Bella, the buildings are well maintained and in good physical condition. The 1277 Terra Bella building has a more modern exterior due to being renovated in 2017 and features a large glass art wall above the entrance and wood accents and ivy along the exterior walls. The buildings fit in with the surrounding developments and appear to be of similar quality to other office developments nearby. Landscaping is well maintained and attractive, with mature and small trees throughout and various types of flower beds, bushes and hedges surrounding the individual buildings. The individual buildings have ample amounts of parking, as each building has its own surface parking lot in addition to an abundance of street parking as well. All parking lots were in good overall condition with no deferred maintenance noted.
DBRS was able to tour the interior of all buildings, except 1255 Terra Bella and 1340 West Middlefield due to sensitive material. The majority of the buildings had modern finishes, except for the 1212 Terra Bella and 1330 West Middlefield buildings, which were very dated. The buildings predominately featured very small lobbies with designs typical of the buildings’ vintages and that were appealing overall. The majority of the buildings have a similar open configuration with conference rooms and offices in the center of the floor and kitchens, cubicles and/or work desks along the exterior. Several of the tenants had special build-outs, including lab space, exterior patios with picnic and barbecue areas, game rooms and a fitness facility. Elementum at the 1277 Terra Bella building had the most modern and appealing build-out with floor- to-ceiling windows around almost the entire building, cement floors, high ceilings with exposed ducting, wood accents and garage roll-up doors. The space also featured a small cafeteria, a game area with ping pong table, a billiards table and foosball. Although DBRS did not tour 1255 Terra Bella and 1340 West Middlefield, management noted these spaces were predominately open with small amounts of traditional office space, as both Google and Nuro utilized the space to assemble and/or test self-driving vehicles. Per the DBRS site inspection, the only tenant that did not fully utilize its space was Vimo, Inc. at the 1305 Terra Bella building. The non-utilized space was fully built out with desks; however, the tenant was not clear on what it wanted to do with the space. Due to the size and location of the space within the building, it would be difficult and costly to devise the space into multi-tenant space.
Structured Finance: CMBS 60 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
THE ZAPPETTINI PORTFOLIO – MOUNTAIN VIEW, CA
DBRS NCF SUMMARY
NCF ANALYSIS
T-12 March 2016 2017 2018 2019 Issuer NCF DBRS NCF NCF Variance
GPR $6,674,789 $6,294,118 $8,083,005 $8,499,156 $10,283,276 $10,226,453 -0.6%
Recoveries $894,460 $933,417 $1,569,368 $1,697,995 $1,248,327 $2,292,184 83.6%
Vacancy $0 $0 $0 $0 -$576,580 -$1,251,864 117.1%
EGI $7,569,249 $7,227,536 $9,652,372 $10,197,152 $10,955,024 $11,266,773 2.8%
Expenses $1,066,201 $1,332,405 $1,847,444 $1,917,505 $1,364,472 $2,505,450 83.6%
NOI $6,503,048 $5,895,131 $7,804,928 $8,279,647 $9,590,551 $8,761,323 -8.6%
Capex $0 $0 $0 $0 $35,410 $49,577 40.0%
TI/LC $0 $0 $0 $0 $0 $364,548 100.0%
NCF $6,503,048 $5,895,131 $7,804,928 $8,279,647 $9,555,142 $8,347,198 -12.6%
The DBRS NCF is based on the DBRS North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS NCF was $8,347,198, a variance of -12.6% from the Issuer’s NCF. The main drivers of the variance are leasing costs and vacancy. DBRS applied total leasing costs of $1.53 psf, inclusive of straight-line credit for the $1.7 million upfront leasing reserve, compared with the Issuer’s $0.00 psf. DBRS generally based TI allowances on the appraiser’s estimates of $15.00 psf and $5.00 psf for new and renewal spaces, respectively, with a slight downward adjustment due to in-place rents being below market. LCs were based on the appraiser’s estimates of 7.50% and 3.75% for new and renewal leases, respectively. DBRS assumes a vacancy of 10.0% compared with the Issuer’s 5.0%.
DBRS VIEWPOINT The collateral for the loan is a portfolio of ten Class B office/R&D properties located in Silicon Valley. The property benefits from close access to major local and regional arteries as well as being located in a highly desirable area near Google’s global headquarters and Microsoft’s Silicon Valley campus. The asset benefits from being 100.0% leased to eight tenants, two of which are investment-grade entities representing 23.7% of the NRA and 19.6% of the DBRS Base Rent. As the buildings are predominately single-tenant use with six tenants occupying between 10.0% and 20.0% of the NRA, the portfolio has seen large swings in occupancy, declining to 79.6% in 2014 and 87.3% in 2018. Despite these declines in occupancy, the portfolio has displayed the ability to quickly backfill the space with minimal downtime, which is a testament to the strength of the market and location of the property. Additionally, the portfolio still displayed an average occupancy of 92.3% since 2014, which is currently outperforming the submarket, which reported a vacancy rate of 11.3% and five-year average of 12.5%, per Reis. Performance during the loan term potentially could be hindered by fluctuations in occupancy, as all leases are scheduled to roll, with particularly large concentrations of expiration occurring in the final two years of the loan term, or could be terminated prior to loan maturity. To help alleviate this risk, the loan is structured with a $1.7 million upfront TI/LC reserve for future leasing. Furthermore, the portfolio’s in-place rent psf is more than 21.0% below the appraiser’s estimate of market levels, so there is substantial revenue upside in the long run if a tenant vacates and the sponsor is able to re-lease the property at market levels. The LTV of 64.0% and DBRS Term DSCR of 1.62x indicate a moderate level of leverage. However, the loan balance of $477 psf is substantially below sales comparables within a 2.0-mile radius of the subject, which has averaged a sale price $882 psf over the past two years across 21 transactions, per Real Capital Analytics. The property benefits from committed and experienced sponsorship that first developed six of the properties in the 1970s and acquired the remaining four assets in 2016 and 2018 for a combined total of $56.5 million.
Structured Finance: CMBS 61 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
THE ZAPPETTINI PORTFOLIO – MOUNTAIN VIEW, CA
DOWNSIDE RISKS –– Rollover is high as all existing leases are scheduled to expire prior or shortly after loan maturity in 2024 and 46.2% of the NRA have termination options during the loan term.
STABILIZING FACTORS –– Based on the DBRS NCF and occupancy level of 90.0%, the portfolio has a 27.5% buffer from the 62.5% break-even occupancy, which reflects a vacancy level substantially higher than Reis submarket levels and the lowest occupancy the portfolio has experienced since 2014. Additionally, the loan is structured with a $1.7 million upfront TI/LC reserve for future leasing. –– The loan has a dark value of $675 psf (excluding 850-900 North Shoreline) compared with the loan balance of $477 psf.
Structured Finance: CMBS 62 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
Delong Self Storage Flushing, New York
Loan Snapshot Seller GACC Ownership Interest Fee Simple Trust Balance ($ million) $54.3 Loan psf/Unit $327 Percentage of the Pool 4.3% Loan Maturity/ARD July 2029 COLLATERAL SUMMARY Amortization n/a DBRS Property Type Self Storage Year Built/Renovated 2014 Issuance DSCR City, State Flushing, NY Physical Occupancy 89.9% 2.01x Units 166,294 Physical Occupancy Date June 2019 Issuance LTV 60.3% Balloon LTV This loan is secured by the borrower’s fee simple interest in Delong Self Storage, a 60.3% 166,294 sf (2,623-unit) self-storage facility located in Flushing, Queens, New York. DBRS Property Type Constructed in 2015, the collateral, which is branded as CubeSmart Self Storage and Self Storage Logistics (CubeSmart), consists of 133,694 sf (2,623 units) of self-storage space and DBRS Property Quality 32,600 sf of retail space. Loan proceeds of approximately $54.3 million, along with Average borrower equity of $786,000, will refinance $54.0 million of existing debt and cover Debt Stack ($ million) $1.1 million in closing costs. The ten-year loan is IO throughout the entire loan term. Trust Balance $54.3 The 2,623 self-storage units are spread across seven floors and are approximately Pari Passu 85.0% occupied on a per-unit basis. With units ranging from 5x5 to 10x30, the unit $0.0 types with the heaviest concentration are 5x5 units (32,275 sf ) and 10x10 units (22,600 B-Note sf ). All units are interior-facing, climate controlled and composed of light gauge steel $0.0 and metal that allows for the existing unit mix to be reconfigured. Floors 2 and 4 Mezz feature small lockers above the unit doors. Since opening in the middle of 2015, the $0.0 self-storage component has averaged approximately 42 net rentals on a monthly basis. Total Debt Management has offered both one month of free rent and discounts of 10% to 15% $54.3 to new customers. As of April 2019, the discount program was amended, and new Loan Purpose customers now can only choose either the free rent concession or the rent discount Refinance rather than receiving both. There are 13 of the property’s 105 parking spaces designated Equity Contribution/ (Distribution) ($ million) specifically for the self-storage component. $0.2
Structured Finance: CMBS 63 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
DELONG SELF STORAGE – QUEENS, NY
COMPETITIVE SET
Distance from Year Built/ Property Location Subject Units SF Renovated Occupancy
Uhaul , 3630 College Point Boulevard Flushing, NY 0.5 miles 1,400 84,000 1928/2011 90.0%
Cubesmart, 31-40 Whitestone Expressway Flushing, NY 0.9 miles 1,258 69,197 1920 95.0%
Cubesmart, 124-16 31St Avenue Flushing, NY 1.1 miles 1,055 58,007 2010 92.0%
City Closet Self Storage, 20-20 129Th Street College Point, NY 1.8 miles 2,075 114,100 1941 92.0%
Stop & Stor, 74-04 Grand Avenue Elmhurst, NY 3.0 miles 1,964 108,036 1995 92.0%
Public Storage, 2401 Brooklyn Queens Expy Woodside, NY 3.5 miles 1,560 85,826 1987 92.0%
Delong Self Storage Queens, NY n/a 2,623 133,694 2014 84.8%
* Per Appraisal
Located on the first floor of the self-storage building, the 32,600 sf retail component of the property is 100.0% leased to seven tenants with suites ranging from 2,810 sf to 8,250 sf. According to the sponsor, the tenants are local business that were attracted to the property for its dedicated 92-space retail parking lot. All leases were signed between 2015 and 2017, with an average lease term of approximately 12.9 years. The tenants received from two to eight months of free rent upon signing their leases.
TENANT SUMMARY
DBRS UW Base % of Total DBRS Tenant SF % of Total NRA Rent PSF UW Base Rent Lease Expiry
Gold City 6,890 21.1% $65.03 23.4% 04/2037
Tristar Plumbing 8,250 25.3% $54.12 23.3% 09/2030
YY Lighting & Décor 6,070 18.6% $59.54 18.9% 09/2025
Iris Bakery 3,030 9.3% $58.42 9.2% 09/2031
WFL International 2,810 8.6% $60.10 8.8% 08/2026
GS Beauty 2,740 8.4% $58.35 8.3% 03/2026
Desire Kitchen 2,810 8.6% $55.13 8.1% 09/2025
Total/Wtd. Avg. 32,600 100.0% $58.79 100.0% Various
SPONSORSHIP The sponsor for the loan is Steven J. Guttman, the co-founder of Storage Deluxe Management Company, LLC (Storage Deluxe), which owns, develops and manages self-storage properties. Storage Deluxe has developed 34 self-storage facilities totaling approximately 40,000 units (2.4 million sf ). Having sold 27 of these properties, Storage Deluxe currently manages seven properties (9,350 units) and has seven additional properties under construction. Loans financing 11 of Storage Deluxe’s facilities, totaling upwards of $240.0 million, have been securitized since 2010. As of December 2016, the sponsor reported a net worth and liquidity of approximately $167.8 million and $16.0 million, respectively. The self- storage component of the collateral is managed by CubeSmart for a contractual fee of 3.0%, while Storage Deluxe manages the retail component also for a contractual of 3.0%.
Structured Finance: CMBS 64 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
DELONG SELF STORAGE – QUEENS, NY
DBRS ANALYSIS SITE INSPECTION SUMMARY DBRS toured the interior and exterior of the property on July 18, 2019 at approximately 1:45 p.m. Based on the site inspection and management tour, DBRS found the property quality to be Average.
The 166,294 sf self-storage property, which is branded CubeSmart, is located between Sanford and 41st Avenues in the downtown Flushing neighborhood of Queens, New York. The property was approximately 87.0% occupied on a per-sf basis at the time of the visit. The property has good visibility not only from surface streets but also from the Van Wyck Expressway and stands out for its bright color scheme. There is a freestanding The Home Depot store on the opposite parcel, and most of the other surrounding uses are local businesses.
The collateral consists of a seven-story building with 2,623 self-storage units (133,694 sf ). Units are leased on a month-to- month basis for both personal and business storage. The site is improved with a large parking lot with 105 parking spaces that are adjacent to two freight elevators on opposite sides designated to bring customers to their personal self-storage units on one of the seven floors of the building. The two elevators can only be accessed with a gate code, and the entries with eight loading docks are under surveillance with security cameras at all times.
The units are well kept with a secured gate and aluminum interior walls. All units are eight feet tall, except for the 5x5 units, which management noted are the most popular unit offering at approximately $25.00 per month. Other larger, popular unit types included 10x10 units and 10x30 units renting at approximately $274 and $1,182 per month, respectively. These larger units are mainly for business storage, per management. All seven floors are climate controlled at all times. The facility is operated by four on-site managers and two maintenance workers seven days a week during normal business hours. The property manager reported that there have been some thefts from the property over the past few weeks. The property has security cameras on the outside areas and in the main hallways of the storage areas. However, there are no security cameras in the individual aisles resulting in blind spots throughout the self-storage component. Management has not yet implemented any preventive measures.
Structured Finance: CMBS 65 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
DELONG SELF STORAGE – QUEENS, NY
DBRS NCF SUMMARY
NCF ANALYSIS
2016 2017 2018 T-12 May 2019 Issuer NCF DBRS NCF NCF Variance
GPR $5,329,004 $5,886,638 $6,319,585 $6,177,555 $6,461,468 $6,347,341 -1.8%
Recoveries $14,647 $43,329 $51,089 $49,339 $49,339 $47,770 -3.2%
Other Income $256,084 $331,257 $381,987 $417,318 $456,856 $417,318 -8.7%
Vacancy & -$3,051,538 -$2,071,407 -$1,418,851 -$1,035,877 -$954,241 -$1,234,184 29.3% Concessions
EGI $2,548,198 $4,189,817 $5,333,810 $5,608,334 $6,013,422 $5,578,245 -7.2%
Expenses $1,014,725 $1,362,425 $1,400,321 $1,484,012 $1,360,209 $1,436,810 5.6%
NOI $1,533,473 $2,827,392 $3,933,489 $4,124,323 $4,653,213 $4,141,435 -11.0%
Capex $0 $0 $0 $0 $26,381 $106,073 302.1%
NCF $1,533,473 $2,827,392 $3,933,489 $4,124,323 $4,626,832 $4,035,362 -12.8%
The DBRS NCF is based on the DBRS North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS NCF was $4,035,363, representing a variance of -12.8% from the Issuer’s NCF of $4,626,832. The primary drivers of the variance are discounts, loss to lease and vacancy. The Issuer applied the T-1 ratio for discounts and loss to lease, while DBRS used the T-12 ratio for both. DBRS assumed a vacancy of -15.7% for the self-storage component and a vacancy of 10.0% for the retail component.
DBRS VIEWPOINT Situated within downtown Flushing in Queens, commonly known as Chinatown, the collateral benefits from locational advantages. Immediately east of Van Wyck Expressway and adjacent to The Home Depot, the property exhibits strong visibility and is exposed to a substantial amount of vehicle traffic, which proved to be a major factor in leasing up the property. As approximately 69.1% of the population within a 1.5-mile radius rents housing, the residential sector is naturally a fundamental demand generator. The third-busiest pedestrian intersection in New York is located approximately three blocks northeast of the subject, which helps create a well-balanced tenant composition due to the amount of retail space within downtown Flushing.
The appraiser identified six competitive properties totaling 9,311 units within 3.5 miles of the subject. Occupancy levels at the competitive properties range from 90.0% to 95.0% with an average occupancy of 92.2%. Despite having 548 more units than the largest competitive property, the subject’s average net rentals of 42 units per month since 2015 has demonstrated a strong leasing trajectory that should take the property from 84.8% occupied on a per-unit basis to a stabilized occupancy within the competitive set range. However, there is slight supply risk as a new 170,000 sf self-storage facility 1.0 miles north of the collateral is expected to completed toward the end of 2019. DBRS concluded a vacancy of 15.7% for the self- storage component based on the in-place occupancy rather than a projected stabilized occupancy level. There is little to no risk associated with the property’s retail component, as it quickly stabilized at 100.0% occupancy with seven local business tenants on an average lease term of approximately 12.9 years.
DOWNSIDE RISKS –– The loan does not benefit from amortization as it is IO for the full term and has a low DBRS Exit Debt Yield of 7.4%, representing potential refinance risk. –– A new 170,000 sf self-storage facility 1.0 miles north of the collateral is expected to be complete by the end of 2019.
Structured Finance: CMBS 66 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
DELONG SELF STORAGE – QUEENS, NY
STABILIZING FACTORS ––The loan has a healthy LTV of approximately 60.3%, which reduces refinance risk. –– The sponsor is a well-experienced self-storage owner, developer and manager, having developed 34 self-storage facilities totaling approximately 40,000 units (2.4 million sf ). In addition, the property is flagged as an established brand (CubeSmart). In addition, the location gives the property strong visibility, which can help it maintain its market position.
Structured Finance: CMBS 67 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
Powered Shell Portfolio - Manassas Manassas, VA
Loan Snapshot Seller GSMC Ownership Interest Fee Simple Trust Balance ($ million) $51.6 Loan psf/Unit $115 Percentage of the Pool 4.0% Loan Maturity/ARD July 2029 COLLATERAL SUMMARY Amortization n/a DBRS Property Type Industrial Years Built 2017-2019 Issuance DSCR City, State Manassas, VA Physical Occupancy 100.0% 2.61x SF 728,460 Physical Occupancy Date August 2019 Issuance LTV 55.9% Balloon LTV The loan is secured by the borrower’s fee simple interest in the Power Shell Portfolio 55.9% - Manassas, a four-property portfolio that covers 728,460 sf of data center space in DBRS Property Type Manassas, Virginia. Loan proceeds of $83.8 million, along with approximately $63.5 Other million of borrower equity, will be used to acquire the properties for approximately DBRS Property Quality $144.8 million and cover $2.5 million in closing costs. The ten-year loan is interest only Average and has a maturity date of July 7, 2029. The loan is structured with a trigger period that Debt Stack ($ million) commences if the tenant defaults or if the DSCR falls below 1.20x for two consecutive Trust Balance calendar quarters. $51.6 Pari Passu $32.3 B-Note $0.0 Mezz $0.0 Total Debt $83.8 Loan Purpose Acquisition Equity Contribution/ (Distribution) ($ million) $62.5
Structured Finance: CMBS 68 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
POWERED SHELL PORTFOLIO - MANASSAS – MANASSAS, VIRGINIA
PORTFOLIO SUMMARY
% of Cut-Off Date Loan Property % of Year Built/ Largest Property Loan Amount Amount City, State Type SF NRA Renovated Occupancy Tenant
Manassas DC-18 $15,592,337 30.2% Manassas, VA Industrial 215,650 29.6% 2017 100.0% Vadata, Inc.
Manassas DC-19 $10,690,166 20.7% Manassas, VA Industrial 148,580 20.4% 2017 100.0% Vadata, Inc.
Manassas DC-20 $14,603,168 28.3% Manassas, VA Industrial 215,650 29.6% 2017 100.0% Vadata, Inc.
Manassas DC-23 $10,664,329 20.7% Manassas, VA Industrial 148,580 20.4% 2019 100.0% Vadata, Inc.
Total/Wtd. Avg. $51,550,000 100.0% n/a n/a 728,460 100.0% n/a 100.0% n/a
The collateral was acquired along with the Power Shell Portfolio – Ashburn, a portfolio of three similar data centers in Ashburn, Virginia. These powered shell buildings are large industrial warehouse spaces that were developed by Corporate Offices Properties Trust (COPT) with open design layouts well suited to data center build-outs. These facilities were built-to-suit by COPT on behalf of Amazon with specifications essential to efficiently access power and fiber optics. The collateral buildings are mission critical to Amazon Web Services (AWS), and a significant amount of the company’s web traffic runs through these facilities.
The data centers offer a power supply of 33.3 megawatts (MW) in DC-19 and DC-23 and 46.5 MW in DC-18 and DC-20 for a total of 159.9 MW. In addition, the centers have a utility redundancy of N+1, meaning that critical systems have at least one backup component in the event of a system failure.
PORTFOLIO SUMMARY
DBRS % of Total UW Base % of Total DBRS Long Term Credit Tenant Property SF NRA Rent PSF UW Base Rent Lease Expiry Tenant? (Y/N)
Vadata, Inc. Manassas DC-18 215,650 29.6% $23.20 29.1% 12/2027 N
Vadata, Inc. Manassas DC-19 148,580 20.4% $22.66 25.8% 04/2027 N
Vadata, Inc. Manassas DC-20 215,650 29.6% $25.08 28.8% 04/2027 N
Vadata, Inc. Manassas DC-23 148,580 20.4% $23.49 16.4% 04/2029 N
Total/Wtd. Avg. n/a 728,460 100.0% $23.71 100.0% n/a n/a
The collateral was built-to-suit for Vadata Inc. (Vadata), a wholly owned subsidiary of Amazon. Vadata is the data center arm of AWS and conducts cloud computing services for the technology giant. Amazon invested approximately $3.9 billion ($3,300 psf ) to construct the Manassas and Ashburn data centers. Nearly $1.5 billion ($1,300 psf ) of Amazon’s investment was spent on installing state-of-the-art HVAC equipment, fiber connectivity, UPS batters and power generators. The remaining $2.4 billion ($2,000 psf ) was dedicated to installing racks, servers and cabling, all of which are personal property of the tenant. The collateral is part of a push by AWS to build nearly two million sf of data center space in Northern Virginia. AWS accounts for more than 10.0% of the company’s overall net sales and has notable clients that include McDonald’s, NASA and Salesforce, among others.
SPONSORSHIP The loan is sponsored by Blackstone Real Estate Investment Trust (BREIT), the New York-based, multinational private equity firm. The Blackstone Group, the sponsor’s parent company, is currently the largest alternative firm in the world with specialties in private equity, credit and hedge fund investment strategies. The sponsor has greater than $159.0 billion in total asset under management as of Q1 2019 and has real estate investments in all asset classes, including office, retail,
Structured Finance: CMBS 69 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
POWERED SHELL PORTFOLIO - MANASSAS – MANASSAS, VIRGINIA hospitality, industrial and residential, among others. BREIT has a global portfolio with assets across the risk spectrum from those that are opportunistic in nature to core/core-plus properties.
DBRS ANALYSIS SITE INSPECTION SUMMARY DBRS inspected the exterior of the property on Tuesday, July 16, 2019, at approximately 10:00 a.m. Based on the site inspection and management meeting, DBRS found the property quality to be Average.
DBRS conducted an exterior inspection of the collateral but was unable to tour the interior of the property due to security reasons. The collateral consists for four Tier 3+/4 powered shell data centers in Manassas, Virginia, approximately 28.0 miles southwest of downtown Washington D.C. The immediate surrounding is minimally infilled and largely agricultural in nature. The entrance to collateral is along Bethlehem Road, a quiet rural road that connects with several of the area’s major thoroughfares. I-66, which connects downtown Washington D.C. with its western suburbs, and Virginia State Route 234, which services southwestern Washington D.C. communities, are both accessible within 1.5 miles of the subject. Of note, the Power Shell Portfolio in Ashburn, Virginia, which is also leased to Vadata, is located approximately 18.0 miles north.
Manassas DC-18 and Manassas DC-20 are both 215,650 sf buildings, while Manassas DC-19 and Manassas DC-23 are each 148,580 sf properties. The powered shell data center buildings have white and gray concrete exteriors with blue accents and flat roofs. All of the buildings are windowless and relatively non-descript; these features are typical for data centers because having windows jeopardizes security and increases the need for essential cooling capacity. The facility has a gated entrance along Bethlehem Road and a 24-hour guard booth controlling access to the site. The exteriors displayed minimal deferred maintenance, as they are newly constructed assets. The facilities have surface-level parking lots, and there few signs of cracking and spalling in the asphalt.
Structured Finance: CMBS 70 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
POWERED SHELL PORTFOLIO - MANASSAS – MANASSAS, VIRGINIA
DBRS NCF SUMMARY
NCF ANALYSIS
Issuer NCF DBRS NCF NCF Variance
GPR $8,561,540 $7,567,333 -11.6%
Recoveries $85,615 $1,831,455 2039.2%
Vacancy -$264,099 -$704,909 166.9%
EGI $8,383,057 $8,693,879 3.7%
Expenses $85,615 $1,831,455 2039.2%
NOI $8,297,442 $6,862,424 -17.3%
Capex $42,222 $304,606 621.4%
TI/LC $176,549 $145,692 -17.5%
NCF $8,078,671 $6,412,126 -20.6%
The DBRS NCF is based on the DBRS North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS NCF was $6,412,126, representing a -20.6% variance from the Issuer’s NCF of $8,078,671. The primary drivers of the variance are the GPR, vacancy and TI/LCs. DBRS is accepting the contractual rent steps through February 2020. By comparison, the Issuer is doing a present value calculation for the rent steps through each of the four lease terms, establishing an approximate $994,000 variance on the rent steps alone. DBRS assumed a 7.5% vacancy rate to the collateral given that it is occupied by a single tenant. Lastly, DBRS applied TIs of $1.00 psf and $0.50 psf for new and renewal leases, respectively, and LCs of 6.0% and 3.0% for new and renewal leases, respectively, across all four properties.
DBRS VIEWPOINT Northern Virginia holds a majority of the data centers in the United States due in part to its strategic geographic location and the strong economic and political pull of the area. State and local governments offer incentives to data centers and rates from the local electric utility, Dominion Power, are more competitive than in other areas. Northern Virginia has established itself as the world’s largest data center hub, with Loudon County colloquially referred to as Data Center Alley. More than 70.0% of the all internet traffic worldwide runs through this region, as the area has low-latency connections to the national fiber network backbone, low-cost local power sources and minimal exposure to potential natural disasters. Large data center operators and users such as Amazon, Google, Microsoft and Facebook continue to drive the market demand by requesting for increased capacity.
Data centers have extraordinarily high upfront construction costs due to their unique and expensive specifications, so it would be difficult to convert to collateral into another usage type. If Vadata were to vacate the facilities, the sponsor would likely search for another prospective data center user to take occupancy of the collateral. Given Amazon’s substantially high upfront investment of approximately $3.9 billion, there is comfort that the tenant is invested in the collateral for the long haul. The portfolio is mission-critical space to Amazon’s web services operations, as AWS’s East Coast cloud computing infrastructure depends upon the operations of these data centers. Amazon, an investment-grade company, has made a strong push into the North Virginia market with plans to invest in nearly two million sf of data center facilities. Therefore, even though the leases all expire prior to the loan’s maturity date, the collateral appears to have long-term tenant stability.
In addition to the investment from Amazon, the available power supply of 159.6 MW for the four buildings is at the high end of the range of power, which reduces the risk of obsolescence over time. Even as computing power increases and reduces the need for space, electricity and power infrastructure are critical inputs for data centers and can be costly to increase.
Structured Finance: CMBS 71 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
POWERED SHELL PORTFOLIO - MANASSAS – MANASSAS, VIRGINIA
DOWNSIDE RISKS –– The loan is full-term IO. –– The portfolio is 100% leased to a single tenant.
STABILIZING FACTORS –– The transaction is relatively low leverage with an LTV of 55.9% based on the appraised value of $150.0 million. –– Amazon, an investment-grade company, guarantees all of Vadata’s leases and has an approximate market capitalization of $851.5 billion.
Structured Finance: CMBS 72 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
Summit Technology Center Lee’s Summit, MO
Loan Snapshot Seller CREFI Ownership Interest Leasehold Trust Balance ($ million) $51.5 Loan psf/Unit $104 Percentage of the Pool 4.0% Loan Maturity/ARD August 2024 COLLATERAL SUMMARY Amortization n/a DBRS Property Type Office Year Built/Renovated 1961/1997 Issuance DSCR City, State Lee's Summit, MO Physical Occupancy 96.5% 3.19x SF 494,449 Physical Occupancy Date June 2019 Issuance LTV 50.5% Balloon LTV This loan is secured by the borrower’s fee-simple interest in Summit Technology 50.5% Center, a 494,449-sf Class B suburban office building located at 1101 NW Innovation DBRS Property Type Parkway Lee’s Summit, Missouri, approximately 20 miles southeast of the Kansas Office City CBD. Built in 1961 and renovated in 1997, the one-story office building was 96.5% DBRS Property Quality occupied by six tenants as of the June 2019 rent roll. Loan proceeds of $51.5 million Average refinanced $48.0 million of existing debt on the property and covered closing costs of Debt Stack ($ million) approximately $600,000. The five-year, fixed-rate loan is full-term IO and requires Trust Balance an ongoing TI/LC reserve of $31,250 per annum. The reserve is to be funded monthly $51.5 and is subject to a cap of three years. Pari Passu $0.0 The property was originally constructed in 1961 as a campus with two buildings, the B-Note North Building and the South Building, that totaled over one million sf combined. The $0.0 borrower acquired the entire campus in 2007 for $160 million, but ended up selling Mezz the North Building in 2015 for $86.0 million. Since acquisition, the borrower has spent $0.0 approximately $3.4 million ($6.88 psf ) in improvements for the South Building (the Total Debt collateral). Additionally, the property has achieved an average occupancy exceeding $51.5 95.0% since 2007. The four largest tenants at the property, all of which have investment- Loan Purpose grade ratings, comprise 93.8% of the overall NRA. The current tenants have a WA lease Refinance term of 19 years and a WA remaining term of 3.5 years. The property has significant Equity Contribution/ (Distribution) ($ million) rollover throughout the loan term with 77.9% of total NRA rolling prior to maturity. $0.5
Structured Finance: CMBS 73 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
SUMMIT TECHNOLOGY CENTER – LEE’S SUMMIT, MO
TENANT SUMMARY
% of DBRS UW % of Total DBRS Investment Tenant SF Total NRA Base Rent PSF UW Base Rent Lease Expiry Grade? (Y/N)
GSA 313,209 63.3% $14.70 64.0% Various Y
Caremark, Inc. 60,324 12.2% $15.75 14.1% 5/2025 Y
ExamOne, Inc 58,347 11.8% $13.61 11.0% Various Y
St. Luke's Health System 32,043 6.5% $17.60 7.8% 12/2026 Y
Subtotal/Wtd. Avg. 463,923 93.8% $13.30 97.0% Various Various
Other Tenants 13,397 2.7% $16.35 3.0% Various N
Vacant Space 17,129 3.5% n/a n/a n/a n/a
Total/Wtd. Avg. 494,449 100.0% $13.39 100.0% Various Various
The General Services Administration (GSA), which is the property’s largest tenant, employs over 2,000 individuals at the property and houses the United States Citizenship and Immigration Services (USCIS). Leased as the main location for the National Benefits Center, USCIS relies on the property as a hub for storing immigration records, pre-processing immigrant applications and adjudicating applications. After nearly a decade of research and planning, Lee’s Summit was chosen as the location for the National Benefits Center because of its proximity to a qualified labor force, infrastructure and the National Archives and Records Administration Federal Records Center. Since its occupancy at the property commenced in 2002, USCIS has expanded its space on three separate occasions, most recently in 2018, and invested nearly $15 million in improvements to the property. Future expansion and improvements of approximately $500,000 are already planned. In the event that USCIS goes dark, terminates its lease or fails to renew, a cash-flow sweep will be triggered. The cash-flow sweep is also triggered if the debt yield falls below 8%. Caremark, Inc. (Caremark), the prescription benefit management subsidiary of CVS Health Corporation, is the second-largest tenant at the property and has occupied its space since 2002. Caremark operates a network of 60,000 pharmacies and employs over 16,000 people nationwide. The third-largest tenant at the property is insurance industry service provider, ExamOne, Inc. (ExamOne), which employs over 46,000 people nationwide and nets annual revenues exceeding $7.5 billion. ExamOne has occupied its space as the property since 2002 and has extended its two leases three times. The remaining tenants each comprise no more than 6.5% of NRA and 7.8% of income.
SPONSORSHIP The sponsor and carveout guarantor for this transaction are Weinreb Management LLC and Jacob Weinreb. Founded in 1950, Weinreb Management LLC has almost 70 years of investing and operating experience in commercial real estate. The company’s portfolio consists of over 2.0 million sf of commercial space across the United States. The guarantor reported a net worth and liquidity of $62 million and $6.2 million, respectively, as of March 2019. No adverse credit issues were reported by the sponsor. Property management is provided by US Asset Services LLC, a third-party management firm, for a contractual management fee of 3.0%.
Structured Finance: CMBS 74 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
SUMMIT TECHNOLOGY CENTER – LEE’S SUMMIT, MO
DBRS ANALYSIS SITE INSPECTION SUMMARY DBRS toured the interior and exterior of the property on July 17, 2019, at 1:00 p.m. Based on the site inspection, DBRS found the property to be Average.
The collateral is located in Lee’s Summit at the southeast quadrant of U.S. Hwy. 50 and I-470, two major arterials, nearly 20 miles southeast of the Kansas City CBD. The subject’s immediate vicinity is made up of a mixture of dense retail development, including several national tenants to the west along U.S. Hwy. 50, newly developed apartment properties to the east and a large concentration of single-family residential neighborhoods to the south across NW Chipman Road. There does appear to be some vacant land parcels to the north of the property that could be developed at some point in the future.
The sprawling collateral is part of the greater Summit Technology Campus, which includes a similarly sized building directly north of the subject. Originally owned by the sponsor, the neighboring building was sold to Cerner Corporation in 2015. The primary entrance along Chipman Road to the south has a dedicated traffic light and features prominent signage. The subject, positioned at the south side of the campus, benefits from superior visibility and easier access than its sister property to the north, which is not visible to traffic along Chipman Road and requires traffic to drive around to the back side of the subject or enter the campus from a secondary entry point. The building’s dark brown brick exterior was observed to be in good condition and of similar quality to other properties of the same age in the neighborhood. While DBRS did not physically observe the roof, the engineer’s analysis recommended a roof replacement in year two at a cost of approximately $2.0 million, a large majority of which is covered by the originator’s upfront replacement reserve of $1.75 million. The property’s largest tenant, USCIS, occupies 63.3% of the total NRA and, because of the sensitive nature of the business function, does not externally advertise its presence at the property. Furthermore, DBRS was not permitted to tour or take pictures of USCIS’s interior space; however, DBRS noted that each entrance to USCIS’s space was staffed with several security guards and x-ray/screening stations.
DBRS did, however, inspect the interiors of Caremark, ExamOne and Saint Luke’s Health System as well as the 17,129-sf vacant space. Interior office build-outs are in line with Class B-quality properties in the area with suspended acoustical tile ceilings, somewhat worn commercial-grade carpeting and fluorescent lighting throughout. The Caremark and ExamOne spaces have high ceilings with open layouts outfitted with large rows of cubicle workstations throughout as both tenants primarily use the space as a customer service call center. A large common-area cafeteria with ample seating is available at the center of the property. The sole vacant space at the northeast corner of the property has a relatively narrow layout with limited external windows, which leads to a lack of natural lighting. Per management, USCIS has expressed interest
Structured Finance: CMBS 75 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
SUMMIT TECHNOLOGY CENTER – LEE’S SUMMIT, MO in expanding into the space, although it would likely require some retrofit prior to occupancy. The subject exhibits good curb appeal with well-manicured lawns, a variety of attractive plants and walkways free of dirt and debris. Overall, the property was found to be in average condition and in line with comparable properties in the surrounding submarket.
DBRS NCF SUMMARY
NCF ANALYSIS
T-12 February 2016 2017 2018 2019 Issuer NCF DBRS NCF NCF Variance
GPR $6,069,703 $6,603,787 $6,180,274 $6,404,408 $7,857,330 $7,543,532 -4.0%
Recoveries $1,894,297 $1,833,329 $1,781,604 $1,710,805 $1,934,683 $2,019,543 4.4%
Other Income $1,846,217 $1,264,843 $1,329,937 $1,431,355 $1,230,104 $931,457 -24.3%
Vacancy $0 $0 $0 $0 -$489,601 -$947,820 93.6%
EGI $9,810,217 $9,701,959 $9,291,815 $9,546,568 $10,532,516 $9,546,712 -9.4%
Expenses $3,639,862 $3,530,095 $3,870,231 $3,807,224 $3,884,425 $4,013,851 3.3%
NOI $6,170,355 $6,171,864 $5,421,584 $5,739,344 $6,648,092 $5,532,861 -16.8%
Capex $0 $0 $0 $0 $138,446 $120,655 -12.9%
TI/LC $0 $0 $0 $0 $381,947 $327,347 -14.3%
NCF $6,170,355 $6,171,864 $5,421,584 $5,739,344 $6,127,699 $5,084,858 -17.0%
The DBRS Stabilized NCF is based on the DBRS North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS NCF was $5,084,858, a -17.0% variance from the Issuer’s Stabilized NCF. The main drivers of the variance between the DBRS NCF and the Issuer’s NCF are vacancy, miscellaneous income and utility expense.
DBRS estimated an economic vacancy loss of 10.0% at the property compared with the Issuer’s estimated economic vacancy loss of 5.0%. The DBRS vacancy assumption was made in consideration of both the low historical vacancy at the subject in conjunction with the high historical Reis-reported market vacancy of 26.1%. For miscellaneous income, DBRS did not accept amortized TIs paid by the GSA, which were included in and made up a significant portion of the total miscellaneous income as the GSA leases expire within the loan term. DBRS concluded to a utility expense based on the historical average at the property while the Issuer assumed a utility expense consistent with the YE2017 amount.
DBRS VIEWPOINT The collateral for the loan is the fee-simple interest in a five-tenant Class B office building in the southeast suburbs of Kansas City. The property benefits from a strong tenant base, 93.8% of which carry an investment-grade rating and tenure at the property as evidenced by a WA lease term greater than 18 years. The property serves as a national hub for the largest tenant, USCIS, where the tenant has expanded three times over the last 12 years. Over that time period, the USCIS footprint has expanded to 63.3% of total NRA from 28.2%. Furthermore, the tenant has expressed interest in expanding into the only remaining vacant suite at the property. Per management, the most recent 42,004-sf expansion in 2018 included a USCIS funded build-out totaling $2.5 million, which will house an additional 300 employees. In aggregate, USCIS employs more than 2,000 individuals at the property and has invested approximately $15.0 million in its ever-growing space throughout its occupancy. The second-largest tenant, Caremark (12.2% of NRA), recently renewed its lease through May 2025, although the renewal rate of $15.75 psf was lower than the previous rate of $16.75 psf. Submarket vacancy in the market is quite high at 26.1% overall and 35.3% by vintage, per Reis as of Q1 2019. The property manager indicated that the similarly sized building immediately north of the property, which was previously owned by the sponsor, competes directly with the subject. Despite offers to Caremark from the other property, management was able to secure the recent lease renewal at the subject. At 50.5%, the appraised LTV is moderately low for a suburban office property. The sponsor
Structured Finance: CMBS 76 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
SUMMIT TECHNOLOGY CENTER – LEE’S SUMMIT, MO contributed an additional $457,056 of fresh equity as part of the refinancing and, based on the total cost basis of $63.9 million, the loan is margined by $12.4 million of sponsor equity.
DOWNSIDE RISKS –– 77.9% of NRA rolls over the five-year loan term. –– The suburban submarket exhibits weak fundamentals with additional pressure from the adjacent building to the north, which was sold by the sponsor in 2015.
STABILIZING FACTORS –– The largest tenant, USCIS, represents 81.3% of NRA rolling over the loan term. Having expanded several times at the subject historically, USCIS has demonstrated significant commitment to the property with an aggregate capital investment of $15.0 million ($47.89 psf ). Management indicated that USCIS selected the site after more than a decade of in-depth analysis and planning and that the facility has been designated as mission critical. Excluding USCIS, only 14.5% of NRA expires prior to loan maturity. –– The subject reports a ten-year historical average occupancy of 98.2%. In 2018, the lowest occupancy of 89.9% was reported when the University of Central Missouri vacated 42,004 sf, which was subsequently backfilled by USCIS. –– The loan is structured with a cash-flow sweep for USCIS if the tenant, among other requirements, does not renew its lease at the earlier of (1) two years before the applicable lease expiration or (2) the notice period in the applicable lease.
Structured Finance: CMBS 77 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
U.S. Industrial Portfolio V Various
Loan Snapshot Seller GSMC Ownership Interest Fee Simple Trust Balance ($ million) $50.0 Loan psf/Unit $36 Percentage of the Pool 3.9% Loan Maturity/ARD August 2029 COLLATERAL SUMMARY Amortization n/a DBRS Property Type Industrial Year Built/Renovated Various Issuance DSCR City, State Various Physical Occupancy 100.0% 2.49x Units/SF 3,585,623 Physical Occupancy Date August 2019 Issuance LTV 64.4% Balloon LTV The loan is secured by the borrower’s fee-simple interest in the U.S. Industrial Portfolio 64.4% V, comprising 30 single-tenant industrial properties totaling 3,585,623 sf located across DBRS Property Type 15 states. The ten-year loan is IO for the entire term. Loan proceeds of $130.4 million, Industrial along with approximately $69.4 million of borrower equity, will be used to finance the DBRS Property Quality $195.3 million purchase price as well as cover $1.3 million in closing costs and fund Average $52,000 in replacement reserves. Additionally, the sponsor will receive a credit of Debt Stack ($ million) $172,450 from the seller at closing related to the Sherwood Foods Distributors, LLC’s Trust Balance (Sherwood Foods) Cleveland roof work reserve and the NN structure of the lease. $50.0 Pari Passu $80.4 B-Note $0.0 Mezz $0.0 Total Debt $130.4 Loan Purpose Acquisition Equity Contribution/ (Distribution) ($ million) $69.4
Structured Finance: CMBS 78 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
U.S. INDUSTRIAL PORTFOLIO V – VARIOUS
PORTFOLIO SUMMARY
% of Cut-Off Year Built/ Cut-Off Date Date Loan Property City, State SF Renovated Loan Amount Amount Occupancy Largest Tenant Sherwood Foods Maple Heights. OH 345,009 1967 $14,564,579 11.2% 100.0% Sherwood Food Cleveland Distributors, LLC
HDT Hunter Defense Tech Florence, KY 260,366 1962/2002 $8,336,966 6.4% 100.0% Expeditionary Systems, Inc.
Owens Corning Tallmadge, OH 222,900 1989/1996 $9,147,225 7.0% 100.0% Owens Corning Foam Insulation, LLC
Maradyne Corporation Dreison Cleveland, OH 206,471 1955/1967 $4,325,847 3.3% 100.0% and DCM Manufacturing, Inc.
Essential 1964, 1980, Exec Cabinetry SC Simpsonville, SC 205,912 $6,174,042 4.7% 100.0% Cabinetry 1987, 1993 Holdings, LLC
Nyloncraft Mishawak, IN 185,631 1961/1998 $5,156,196 4.0% 100.0% Techniplas, LLC
Polartec Cleveland, TN 175,306 1986 $3,415,143 2.6% 100.0% Polartec, LLC
Metalex (Jason Metalex Libertyville, IL 155,799 1924/2008 $5,624,941 4.3% 100.0% Industries) Corporation
Custom Extrusions Rome, GA 151,693 1960/2005 $3,177,422 2.4% 100.0% Ascend Custom Rome Extrusions LLC and Profile Custom Extrusions, LLC
The Gem City Gem City Dayton, OH 147,847 1941/1950 $4,198,616 3.2% 100.0% Engineering Co.
Techniplas Nashotah, WI 137,206 1964, 1995 $6,026,722 4.6% 100.0% Techniplas, LLC
Cedar Creek Brooklyn Cedar Creek, Brooklyn Park, MN 136,167 1978/2000 $6,227,613 4.8% 100.0% Park LLC
Sterling Jewelers, Sterling Jewelers Barberton, OH 134,565 2002/2016 $8,035,630 6.2% 100.0% Inc.
Global Integrated Global Flooring Grand Rapids, MI 121,464 1984 $4,801,289 3.7% 100.0% Flooring Solutions Inc.
Design Cabinetry TGK Rockledge, FL 92,367 1998 $3,281,215 2.5% 100.0% Essential Cabinetry Holdings, LLC
LMI Aerospace - 3030 Leonard’s Metal, St. Charles, MO 91,363 1973/1989 $3,214,249 2.5% 100.0% N. Highway 94 Inc.
Cedar Creek, Cedar Creek Gulfport Long Beach, MS 88,061 1965 $1,657,349 1.3% 100.0% LLC
Cedar Creek Little North Little Rock, Cedar Creek, 82,959 1971/2004 $1,841,498 1.4% 100.0% Rock AR LLC
Dirksen Screw Dirksen Screws Shelby Shelby Township, MI 80,967 1988, 1998 $5,055,750 3.9% 100.0% Products Co.
Workstream Fairfield, OH 76,893 1973/1988 $2,370,511 1.8% 100.0% Workstream Inc.
Structured Finance: CMBS 79 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
U.S. INDUSTRIAL PORTFOLIO V – VARIOUS
PORTFOLIO SUMMARY
% of Cut-Off Year Built/ Cut-Off Date Date Loan Property City, State SF Renovated Loan Amount Amount Occupancy Largest Tenant
Pyrymid Air Solon, OH 70,867 1970 $2,491,045 1.9% 100.0% Pyramyd Air Ltd.
Met-Pro CECO - Indianapolis Indianapolis, IN 66,000 1971 $2,745,507 2.1% 100.0% Technologies LLC
LMI Aerospace - 3600 Leonard’s Metal, St. Charles, MO 62,712 1966/2000 $2,745,507 2.1% 100.0% Mueller Inc.
Cast Aluminum Cast Aluminum Batavia, IL 59,719 1988 $2,531,223 1.9% 100.0% Solutions Solutions, LLC
Dirksen Screws Dirksen Screw Canton, MI 55,118 1994 $3,549,070 2.7% 100.0% Canton Products Co.
Total Plastics Total Plastics Wyoming, MI 44,033 1999 $1,613,822 1.2% 100.0% Resources LLC
Chemcore Austin Austin, TX 40,662 1982 $3,736,568 2.9% 100.0% Chemcore Industries, Inc.
Techniks Techniks Indianapolis, IN 40,418 2005 $1,874,980 1.4% 100.0% Holdings, LLC
Chemcore Chemcore Elk Grove Elk Grove Village, IL 25,576 1966 $1,657,349 1.3% 100.0% Industries, Inc.
Essential Design Cabinetry Rockledge, FL 21,572 1987 $780,126 0.6% 100.0% Cabinetry Barnes Holdings, LLC
Total/Wtd. Avg. Various 3,585,623 Various $50,000,000 100.0% 100.0% Various
The portfolio has a wide variety of tenants, such as distribution centers, specialized parts, consumer goods, defense and manufacturing. Of the 30 properties within the portfolio, 16 serve as their corporate headquarters and a majority of the tenants took occupancy as a result of a sale-leaseback transaction. The portfolio is leased to a total of 22 tenants, only one of which is considered to be investment grade (Owens Corning; 6.2% of ALA). The largest tenant, Sherwood Foods (9.6% of ALA), has been at its location in Maples Heights, Ohio, since 2005. The 345,009-sf distribution center ships more than 20.0 million pounds of food to Cleveland, Atlanta, Detroit and Miami every week. The second-largest tenant is Techniplas, LLC (Techniplas), occupying 137,2006 sf of its global headquarters in Nashotah Park, Wisconsin. Techniplas’ subsidiary, Nyloncraft, Inc., also has tenancy within the 185,631-sf manufacturing facility located in Mishawaka, Indiana.
SPONSORSHIP The sponsors for the loan are principals of the Brennan Investment Group, LLC (BIG). BIG has owned and managed over $4.0 billion in assets, a majority of which have been industrial properties, since 2010. The company reported a net worth that is greater than $30.0 million and liquidity that is greater than $5.0 million. The borrowing entity for the loan comprises a joint venture between Sidra Capital (95.0%) and BIG (5.0%).
Property management is provided by a borrower-affiliated company, Brennan Management Group, LLC, for a contractual management fee of 2.0% of EGI. The company manages over 40.0 million sf across 28 states.
Structured Finance: CMBS 80 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
U.S. INDUSTRIAL PORTFOLIO V – VARIOUS
DBRS ANALYSIS SITE INSPECTION SUMMARY DBRS inspected six of the 30 properties in the portfolio, representing 33.9% of the allocated loan amount. The tours included properties in Ohio and Illinois. Based on the site inspections and management meetings held between July 15, 2019, and July 17, 2019, DBRS found the portfolio’s property quality to be Average.
The properties are primarily well located along major thoroughfares in tertiary and suburban markets. The assets generally featured prominent signage and benefited from strong exposure on their respective local thoroughfares. The portfolio’s average year of construction is 1974 with only two properties built after 2000 in 2002 and 2005. All properties were found to be in average condition and limited to moderate amounts of deferred maintenance at the time of DBRS’s inspections. Below are descriptions of the three-largest properties that were toured by DBRS in the portfolio, representing 21.5% of the allocated loan amount.
SHERWOOD FOODS CLEVELAND – MAPLE HEIGHTS, OHIO – JULY 17, 2019, AT 11:45 A.M. (11.2% OF ALA) The subject is located in Maple Heights, approximately 14.0 miles southeast of the Cleveland CBD and 22 miles north of Akron, Ohio. Located approximately five miles west of I-480 and I-271, the property benefits from strong accessibility to the surrounding neighborhoods. The improvements consist of a 345,009-sf distribution center as well as a separate building with office space. The property is mission critical for Sherwood Foods as it is near the company’s corporate headquarters in Detroit, Michigan, as well as within a short distance from their large customers, Marc’s Pharmacy (Marc’s) and Fresh Thyme Farmers Market. Marc’s is a local pharmacy and grocery chain with 65 locations, primarily in Ohio. The immediate surrounding area is made up of smaller industrial properties lining Lee Road South and Rockside Road and a residential neighborhood west of the subject.
Originally constructed in 1967, the property appeared to be generally well maintained at the time of DBRS’s inspection. Slightly outdated signage was prominently displayed at the corner of Granite Road and Lee Road South, ultimately providing good exposure to any drivers passing by. On-site management stated that approximately $100,000 of upgrades was budgeted since the acquisition of the portfolio, a majority of which had already been completed by the time of DBRS’s inspection. The list of improvements consists of replacing the exterior fence, repairing sidewalk cracks as well as repaving the upper parking lot, lower parking lot and the parking lot near the front office. Additionally, as of the time of inspection, there were still weather-related delays on replacing the roof. The capital improvements were expected to be complete by March 2019; however, the project experienced over 130 delayed days. The Sherwood Foods distribution center was moderately busy at the time of inspection with a handful of inbound and outbound trucks visible. According to on-site management, approximately 75 trucks are inbound to the subject facility every day while approximately 60 to 75
Structured Finance: CMBS 81 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
U.S. INDUSTRIAL PORTFOLIO V – VARIOUS are outbound to their customers per day. The property primarily consists of cold-storage space, with 80,000 sf of freezer space and 70,000 sf of refrigerated space, as well as a 40,000-sf dry goods warehouse. The freezer space includes 40,000 sf that the sponsor built in 2017 to accommodate the high demand. Overall, the property’s interior and exterior were well maintained and presented well compared with other industrial facilities in the surrounding area.
OWENS CORNING – TALLMADGE, OHIO – JULY 17, 2019, AT 2:00 P.M. (7.0% OF ALA) The subject property is located in Tallmadge, Ohio, less than six miles east of Akron and approximately 40 miles south of the Cleveland CBD. The single-tenant insulation, roofing and composite warehouse/distribution center has good exposure from Southwest Avenue and is located within a tertiary market. DBRS noted that signage was low to the ground, leaving the possibility for limited visibility; however, the main entryway was clearly marked. The immediate surrounding area consists of smaller industrial buildings to the east and west as well as local and national retailers near downtown Tallmadge, which is only 0.5 miles to the north. The facility is leased to Owens Corning and primarily services the company’s relationship with The Home Depot Inc., which accounts for more than 60% of Owens Corning’s sales and maintains a distribution center 30 miles north in Solon, Ohio.
Given the mid-afternoon time of day, the property had very limited traffic in and out of the distribution area. The main driveway was unpaved and wide, allowing ample space for large trucks to travel inbound and outbound. According to on-site management, an estimated 30 to 50 trucks are traveling inbound and outbound every day. The exterior of the property was neutral in nature and appeared to be generally well maintained. The subject’s interior storage space featured clean and orderly aisles with ample space for forklifts to maneuver. The property’s location is advantageous for the tenant as an Owens Corning research and development facility is located directly across the street and the company built an insulation manufacturing facility nearby. Although neither facility is included in the collateral, they may provide Owens with an incentive to remain in the immediate area. By the end of summer 2019, it is expected that $160,000 to $180,000 will be spent to widen the concrete roadway leading to an elevated storage area. In this outdoor storage area, insulation is wrapped to prevent any damage from the outdoor elements as it is expected to remain there for about three months. Overall, the property appeared to be in line with comparable properties in the surrounding area and demonstrated strong signs of long-term tenancy.
DREISON – CLEVELAND, OHIO – JULY 17, 2019, AT 9:30 A.M. (3.3% OF ALA) The single-tenant manufacturing facility is located approximately 10.5 miles southwest of the Cleveland CBD and only 3.0 miles northeast of the Cleveland Hopkins International Airport. The property’s immediate area consists of primarily industrial facilities and flex spaces. Dreison International Inc. is located about one mile south of I-71, providing direct access to the Cleveland area and points beyond. Maradyne Corporation and DCM Manufacturing, Inc., the only tenant occupying the property, specializes in the manufacturing of exhaust systems. While DBRS was unable to tour the interior of the property, the exterior demonstrated significant signs of deferred maintenance. Surface parking was available in front of the building off W 160th Street. The main parking area had faded striping and featured several potholes and large cracks. Signage was not prominently displayed and DBRS found the subject very difficult to locate within the smaller industrial park. Located directly beside the building was a fenced-off area that contained miscellaneous pieces of manufacturing equipment. At the time of inspection, the property appeared to be very desolate with limited traffic. Overall, the property appeared to be of slightly lower quality than other industrial facilities within the immediate area.
Structured Finance: CMBS 82 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
U.S. INDUSTRIAL PORTFOLIO V – VARIOUS
DBRS NCF SUMMARY
NCF ANALYSIS
Issuer NCF DBRS NCF NCF Variance
GPR $14,291,882 $14,074,858 -1.5%
Recoveries $246,043 $5,336,288 2068.8%
Vacancy -$842,200 -$1,290,638 53.2%
EGI $13,695,724 $18,120,508 32.3%
Expenses $273,914 $5,393,615 1869.1%
NOI $13,421,810 $12,726,893 -5.2%
Capex $358,562 $452,527 26.2%
TI/LC $622,712 $1,069,963 71.8%
NCF $12,440,535 $11,204,404 -9.9%
The DBRS NCF is based on the DBRS North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS NCF was $11,204,404, a -9.9% variance from the Issuer’s NCF figure of $12,440,535. The primary drivers of the variance are vacancy, TI/LCs, management fees and replacement reserves. DBRS applied a blended vacancy of 6.6% compared with the Issuer’s vacancy rate of 5.8%. The blended vacancy rate of 6.6% was derived from the maximum of 5.0% or the market’s vacancy for each respective property. TIs and leasing costs were set to the appraiser’s estimate for each property. DBRS concluded to a 3.0% management fee, a typical approach for industrial properties of this size. Finally, DBRS concluded to $0.15 psf for replacement reserves.
DBRS VIEWPOINT The cross-collateralized portfolio benefits from geographic and tenant diversity as well as its experienced sponsorship team. The portfolio is made up of 30 single-tenant industrial properties located in primarily suburban and tertiary markets across 15 states. The three-largest state concentrations in Ohio, Michigan and Illinois represent 34.6%, 11.5% and 7.5% of the allocated loan amount, respectively. Only one of the portfolio’s 22 tenants, Owens Corning, is considered investment grade, accounting for 7.0% of DBRS base rent; however, with its lease expiring in March 2031, DBRS does not consider the company to qualify for LTCT status.
DBRS expects cash flow to remain stable over the loan term. No leases expire prior to the July 2029 maturity date; however, there is significant lease rollover in the years immediately following maturity. In 2030, leases on 543,228 sf spread across five properties will expire with leases on 850,172 sf spread across six properties expiring in 2031, comprising 38.9% of the portfolio’s NRA. This adds an element of refinance risk as lenders may be wary of roll so soon in a term. One positive factor is that 16 properties are used as their tenants’ corporate or global headquarters, demonstrating a strong sign of long-term tenancy beyond the loan term. Many of the properties benefit from their location near local interstates in well-trafficked areas and each property inspected appeared to be in good physical condition.
DOWNSIDE RISKS –– The loan is IO for the full term, which presents an elevated refinance risk at loan maturity.
STABILIZING FACTORS –– This loan features a 64.4% LTV and the borrower will contribute approximately $69.4 million of cash equity (Sidra Capital contributing 95.0% and BIG contributing 5.0%) to purchase the portfolio, indicating a strong commitment to the performance of the portfolio.
Structured Finance: CMBS 83 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
City Center Plaza Boise, Idaho
Loan Snapshot Seller GSMC Ownership Interest Fee Simple Trust Balance ($ million) $46.9 Loan psf/Unit $121 Percentage of the Pool 3.7% Loan Maturity/ARD July 2029 COLLATERAL SUMMARY Amortization n/a DBRS Property Type Office Year Built/Renovated 1976/2016 Issuance DSCR City, State Boise, ID Physical Occupancy 92.1% 3.05x Gross Building SF 387,371 Physical Occupancy Date June 2019 Issuance LTV 55.2% Balloon LTV The loan is secured by the borrower’s condominium interests in City Center Plaza, a 55.2% 530,345 sf office complex located in downtown Boise, Idaho. Loan proceeds of $46.9 DBRS Property Type million, in addition to $35.5 million of borrower equity, were used to acquire the Office subject property for $82.0 million in June 2019 and pay for closing costs. The ten- DBRS Property Quality year fixed-rate loan is IO for the full term. Average Debt Stack ($ million) The office complex features three buildings and consists of 30 separate condominium Trust Balance units, of which 12 units comprise the loan collateral. The three buildings include $46.9 the U.S. Bank Building, a 20-story office tower that was built in 1976; the nine-story Pari Passu Clearwater Building, which was built in 2016; and the four-story Boise Centre building, $0.0 which was also built in 1976. The U.S. Bank Building is a traditional high-rise office B-Note tower that was constructed in 1976 and renovated in 2016. The renovations included $0.0 a new lobby, an HVAC system, tenant suites and elevators. The Clearwater Building Mezz and Boise Centre, which are connected by a skybridge, were constructed as part of a $0.0 public-private partnership and include a multimodal transit center, part of the Boise Total Debt Convention Centre and areas controlled by Boise State University that are not part of $46.9 the loan collateral. Loan Purpose Acquisition Below is a tenant summary of the top ten tenants by base rent across the 385,359 NRA Equity Contribution/ (Distribution) ($ million) that makes up the collateral. The top ten tenants account for 73.5% of the total rent at $35.9 the properties and occupy 66.5% of the GLA.
Structured Finance: CMBS 84 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
CITY CENTER PLAZA – BOISE, ID
TENANT SUMMARY
Tenant Lease Start Lease Expiry GLA (SF) Total Rent ($) % of Total Rent
Clearwater Analytics 11/2016 10/2026 107,809 $3,019,377 33.60%
US Bank 03/2000 03/2025 34,421 922,366 10.30%
US Ecology 11/2017 07/2025 28,460 612,022 6.80%
PCA 02/2018 08/2025 21,435 487,745 5.40%
Stoel Rives 08/2004 10/2028 25,974 430,811 4.80%
Wells Fargo Advisors 11/2003 4/2024 11,988 280,618 3.10%
Morgan Stanley 09/1983 9/2022 11,352 264,956 2.90%
Andersen Schwartzman 01/2013 06/2020 9,635 237,638 2.60%
CliftonLarsonAllex LLP 06/2019 05/2029 6,835 176,553 2.00%
Macy’s.com (Intel Sublease) 09/2015 07/2020 7,569 172,820 1.90%
Subtotal/Wtd. Avg. Various Various 265,478 6,604,907 73.50%
Remaining Tenants Various Various 91,137 2,381,259 26.50%
Vacant Space n/a n/a 30,756 - 0.00%
Total Various Various 387,371 8,986,165 100.0%
SPONSORSHIP The Sponsor is Seattle-based real estate investment firm LNRED Investments, LLC, an affiliate of Laird Norton Properties. The firm has interests in 14 properties focused in the Seattle; Portland, Oregon; Denver; and Salt Lake City, Utah, MSAs. A third-party management firm, Gardner Company, manages the subject property. Additionally, Gardner Company has known interest in 32 other assets with an estimated property value of $1.0 billion.
Structured Finance: CMBS 85 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
CITY CENTER PLAZA – BOISE, ID
DBRS ANALYSIS SITE INSPECTION SUMMARY DBRS toured the interior and exterior of the property on July 15, 2019, at 10:00 a.m. Based on the site inspection, DBRS found the property to be Average.
The collateral is located in downtown Boise along Main Street and Capitol Boulevard. The property benefits from excellent access, as it is two blocks off Hwy. 20 and has a central location within the CBD. The subject’s immediate vicinity is made up of a mixture of dense mid-rise office development and some retail offerings.
The property consists of three buildings, the 20-story U.S. Bank Building, which is the second-tallest building in the city; the nine-story Clearwater Building; and the four-story Boise Centre building. The buildings are set up triangularly with the U.S. Bank Building facing out toward the corner of Main Street and Capitol Boulevard, the Clearwater building facing out toward Main Street and Boise Centre situated along Main Street. The back of the U.S. Bank Building leads to a corridor that goes between Boise Centre and the Clearwater Building to a large plaza. Both the Boise Centre building and the Clearwater Building have secondary facades that face this plaza as if it were their main entrance. This is where the majority of the retail space is located. The Clearwater Building’s plaza-facing facade includes a large Buffalo Wild Wings, which runs the length of the building’s plaza side. The west side of the building runs along a wide corridor that creates access to the plaza from Main Street. Along this corridor are several more retail offerings, including a Tropical Smoothie Cafe, The Gyro Shack and a Dutch Bros. Coffee shop. Each of the retail offerings was clean; had attractive signage, bright interior colors and modern lighting; and had no signs of deferred maintenance.
The overall look and feel was indicative of their recent lease dates in 2016 and 2017. The Boise Centre building’s retail space is currently vacant, having been tied up in a lease for a large restaurant that turned out to be part of a multi-state fraudulent offering. Property management noted that there has been a lot of interest in the space given its large frontage along the popular plaza area. The remaining space within the Boise Centre building includes ground-level Boise Convention Centre space and parking; the top floor of the building is additional convention space and has access to an elevated covered walkway that connects to a full floor of Boise Convention Centre space in the Clearwater Building.
The Clearwater Building’s exterior alternates horizontal striping of concrete and reflective glass window panes. While the first floor includes the property’s leased retail spaces, the second and third floors are fully leased to Boise State University. The next full floor is the Boise Convention Centre space, which links to the Boise Centre building, and all five remining floors are leased to Clearwater Analytics. The building lobby features a small seating area with bright-green carpeting, gray chairs, modern white tables, a large flat-screen television and an artistic minimalistic lighting fixture. The
Structured Finance: CMBS 86 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
CITY CENTER PLAZA – BOISE, ID remaining lobby space has faux-wood paneling arranged in a chevron design, a few high-top tables along the wall with sleek chairs matching the seating area’s green carpet and a front lobby desk. The elevator bank is a unique area with a mural wall and bright-blue lighted ceiling, creating a dramatic look. The Clearwater Analytics space is extremely attractive and thoughtfully built out. Occupying five full floors, the company has also included amenities for staff, including an interior half-sized basketball court, a large kitchen area with modern lighting and furnishings, several break rooms and a large outdoor patio with sweeping views of the foothills. The office build-out varies by team and area and includes more modern open-concept working areas, areas with half-height cubicles, several large training rooms and an assortment of designated offices with glass walls and breakout rooms for anyone’s use. Overall, the space was very attractive and modern in both layout and design.
The U.S. Bank Building is a bit more dated in its exterior appearance with alternating vertical stripes of brick-color concrete and reflective glass. While aged in appearance, it is similar to other office buildings in downtown Boise. The lobby area was also reflective of its age and featured white-stone flooring and black-stone-covered walls ornate with sea fossils. However, property management did make an effort to bring in some modern touches with a textured wood panel with flat screens affixed to it to display tenant information and the building directory, as well as a large lighting fixture surrounded by light- blue pieces of blown glass. The building’s largest tenant, U.S. Bank National Association (rated AA (high) with a Stable trend by DBRS), had a typical office build-out with a lobby area incased in richly colored wood, a large glass-enclosed conference room, an assortment of cubicles and private offices lining the walls. In general, although the space was clean and clearly highly utilized, it was lackluster in appearance and perhaps the most average of the offerings at the building. There were several newer tenants that built out highly attractive spaces, including Kittelson & Associates (Kittelson), Stoltz and Stoel Rives. Kittelson’s space was very bright, with a white lobby area that had vertical strips of color running from one wall and across the ceiling to the wall behind the lobby desk. The Kittelson office had open-floor-plan seating with glass-encased breakout rooms featuring bright-orange chairs and white tables. The Kittelson space also included an oversized half-circle couch with a back high enough to create a wall to give privacy around a flat-screen television. The kitchen area was large and featured crisp white cabinetry and large tables to encourage employee interaction. The Stoltz space was all open floor plan with a centrally located, fully glass-enclosed conference room. Stoltz’s walls were covered in employee-made graffiti, and the company maximized its views of the foothills by including bar-style seating along a portion of the windows. The Stoel Rives space took a more modern twist with a wood-heavy office build-out. The flooring is made of wood panels of various shades to create a highly attractive design that then continues along to an internal staircase to a second floor. All doors to offices and meeting spaces are full glass, creating an open feel to combat the heaviness of the wood, and there was an abundance of pendant lighting to engender a simple, yet modern, feel. Overall, these three spaces were some of the most recent signatures and highly indicative of the work that property management hopes to continue in order to keep the building “relevant.” Further, during the tour, one tenant expressed a need to sign additional space (the only first-floor vacancy) as a training area and to take over a lease from a soon-to-be-vacating tenant at the end of the year, which echoed property management’s confidence in the building’s and location’s popularity.
Structured Finance: CMBS 87 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
CITY CENTER PLAZA – BOISE, ID
DBRS NCF SUMMARY
NCF ANALYSIS
2017 2018 Issuer NCF DBRS NCF NCF Variance
GPR $6,255,378 $6,449,983 $8,737,968 $8,535,964 -2.3%
Recoveries $1,810,682 $1,847,956 $2,045,704 $2,045,704 0.0%
Other Income $353,374 $430,863 $556,455 $430,863 -22.6%
Vacancy -$103,350 -$463,893 -$840,345 -$1,101,253 31.0%
EGI $8,316,084 $8,264,909 $10,499,782 $9,911,279 -5.6%
Expenses $4,397,411 $4,271,282 $4,582,209 $4,476,329 -2.3%
NOI $3,918,673 $3,993,627 $5,917,574 $5,434,950 -8.2%
Capex $0 $0 $77,474 $77,072 -0.5%
TI/LC $0 $0 $339,829 $984,721 189.8%
NCF $3,918,673 $3,993,627 $5,500,271 $4,373,156 -20.5%
The DBRS Stabilized NCF is based on the DBRS North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS NCF was $4,373,156, a -20.5% variance from the Issuer’s Stabilized NCF. The main drivers of the variance between the DBRS NCF and the Issuer’s NCF are TIs, LCs and vacancy. DBRS concluded TIs of $20.00 for new leases and $10.00 for renewals across all space in the Clearwater Building and Boise Centre and $20.00 for new leases and $5.00 for renewals across all space in the U.S. Bank Building. These assumptions were in line with the appraiser’s market conclusions. Similarly, LCs were concluded to 6.0% for new leases and 4.0% for renewals. Finally, DBRS applied a vacancy rate of 10.0% across the three buildings.
DBRS VIEWPOINT The property benefits from a strong location — for all three buildings — and the excellent, highly desirable views from the U.S. Bank Building, the second-tallest building in downtown Boise. While the building has been performing well historically, it will benefit from an experienced sponsor who is investing substantial 43.2% of the overall purchase price. The properties have also seen strong leasing activity with 293,920 sf of new and renewal leases since 2016. Both the Clearwater Building and the Boise Centre building were completed in 2016 and were 94.6% leased by the end of that same year, showing strong interest and demand from the market. The U.S. Bank Building, which is arguably the most dated, saw 18 new leases totaling 103,111 sf since 2016. The building’s location along the major thoroughfares and grove-plaza- facing retail appear to be significant strengths and advantages that other buildings, including potential new offerings, cannot match. The city hosts many events in the plaza, including weekly concerts, which are very well attended. Overall, the collateral appears to be well positioned within its market.
DOWNSIDE RISKS –– Of the NRA, 58.4% rolls in 2025 and 2026, which includes Clearwater Analytics, the largest tenant across all properties. –– The collateral is located in a secondary market that is not constrained in terms of new development.
STABILIZING FACTORS –– The property serves as Clearwater Analytics’ headquarters. Additionally, the loan is structured with a cash flow sweep six months in advance of Clearwater Analytics’ lease expiration, which results in $2.04 million being swept. –– Boise has seen moderate growth in population year over year, most recently increasing 3.8% in 2017. Additionally, Boise was ranked number one in Forbes’s America’s Fastest-Growing Cities survey. Further, the Clearwater Building and Boise Centre building initially had substantial leasing momentum, achieving 94.6% occupancy the same year they delivered to the market.
Structured Finance: CMBS 88 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
505 Fulton Street Brooklyn, NY
Loan Snapshot Seller CREFI Ownership Interest Fee Simple Trust Balance ($ million) $45.0 Loan psf/Unit $744 Percentage of the Pool 3.5% Loan Maturity/ARD July 2029 COLLATERAL SUMMARY Amortization n/a DBRS Property Type Retail Year Built/Renovated 1890/2013 Issuance DSCR City, State Brooklyn, NY Physical Occupancy 100.0% 2.67x SF 114,209 Physical Occupancy Date July 2019 Issuance LTV 48.6% Balloon LTV The loan is secured by the borrower’s fee interest in 505 Fulton, a 114,209-sf Class A 48.6% retail property located in downtown Brooklyn. Originally constructed in 1890 and last DBRS Property Type renovated in 2013, the collateral consists of a three-story retail condominium that was Retail 100.0% occupied by four tenants per the July 2019 rent roll. As of loan closing, the DBRS Property Quality property did not feature a singular unique anchor tenant, but instead comprised several Average + large national retailers, including Nordstrom Rack, H&M, Old Navy and TJ Maxx. Loan Debt Stack ($ million) proceeds of $85.0 million refinanced approximately $64.9 million of existing debt and Trust Balance returned roughly $18.1 million in cash equity to the borrower. The ten-year, fixed-rate $45.0 loan is full-term IO and represents an issuance LTV of 48.6% based on the June 2019 Pari Passu appraised value of $175.0 million. $40.0 B-Note The property was originally constructed in 1893 and has been landmarked since $0.0 2005. The borrower acquired the property in two phases between 1984 and 2006 for Mezz a combined purchase price of $80.5 million. Prior to 2011, the property’s bottom floors $0.0 were designated for retail while upper floors were primarily occupied by office tenants. Total Debt In 2011, the borrower invested $42.7 million ($372.87 psf ) to renovate the commercial $85.0 portion of the building and reposition it as mixed use with retail occupying the lower, Loan Purpose mezzanine and ground floors and luxury loft apartments occupying the top five floors. Refinance Retail and multifamily renovations were completed in 2013 and 2017, respectively. The Equity Contribution/ (Distribution) ($ million) most recent renovations allowed the property to qualify for a 25-year Industrial & ($18.1) Commercial Incentive Program, a tax abatement program from which the property will benefit through loan maturity. The multifamily portion of the building is not included in the loan collateral, but is owned by the borrower. The retail collateral portion has an ownership interest in approximately 46.0% of the common areas. Additionally, the collateral has been 100% occupied since 2015, but will experience significant rollover
Structured Finance: CMBS 89 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
505 FULTON STREET – BROOKLYN, NY throughout the loan term as all leases expire before loan maturity; however, three tenants have renewal options that extend beyond maturity.
TENANT SUMMARY
% of DBRS UW Base % of Total DBRS UW Lease Tenant SF Total NRA Rent PSF Base Rent Expiry
H&M 29,600 25.9% $107.58 32.7% 01/2029
Old Navy 22,477 19.7% $140.71 32.5% 06/2025
Nordstrom Rack 40,523 35.5% $59.49 24.7% 04/2024
TJ Maxx 21,609 18.9% $44.88 10.1% 04/2024
Total/Wtd. Avg. 114,209 100.0% $85.07 100.0% Various
The collateral’s largest tenant as a proportion of total NRA is Nordstrom Rack, a discount store of parent company, Nordstrom Inc. Nordstrom Rack occupies 35.4% of the property’s total NRA and accounts for 24.7% of the total DBRS base rent. Nordstrom Inc. operates 363 stores across the United States and Canada, 235 of which are discount Nordstrom Rack stores. The collateral’s largest tenant as a proportion of total DBRS base rent is H&M, which accounts for approximately 32.7% of the collateral’s total DBRS base rent. H&M is a leading fast-fashion retailer with more than 5,000 stores globally. Old Navy has been at the property since 2015 and accounts for about 32.5% of the collateral’s total NRA. Old Navy’s parent company, Gap Inc., owns approximately 3,200 retail stores globally under leading brand names, such as Banana Republic, Gap, Athleta and Old Navy. The final tenant is TJ Maxx, an off-price retailer under parent company, the TJX Companies, Inc. (TJX), which accounts for 10.1% of gross rent. TJX operates more than 4,300 stores globally. TJ Maxx is one of a select number of large retailers that has continued to open stores in the wake of e-commerce’s shock to traditional brick-and- mortar retailers with 11 new stores opened in Q1 2019 alone. TJ Maxx and Nordstrom Rack share a common lobby space while H&M and Old Navy have separate entrances. The collateral exhibits concentrated lease rollover risk in 2024 and 2025 when three leases, representing 74.2% of total NRA and 67.3% of the total DBRS gross rent, are currently scheduled to roll; however, the property’s location within the Fulton Mall outdoor shopping complex on Fulton Street in downtown Brooklyn is conducive to ongoing retail business operations with excellent exposure to local foot traffic. Fulton Mall is anchored by Macy’s and features more than 150 retailers in total.
SPONSORSHIP The sponsors and carveout guarantors for this transaction are Albert, Jason and Jody Laboz of United American Land, LLC (UAL). Based in New York City, UAL is a family-owned company focused on real estate investment, development and management throughout the greater New York City area. The company owns and operates properties in Brooklyn, Manhattan and Queens. UAL’s high-profile projects in the area include Union Square’s Decker Building, the Arnold Constable Building and the Soho Mews residential condominium development. The sponsors reported a combined net worth and liquidity of $366.5 million and $25.5 million, respectively, as of June 2018. No adverse credit issues were reported by the sponsors. The property is self-managed by the borrower for an unknown rate.
Structured Finance: CMBS 90 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
505 FULTON STREET – BROOKLYN, NY
DBRS ANALYSIS SITE INSPECTION SUMMARY DBRS toured the interior and exterior of the property on Tuesday, July 16, 2019, at approximately 1:00 p.m. Based on the site inspection, DBRS found the property quality to be Average +.
The collateral is situated in a dense urban area in Brooklyn and comprises the retail condominium of a larger mixed-use building that also includes residential space. The property is located on the corner of Fulton Street and Bridge Street with excellent access to mass transit options, including bus lines and numerous subway lines: the 2 and 3 trains at Hoyt Street station across the street; the A, C, F and R trains at the Jay Street-Metrotech station; the B and Q trains at Dekalb Avenue; and the 4 and 5 trains at Nevins Street.
The collateral is a part of the broader Fulton Mall area, which offers a number of national and regional retailers, such as Macy’s, Modell’s Sporting Goods, Express, Swarovski, Steve Madden, Century 21 and Rainbow Shops. The property borders a community outdoor seating area established in 1976 by the Fulton Mall Improvement Association. The surrounding area includes a large education presence comprising several high school and college campuses. A strong residential development pipeline of glass-facade high rises is visible in all directions surrounding the property.
The entrance to the property is highly visible from the street with separate entryways for each of the four tenants and signage facing Fulton Street. Nordstrom Rack and TJ Maxx share a lobby with two sets of escalators and a set of elevators providing access to the basement and second floors. The second-floor space and ground-floor entryways have floor-to- ceiling windows, which give the shared lobby and tenant spaces in these areas a bright and airy feeling.
H&M occupies the collateral’s ground-floor retail space at the corner of Bridge Street and Fulton Street and also has basement space. The other three retail tenants lease mid-block space on Fulton Street. Old Navy has both a ground-floor presence as well as mezzanine space. DBRS visited the four tenant spaces during peak retail hours and noted strong foot traffic. According to the H&M staff, the heaviest foot traffic generally occurs on weekday afternoons and on Saturdays while Sundays and rainy days tend to be slower. The staff also noted that local residents tend to drive sales and the store experiences additional foot traffic seasonally from students attending nearby schools. Moreover, shoppers tend to visit the overall Fulton Mall and migrate into H&M from competitors, such as the adjacent TJ Maxx within the collateral and nearby Target. DBRS observed several closed-off sections on the northern wall of Nordstrom Rack in the back of the tenant’s space. A store employee indicated that the area was under construction for roof repairs. The Nordstrom Rack space appeared to be well taken care of overall with ample merchandise arranged in attractive displays. Overall, the property benefits from an excellent location in downtown Brooklyn and appears to be well maintained.
Structured Finance: CMBS 91 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
505 FULTON STREET – BROOKLYN, NY
DBRS NCF SUMMARY
NCF ANALYSIS
2016 2017 2018 T-12 May 2019 Issuer NCF DBRS NCF NCF Variance
GPR $8,250,000 $8,345,245 $8,185,283 $7,475,799 $9,190,528 $8,912,750 -3.0%
Recoveries $701,691 $713,737 $807,699 $806,637 $836,982 $828,641 -1.0%
Other Income $629,147 $629,147 $576,718 $0 $0 $0 0.0%
Vacancy $0 $0 $0 $0 -$421,320 -$487,070 15.6%
EGI $9,580,838 $9,688,129 $9,569,700 $8,282,436 $9,606,189 $9,254,321 -3.7%
Expenses $743,840 $883,675 $832,107 $825,128 $1,161,763 $1,197,171 3.0%
NOI $8,836,998 $8,804,454 $8,737,593 $7,457,308 $8,444,426 $8,057,151 -4.6%
Capex $0 $0 $0 $0 $17,131 $22,903 33.7%
TI/LC $0 $0 $0 $0 $293,224 $405,645 38.3%
NCF $8,836,998 $8,804,454 $8,737,593 $7,457,308 $8,134,071 $7,628,602 -6.2%
The DBRS NCF is based on the DBRS North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS NCF was $7,628,602, representing a variance of -5.8% from the Issuer’s NCF of $8,134,071. The primary drivers of the variance included rent steps and leasing cost assumptions. DBRS accepted rent steps through February 2020, resulting in total rent steps of $242,250 compared with the Issuer’s estimated rent-step income of $523,028. DBRS estimated leasing cost assumptions based on a mix of actual allowances provided at the property and appraiser’s estimates, equating to a blended leasing cost expense of $3.54 psf. Comparatively, the Issuer estimated total leasing costs of $2.57 psf.
DBRS VIEWPOINT The property has elevated rollover risk as leases representing 100.0% of the total NRA are scheduled to expire within the loan term. The collateral’s lease rollover risk is most heavily concentrated between 2024 and 2025 when three leases, representing 74.2% of total NRA and 67.3% of the total DBRS gross rent, are currently scheduled to roll. In aggregate, sales at the property have declined by 19.6% since 2015, primarily driven by a 27.2% decrease in H&M’s sales over the same time period. From 2017 to 2018, all tenants excluding H&M experienced modest sales growth, which generally ranged from 2.4% to 3.9%, while H&M’s sales have continued to decrease. Currently, 74.0% of the collateral’s total NRA is leased to investment-grade tenants with renewal options that would allow them to extend their lease terms beyond loan maturity. The appraiser estimated a 65.0% probability for each investment-grade rated tenant. While aggregate sales have been declining, the property benefits from a strong location in downtown Brooklyn’s Fulton Mall, which is occupied by over 150 retailers and is proximate to a heavy residential presence as well as a variety of public transportation options. The sponsor is also currently chairman of the Fulton Mall Improvement Association and has a strong presence in the market with ownership and/or management interests in over 70 properties throughout Manhattan, Brooklyn and Queens. Per Costar, the downtown Brooklyn retail submarket has a vacancy rate of 4.0% and 2.4 million sf of retail space is expected to be delivered in Brooklyn over the short term; however, the property’s premier location should provide moderate insulation to the collateral from the forecasted influx of new supply expected throughout the downtown Brooklyn retail submarket. The loan is structured with a cash-flow sweep that will be triggered 12 months before H&M, Old Navy and Nordstrom Rack’s respective lease expiration dates.
DOWNSIDE RISKS –– The loan is full-term IO and returns approximately $18.2 million of cash to the borrower.
STABILIZING FACTORS –– Based on the June 2019 appraised value of $175.0 million, the loan represents moderately low leverage with an LTV of 48.6%.
Structured Finance: CMBS 92 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
505 FULTON STREET – BROOKLYN, NY
–– Sponsorship has owned portions of the property since 1984 and invested approximately $42.7 million ($372.87 psf ) in the commercial component of the property in 2013, further demonstrating its ongoing commitment to the property.
Structured Finance: CMBS 93 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
Wind Creek Casino & Resort Bethlehem Bethlehem, Pennsylvania Loan Snapshot Seller GACC Ownership Interest Fee Simple Trust Balance ($ million) $45.0 Loan psf/Unit #VALUE! Percentage of the Pool 3.5% Loan Maturity/ARD August 2029 Amortization 35 years Issuance DSCR COLLATERAL SUMMARY 1.27x DBRS Property Type Leased Fee Year Built/Renovated n/a1 Issuance LTV City, State Bethlehem, PA Physical Occupancy n/a1 85.0% Balloon LTV Units/SF n/a1 Physical Occupancy Date n/a1 72.8% 1. Collateral for the loan consists of the land under the improvements. DBRS Property Type Leased Fee This loan is secured by the borrower’s leased fee interest in the 56.2-acre parcel of DBRS Property Quality land underlying the Wind Creek Casino and Resort Bethlehem, a gaming hotel, retail Average + and dining destination in Bethlehem, Pennsylvania. The resort consists of 146,000 sf of Debt Stack ($ million) gaming space that features 190 table games and 3,260 slot machines, a hotel tower with Trust Balance 282 rooms, a 150,000-sf retail facility, an arts and cultural center and a 14,000-sf multi- $45.0 purpose event center. The resort comprises two condominium units, the hotel unit Pari Passu and the retail unit. Loan proceeds of $146.6 million were used to return $142.7 million $101.6 of cash efquity to the sponsor, cover closing costs totaling $2.5 million and fund an B-Note upfront debt service reserve of $1.4 million. At closing, the Issuer collected two months $0.0 of debt service payments to be released for the first debt service payments of the loan. Mezz $0.0 The fixed-rate loan has a ten-year term and amortizes on a 35-year schedule. The Total Debt $146.6 million whole mortgage loan consists of 3 separate notes. The controlling note, $146.6 totaling $45.0 million, will be contributed to the CGCMT 2019-GC41 transaction. The Loan Purpose remaining notes will be contributed to one or more future securitizations. Recapitalization Equity Contribution/ Originally developed by Las Vegas Sands Corporation (Las Vegas Sands), the resort (Distribution) ($ million) is currently branded as The Sands Casino and Resort Bethlehem. On May 31, 2019, $0.0 the leasehold interest in the development was sold by Las Vegas Sands to PCI Gaming Authority, Inc., an unincorporated, chartered instrumentality of Wind Creek Hospitality, for a total enterprise value of $1.3 billion. Over the next 90 days, the improvements will undergo a rebranding to the Wind Creek Casino and Resort Bethlehem. The sponsors retained the fee ownership of the subject property through
Structured Finance: CMBS 94 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
WIND CREEK CASINO & RESORT BETHLEHEM – PA a 40-year ground-lease agreement, including eight 25-year extension options with Wind Creek Hospitality. Wind Creek Hospitality, the principal gaming and hospitality entity for the Poarch Band of Creek Indians, has a portfolio of nine properties throughout the United States and the Caribbean.
The lender structured the loan waiving upfront reserves such as for TIs, LCs, deferred maintenance and capex, real property taxes and insurance as the ground lease is structured with a sweep lease with triggers for tenant early termination, cessation of operation, default or bankruptcy as well as a minimum DSCR of 1.05x. Under the new ground lease, Wind Creek Hospitality is responsible for all expenses, including taxes and insurance. The fully extended maturity date of the ground lease is 2259, which includes a 40-year initial term and eight 25-year extension options. The ground rent is $9.5 million annually with contractual CPI increases of up to 2.0% annually. The ground lease is subject to a one-time cap in base rent, either to 3.0% of prior-year tenant gaming proceeds, if not precipitated by tenant capital improvement, or at 90.0% of base rent if tenant gaming proceeds fall below $475.4 million for a trailing four-quarter period, if not precipitated by tenant capital improvement, and additional gaming facilities are introduced to the region. In any one of these events, the ground rent cannot be less than $8.5 million. Additionally, in the event of a casualty where the cost of restoration exceeds $15.0 million, the tenant has the right to terminate the ground lease instead of proceeding with the restoration. In such event, all casualty proceeds received would be applied first to the landlord until the landlord receives $80.0 million, then to the tenant until the tenant receives $920.0 million, and thereafter would be divided 8.0% to the landlord and 92.0% to the tenant.
The improvements are located off Daly Avenue along the Lehigh River on a former brownfield site which Las Vegas Sands remediated with the site-specific environmental standard. The previous operator purchased the historic Bethlehem Steel Works in 2007 and began casino operations in 2009. After legalization of table gaming, which occurred in 2010, the casino expanded its offerings. The gaming space was completed in 2009 and the hotel and retail outlets center were completed in 2011. The hotel component has achieved stable, near-full hotel occupancy over the past few years and reported occupancy of 93.8% as of the T-12 ending March 31, 2019; however, the property generates the majority of its total revenue from gaming, followed by F&B. Hotel and retail revenues are relatively minor components of revenue, representing 3.0% and 0.7% of total revenue, respectively, as of the T-12 ending March 31, 2019, period according to the appraisal. Wind Creek Hospitality plans to increase the resort’s lodging accommodations by adding another 300-key hotel and potentially building an indoor waterpark at the site, targeting an investment of approximately $190.0 million.
Structured Finance: CMBS 95 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
WIND CREEK CASINO & RESORT BETHLEHEM – PA
WIND CREEK CASINO AND RESORT BETHLEHEM HISTORICAL OPERATING PERFORMANCE
March % % % % ($000) 2019 TTM Revenue 2018 Revenue 2017 Revenue 2016 Revenue
Number of Rooms 282 282 282 282
Occupied Rooms 96,560 95,519 95,972 97,269
Days Open 365 365 365 365
Occupancy 93.8% 92.8% 93.2% 94.5%
Average Rate $165.70 $163.00 $161.00 $160.00
RevPAR $155.45 $151.26 $150.12 $151.20
Revenue Gaming (Net of Rebates) 470,000 87.2% 468,000 87.3% 493,000 87.4% 484,000 87.2%
Rooms 16,000 3.0% 16,000 3.0% 16,000 2.8% 15,000 2.7%
Food & Beverage 49,000 9.1% 48,000 9.0% 51,000 9.0% 52,000 9.4%
Retail 4,000 0.7% 4,000 0.7% 4,000 0.7% 4,000 0.7%
Total Revenue 539,000 100.0% 536,000 100.0% 564,000 100.0% 555,000 100.0%
Expenses 419,000 77.7% 420,000 78.4% 417,000 73.9% 412,000 74.2%
EBITDA 120,000 22.3% 116,000 21.6% 147,000 26.1% 143,000 25.8%
Source: Appraisal.
The property derives gaming demand largely from local patrons within a 25-mile radius or 60-minute drive, according to the appraisal. Additionally, Wind Creek Casino benefits from the Allentown-Bethlehem-Easton, PA-NJ MSA’s thriving tourism industry. Pennsylvania is the second-largest commercial casino industry in the United States after Nevada. The appraiser indicates that gaming revenue is seasonal and reflects supply and demand of gaming units, measured on a per-unit basis, or “win per unit per day” (WPUPD). According to the Pennsylvania Gaming Control Board, Wind Creek Casino had $226.0 million in table-game revenue in 2018–2019, ranking fifth in its competitive set. For combined slots and table games, Wind Creek Casino ranked third among its competitive set in WPUPD as of March 2019. While Wind Creek Casino’s total WPUPD dipped by 6.1% in 2018 from 2017, its ranking has been fairly stable historically, ranking second within the competitive set from 2015 through 2017 along with positive WPUPD growth. The competitive set WPUPD average growth rate from 2015 and 2018 is 1.4%. Competitor, Parx Casino, has risen in the WPUPD ranking over the past few years, growing by 9.5% WPUPD in 2018 from 2017 while WPUPD for Hollywood Casino at Penn National Race Course grew by 8.3% over the same period. As of March 2019, Wind Creek Casino maintained 25.0% of the competitive set’s tables – the largest portion in the set – followed by Parx Casino at 20%. Parx Casino slightly exceeds Wind Creek Casino in slots.
Structured Finance: CMBS 96 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
WIND CREEK CASINO & RESORT BETHLEHEM – PA
COMPETITIVE SET March 2019 March 2019 March 2018 March 2018 2018 2018 Slots + % of Comp Set Slots + % of Comp Set Slots + % of Comp Set Property Table in # of: Table in # of: Table in # of: Games Games Games WPUPD ($) Slots Tables WPUPD ($) Slots Tables WPUPD ($) Slots Tables Parx Casino 504 18.6 19.8 470 18.6 19.8 472 18.8 19.3 SugarHouse Casino 469 10.1 14.5 446 10.1 14.5 427 10.2 14.3 Valley Forge Casino Resort 438 4.9 4.5 554 4.9 4.5 529 3.5 5.0 Hollywood Casino at Penn National 328 11.5 7.5 285 11.5 7.5 300 12.2 7.5 Race Course Harrah's Philadelphia 309 13.1 11.8 294 13.1 11.8 279 14.0 11.8 Mohegan Sun at Pocono Downs 260 13.4 8.7 280 13.4 8.7 265 13.3 8.9 Mount Airy Resort & Casino 247 10.8 8.1 243 10.8 8.1 264 10.7 8.1 Total/Wtd. Avg. Comp. Set 382 100.0 100.0 371 100.0 100.0 367 100.0 100.0 Wind Creek Casino - Subject 449 17.6 25.2 451 16.8 25.0 434 17.3 25.1
2017 2017 2016 2016 2015 2015 Slots + % of Comp Set Slots + % of Comp Set Slots + % of Comp Set Property Table in # of: Table in # of: Table in # of: Games Games Games WPUPD ($) Slots Tables WPUPD ($) Slots Tables WPUPD ($) Slots Tables Parx Casino 431 19.2 18.5 416 18.9 18.8 418 18.3 18.8 SugarHouse Casino 416 10.2 14.3 404 10.3 13.9 436 9.0 9.8 Valley Forge Casino Resort 495 3.4 5.1 484 3.3 5.4 476 3.4 5.8 Hollywood Casino at Penn National 277 13.1 7.7 272 13.1 7.6 277 13.4 8 Race Course Harrah's Philadelphia 281 13.7 12.0 262 15.0 11.6 269 15.6 13.5 Mohegan Sun at Pocono Downs 279 13.1 9.4 297 12.7 9.8 300 13.0 10.6 Mount Airy Resort & Casino 279 10.5 8.3 259 10.2 8.8 262 10.4 9.3 Total/Wtd. Avg. Comp. Set 361 100.0 100.0 351 100.0 100.0 352 100.0 100.0 Wind Creek Casino - Subject 462 16.8 24.7 453 16.5 24 437 16.8 24.1 Source: Appraisal.
New regional supply, Resorts World Catskills and the reopening of two casino-hotels in Atlantic City have also put pressure on Wind Creek Casino’s revenue. The Live! Hotel and Casino in Philadelphia and satellite casinos throughout Pennsylvania will further add pressure, according to the appraisal. New York gaming legislation is also likely to be a factor, particularly if plans to open a casino in New York City materialize.
SPONSORSHIP The sponsors and non-recourse, carveout guarantors of the loan consist of five individuals spanning a breadth and depth of experience and reputation in commercial real estate and litigation. Three of the five – Jeffrey Gural, James Kuhn and Barry Gosin – currently hold leadership roles at Newmark Knight Frank, a leading commercial real estate advisory firm. Michael Perrucci owns real estate development company, Peron Construction Inc., while Richard Fischbein is a Partner at Olshan Frome Wolosky and is experienced in complex commercial disputes. The sponsors have a combined net worth of $1.3 billion and total liquidity of $44.2 million. Furthermore, the sponsorship group has experience owning and operating their own gaming and hospitality properties as Mr. Gural’s portfolio also includes Tioga Downs Casino Resort in Nichols, New York, and Meadowlands Racing and Entertainment in East Rutherford, New Jersey. The borrower, Ground Landlord LLC, has a non-consolidation opinion in place.
Structured Finance: CMBS 97 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
WIND CREEK CASINO & RESORT BETHLEHEM – PA
DBRS ANALYSIS SITE INSPECTION SUMMARY DBRS toured the interior and exterior of the property on July 16, 2019, at approximately 12:30 p.m. Based on the site inspection and management meeting, DBRS found the property quality to be Average (+).
The subject property is located in south Bethlehem, one of the largest cities in the Lehigh Valley region of Pennsylvania. Specifically, the collateral sits along Sands Boulevard, a small arterial that serves as the main entrance to the casino and resort, directly south of the Lehigh River and about two miles north of I-78. Primary regional access through the Lehigh Valley MSA is provided by I-78, which also connects the local area to New York City to the east. The neighborhood surrounding the property displayed a mix of residential, office, retail and industrial properties as well as other entertainment venues, such as the SteelStacks Arts and Cultural Campus. Lehigh University is another major development in the vicinity, occupying a sizable parcel of land approximately one mile southwest of the subject. The improvements (non-collateral), particularly the 15-story hotel tower, have excellent visibility with signage displayed on the buildings and throughout the premises, directing guests to the various facilities on site. Given that the buildings were completed in 2009 and 2011, DBRS observed the exteriors to be in very good condition and featured attractive stucco and concrete brick masonry with dark-grey aluminum siding and exposed metal support beams, which gave the improvements a modern industrial feel.
Upon arriving at the site, the sheer size of the development becomes quite apparent and can be somewhat confusing at first since there are various main entrances. Fortunately, signage is prevalent throughout and makes it relatively easy to navigate. Although the buildings are interconnected, they are “split” in half by the Minsi Trail Bridge, which runs right above the outlets and casino buildings. The hotel, retail outlets and event center are located on the western side of the development while the casino, several F&B facilities and parking garage are on the eastern side. This was likely done by design for guests to have several access points into the casino floor, which sits in the middle of the entire development and was by far the busiest section at the time of DBRS’s inspection. According to the resort’s marketing manager, the casino registers nine million guest entries per year, on average, which includes repeat clients. The large, column-less casino floor was nicely laid out with attractive finishes, including ornate lighting, well-maintained furniture and modern fixtures. Slots and stadium gaming are located in the middle of the casino while table gaming and several full-service restaurants are found along the perimeter, offering convenient access to guests. According to the marketing manager, the casino has commenced its Wind Creek rebranding, but does not expect any major disruptions to gaming operations as most of the rebranding will be cosmetic in nature. Approximately 200 to 300 slot machines (depending on demand) are taken down per week so that management can install new Wind Creek operating systems. Reportedly, the casino will not be operational for about 16 hours near the end of the rebranding to destroy the existing Las Vegas Sands chips and replace them with new Wind Creek chips in accordance with the Pennsylvania Gaming Control Board regulations.
Structured Finance: CMBS 98 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
WIND CREEK CASINO & RESORT BETHLEHEM – PA
Once inside the casino, guests can access the hotel, outlet stores and event center without stepping outside, which is particularly useful during the winter months. DBRS had the opportunity to inspect both the outlet center and the hotel, but did not tour the event center as it had be used the night before. The Outlets at Wind Creek resembled a traditional outlet mall, although smaller, and featured two floors of mostly national retailers, including Guess Factory, Famous Footwear and Michael Kors, among others. The retail center was not particularly busy at the time of inspection on a weekday afternoon; however, the marketing manager explained that stores are usually busy on weekends. DBRS inspected several areas of the hotel, including two guest rooms, the lobby, the fitness center and the swimming pool, and found the improvements to be in very good condition with no deferred maintenance noted. Most guest rooms are complimentary and it is not uncommon for the hotel to sell out completely during peak gaming days and for large events and concerts. The hotel is also undergoing its Wind Creek rebranding and the lobby was receiving some renovations. Guest rooms will be receiving cosmetic updates as well as replacement of soft goods. According to the hotel manager, an entire guest-room floor is taken offline at a time for about one week to complete this rebranding by late August or early September.
DBRS NCF SUMMARY
NCF ANALYSIS
Budget Issuer NCF DBRS NCF NCF Variance
GPR $9,500,000 $10,402,235 $10,402,235 0.0%
EGI $9,500,000 $10,402,235 $10,402,235 0.0%
Expenses $0 $0 $104,022 100.0%
NOI $9,500,000 $10,402,235 $10,298,213 -1.0%
NCF $9,500,000 $10,402,235 $10,298,213 -1.0%
The DBRS NCF is based on the DBRS North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS NCF was $10,298,213, a -1.0% variance from the Issuer’s NCF. The main driver of the variance is an expense assumption. DBRS assumed a 1.0% management fee while the Issuer did not assume any expenses. Similar to the Issuer’s approach, DBRS’s base-rent figure was derived by straight lining the ground rent over the loan term, assuming annual contractual rent steps of 2.0%.
DBRS VIEWPOINT The loan benefits from a very stable cash-flow stream from the ground-rent payments that will be serviced by cash flow from a mixed-use development that includes a casino, a hotel, an outlet retail center and a multi-purpose event facility with fixed 2.0% annual increases through loan maturity. Located in the Lehigh Valley region of Pennsylvania, approximately 60 miles northwest of Philadelphia, construction of the improvements began in 2007 with completion of the casino in 2009, followed by the hotel and outlets in 2011. The casino and resort were developed and operated by Las Vegas Sands, one of the largest casino companies in the world. On May 31, 2019, Las Vegas Sands sold the leasehold interest to Wind Creek Hospitality for a total enterprise value of $1.3 billion. The sponsors retained the fee ownership of the subject property through a 40-year ground lease agreement, including eight 25-year extension options with Wind Creek Hospitality. The DBRS Stabilized NCF on the leasehold improvements is approximately 13.0x the year-ten ground-rent payment. Such cash-flow coverage makes default on the ground-rent payment extremely unlikely. While the debt yield on the whole loan based on the current ground-rent payment is low at 6.5%, the interest rate on the mortgage is also low at 4.4%, allowing for significant excess cash flow. Although a ground-lease default could result in a special servicing transfer and losses could be incurred from special servicing fees, DBRS considers this to be a very remote event as there are currently millions of dollars in leasehold equity. The whole-loan balance of $146.6 million represents an 87.1% discount to the appraiser’s as-is market value of $1.14 billion for the fee-simple interest in the property, providing significant leasehold value cushion.
Structured Finance: CMBS 99 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
WIND CREEK CASINO & RESORT BETHLEHEM – PA
DOWNSIDE RISKS –– The loan represents high-leverage financing with an Issuance LTV of 85.0%. –– The sponsorship group will receive a cash equity distribution of $142.7 million at loan closing. –– There is potential for rent step-downs under two scenarios, including (1) whenever base rent exceeds 3.0% of tenant gaming proceeds for the prior year or (2) whenever a competitive gaming period exists, which is defined as a period where tenant gaming proceeds decrease below $475.4 million for a trailing four-quarter period as a result of new competing gaming facilities introduced to the region.
STABILIZING FACTORS ––Based on the extremely stable ground-rent payment, the DBRS DSCR is high at 1.26x. The loan amortizes on a 35-year schedule with no IO period, resulting in a lower Balloon LTV of 72.8%. Furthermore, using the appraiser’s concluded $1.14 billion value for the fee-simple interest, the look-through LTV is 12.9%. ––The borrower is owned and controlled by five experienced real estate professionals, three of which hold leadership roles at Newmark Knight Frank. The sponsorship group has substantial financial wherewithal with a combined net worth of $1.3 billion and liquidity of $44.2 million. One of the sponsors has experience owning and operating gaming and hospitality properties, including Tioga Downs Casino Resort in Nichols and Meadowlands Racing and Entertainment in East Rutherford. –– In any event that a rent step-down is triggered, a ground-rent floor is set at $8.5 million to achieve a DSCR of 1.04x. More importantly, the current $9.5 million ground rent represents only 1.8% of the $523.7 million in tenant gaming proceeds as of the T-12 period ending May 31, 2019. Ground rent would increase to $10.4 million by loan maturity, assuming annual contractual rent escalations of 2.0%, which represents 2.0% of T-12 tenant gaming proceeds.
Structured Finance: CMBS 100 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
Transaction Structural Features
Credit Risk Retention: The risk retention interest (RR Interest) represents the Eligible Vertical Interest needed to meet the risk retention requirements of Section 15G of the Securities Exchange Act. Citi Real Estate Funding Inc. (Citi) is acting as the retaining sponsor, known as the risk retention consultation party, under the credit risk retention rules. Citi will be permitted to offset the amount of its required risk retention by the portions of the RR Interest acquired by Goldman Sachs Mortgage Company and Deutsche Bank AG, New York Branch, 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 Holder 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 Holder Rights section), if the operating advisor determines 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 0.00103% per annum. 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 a 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 be 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 30 days of an appraisal-reduction event. The time frame for an appraisal to be used for appraisal-reduction purposes is no less than nine months.
Pari Passu Loan Combination: USAA Office Portfolio, Millennium Park Plaza, 505 Fulton Street, Powered Shell Portfolio – Ashburn, Powered Shell Portfolio – Manassas and U.S. Industrial Portfolio V will be serviced pursuant to the PSA for this transaction. The 30 Hudson Yards whole-loan combination will be serviced according to the TSA for the HY 2019-30HY single-borrower transaction that was rated by DBRS. The Moffett Towers II Buildings 3 & 4 whole-loan combination will be serviced according to the TSA for the MFTII 2019-B3B4 single-borrower transaction that was rated by DBRS. The Grand Canal Shoppes whole-loan combination will be serviced according to the PSA for the MSC 2019- H7 transaction. The CIRE Equity Retail & Industrial Portfolio, The Centre and The Zappettini Portfolio whole-loan combination will be serviced according to the PSA for the Benchmark 2019-B12 transaction. The Wind Creek Casino and Resort Bethlehem and Pharr Town Center whole-loan combinations will initially be serviced according to the PSA for this transaction until such time as each loan’s controlling note is securitized, at which point servicing will then be according to their respective transaction’s PSA.
Directing Certificateholder/Controlling Class Rights: The transaction’s most subordinate bonds are controlled by the most subordinate bondholders. The directing holder will be the controlling-class certificateholder selected by more than 50.0% of the voting rights for the controlling class. The controlling class is the most subordinate of the Class G-RR and Class J-RR certificates (the Control Eligible Certificates) outstanding with a principal amount (net of appraisal- reduction amounts) that is at least 25.0% of the initial certificate amount of such class. So long as at least the Class G-RR and Class J-RR certificates has a principal amount (net of appraisal-reduction amounts) that is at least 25.0% of the
Structured Finance: CMBS 101 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019 initial certificate amount of the respective certificates, the directing holder may terminate the special servicer without cause. A control termination event exists when no class 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. A consultation termination event will occur when no class of Control Eligible Certificates has an outstanding principal balance that is at least 25.0% of its initial principal balance (ignoring any appraisal-reduction amounts). 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 Special Servicer Loan: If the special servicer becomes a borrower party with respect to any mortgage loan, it will be required to resign. The directing holder (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 or workout fee is 1.0%, subject to a cap of $1.0 million and further subject to a minimum of $25,000 in the aggregate, less any fees collected by the special servicer in connection with a workout. The special servicer fee is 0.25% per year, subject to a minimum of $5,000 for the month. The special servicer for each non-serviced loan combination will accrue a comparable special servicing fee, with respect to each non-serviced loan combination, pursuant to their respective PSAs. With respect to the 30 Hudson Yards and the Moffett Towers II Buildings 3 & 4 mortgage loans, the liquidation and special servicer fees are lower at 0.25% and 0.125%, respectively, of each applicable payment previously mentioned. With respect to The Zappettini Portfolio, CIRE Equity Retail & Industrial Portfolio and The Centre mortgage loans, the special servicer fees are also lower at 0.125%.
Disclosable Special Servicing Fees: During 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: If the special servicer becomes a borrower party with respect to any mortgage loan, it will be required to resign. The directing holder (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.
Structured Finance: CMBS 102 PRESALE REPORT — CGCMT 2019-GC41 JULY 2019
Methodologies
The following are the methodologies DBRS applied to assign ratings to this transaction. These methodologies can be found on www.dbrs.com under the heading Methodologies & Criteria. Alternatively, please contact [email protected] or contact the primary analysts whose information is listed in this report. –– North American CMBS Multi-borrower Rating Methodology –– DBRS North American Commercial Real Estate Property Analysis Criteria –– Rating North American CMBS Interest-Only Certificates ––North American CMBS Surveillance Methodology
Operational Risk Reviews
DBRS reviews loan originators, servicers and operating advisors apart from transaction analytics and determines whether they are acceptable parties.
Surveillance
DBRS will perform surveillance subject to North American CMBS Surveillance Methodology.
Notes: All figures are in U.S. dollars unless otherwise noted.
This report is based on information as of July 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, other types of credit opinions, other analysis and research issued or published by DBRS are, and must be construed solely as, statements of opinion and not statements of fact as to credit worthiness, investment advice 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 103 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.