Presale Report COMM 2020-SBX Mortgage Trust
DBRS Morningstar Capital Structure December 15, 2020 COMM 2020-SBX Mortgage Trust Commercial Mortgage Pass-Through Certificates
Description Rating Action Balance ($) BLTV (%) DBRS Morningstar Rating Trend
Carson Applegate Vice President Class A New Rating – Provisional 247,377,000 50.00 AAA (sf) Stable +1 312 332-9445 Class B New Rating – Provisional 54,973,000 54.41 AA (high) (sf) Stable [email protected] Class X New Rating – Provisional 342,685,000 n/a AA (sf) Stable
Dan Kastilahn Class C New Rating – Provisional 40,335,000 61.04 AA (low) (sf) Stable Senior Vice President Class D New Rating – Provisional 55,837,000 70.98 A (low) (sf) Stable +1 312 332-9444 [email protected] Class E New Rating – Provisional 5,228,000 71.91 BBB (high) (sf) Stable VRR Interest n/a 21,250,000 n/a NR n/a Kevin Mammoser 1. NR = not rated. Managing Director 2. The Class X balance is notional. Class X is an IO certificate that references a single rated tranche. The IO will not have a certificate balance and +1 312 332-0136 will not be entitled to receive distributions of principal. The Class X Certificate is notional with respect to the Class A, Class B, and Class C [email protected] Certificates. 3. The VRR Interest will be retained by Deutsche Bank AG, New York Branch, as retaining sponsor, to satisfy its U.S. risk retention requirement. Erin Stafford Managing Director +1 312 332-3291 [email protected]
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Table of Contents
Capital Structure ...... 1 Table of Contents ...... 2
Collateral Spotlight ...... 3
Transaction Summary ...... 4 DBRS Morningstar Perspective ...... 5 Summary of the Debt Capital Structure ...... 8 Collateral Summary...... 9 Market Overview ...... 14 DBRS Morningstar Site Inspection ...... 18 DBRS Morningstar NCF Analysis ...... 21 Third-Party Reports ...... 23 Ratings Rationale ...... 24 Priority of Payments ...... 26 Loan-Level Legal and Structural Features ...... 26 Transaction Legal and Structural Features ...... 30 Methodologies ...... 32 Surveillance ...... 32 Glossary ...... 33 Definitions ...... 34
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Collateral Spotlight
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Transaction Summary
Trust Characteristics Trust Loan Notional Balance ($) 425,000,000 No. Properties 2 Structure REMIC Property Type Mixed Use DBRS Morningstar BLTV (%) 71.91 Location(s) Seattle, Washington DBRS Morningstar ELTV (%) 71.91 DBRS Morningstar Cap Rate (%) 6.75 DBRS Morningstar Debt Yield (%) 9.39 DBRS Morningstar Value ($) 591,008,106 DBRS Morningstar DSCR (x) 3.95 Quality/Volatility Adjustment (%) 6.0 Appraised LTV (%) 51.84 Herfindahl Adjustment (%) n/a Issuer UW DSCR (x) 3.28 DBRS Morningstar NCF Variance (%) +20.60
Participants Loan Seller/Sponsor Deutsche Bank AG, New York Branch (DBNY) Depositor Deutsche Mortgage & Asset Receiving Corporation Lead Manager Deutsche Bank Securities Inc. Certificate Administrator/Trustee/Custodian Wells Fargo Bank, N.A. Master Servicer Midland Loan Services, a Division of PNC Bank, N.A. Special Servicer Situs Holdings, LLC
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DBRS Morningstar Perspective The COMM 2020-SBX Mortgage Trust single-asset/single-borrower transaction (COMM 2020-SBX) is
collateralized by the borrower’s fee-simple interest in the Starbucks Center, a 1,434,337-sf Class A LEED Gold office building with retail, storage, and parking components, and the 108,000-sf Home Depot
parcel, a single-tenant anchored retail property, in the SODO submarket of Seattle, Washington. DBRS
Morningstar takes a positive view on the credit characteristics of the collateral, which serves as the global headquarters for Starbucks Corporation (Starbucks).
The Starbucks Center benefits from long-term, institutional-grade tenancy with a Starbucks lease that expires in September 2038 with three 7.5-year lease extensions options remaining. DBRS Morningstar’s DSCR of 3.95x, the collateral’s WA remaining lease term of 16.4 years, and the loan’s low interest rate suggest a low term default risk profile. Starbucks’ lease expires in September 2038, which is 12.6 years and 9.6 years after the anticipated repayment date (ARD) and the stated maturity date, respectively. The ARD structure of the loan, which requires that all NCF after debt service be applied to principal during a three-year tail, coupled with Starbucks’ lease term relative to the ARD and stated maturity, reduces maturity default risk. Additionally, the ARD structure provides the sponsor with the option to sell, refinance, or keep the subject loan in place after Starbucks’ rent step in November 2025, which will more than triple Starbucks’ current base rent of $8.52 psf as of the November 1, 2020, rent roll. DBRS Morningstar estimates that utilizing income generated by Starbucks only, the loan could be paid down substantially from $425.0 million ($275.56 psf) to $343.1 million ($222.44 psf) during the 36 months from ARD to stated maturity.
Strengths • Investment-Grade Tenancy: Starbucks, which is investment grade rated, represents 93.8% of the DBRS Morningstar Base Rent and qualified for LTCT treatment in DBRS Morningstar’s concluded NCF. Starbucks moved its corporate headquarters to the property in 1993 and has since expanded more than 60 times, growing to over 1.3 million sf as of the November 1, 2020, rent roll from 60,000 sf. • Below-Market Rents: Starbucks’ November 1, 2020, rental rate of $8.52 psf and the stepped-up rental rate of $28.17 psf in November 2025 are both well below the appraiser’s estimated market rent of $40.00 psf for the space. A key variable of Starbucks’ early expansion plan in 1995 with the sponsor was that Starbucks would the lease warehouse space at a low rental rate with the requirement that it would fund any building system and tenant and amenity improvements. The appraiser, Cushman & Wakefield plc (Cushman and Wakefield), concluded to a prospective market value upon NOI stabilization of $967.0 million in October 2025 for the Starbucks Center building, which represents a 38.9% positive variance over the as-is market value of $696.0 million. • Significant Tenant Investment: Starbucks has spent approximately $128.0 million of its own capital for build-outs, lobby renovations, amenities, and other projects in its space since 2015. Starbucks’ investment since 2015 has included expanding its build-out on the second and third floor as well as the research and development labs on the ground floor, renovating the east side exterior facade, and adding The Princi Bakery, The Reserve Store, and the Tryer Center (an innovation space for Starbucks’ prototype product development).
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• Dark Value: The aggregate appraised dark value of $615.2 million represents a loan-to-dark value of 69.1%, which is low for a loan secured by an office and retail property in an area with a DBRS
Morningstar Market Rank of 6. The appraised dark value indicates that there is substantial value in the collateral without consideration to the LTCT Starbucks.
• Location: The property is well located in Seattle’s densely built-out SODO district. The collateral benefits
from its close proximity to the Seattle CBD, Seattle’s three major arterial thoroughfares (I-5, I-90, and Hwy. 9), and the Sound Transit – SODO Station. Historically, the SODO district was an industrial area of Seattle, and because of local zoning restrictions, there are no existing or planned competitive Class A offices in the SODO district.
• Asset Quality: The Starbucks Center building is a nine-story Class A LEED Gold building, which has benefited from approximately $148 million ($96.00 psf) of capital investment by the sponsor and Starbucks collectively since 2015. The property offers 135,000 sf to 160,000 sf floorplates, expansive deck-to-deck heights, and high-end finishes in the office, lobby, and amenity spaces. The Starbucks Center is the tallest building in the SODO district, and upper-floor office suites offer sweeping views of the surrounding area, Mount Rainier, and the Seattle CBD.
Concerns • Coronavirus Disease (COVID-19)-Related Risks: The ongoing coronavirus pandemic continues to pose challenges and risks to virtually all major commercial real estate property types. Per the site inspection, Starbucks employees are currently scheduled to return to the office in October 2021. There were over 4,500 employees at the collateral pre-coronavirus, but this number has reduced to 400 since the lockdown restrictions. According to the site representative on the site inspection, Starbucks is in talks with Gensler to redesign its interior space to expand space per employee for the post-coronavirus working environment. While the Amazon Fresh and U.S. Bank retails tenants have reportedly experienced a significant decline in customer traffic since lockdown restrictions began, the Home Depot was fairly busy at the time of the site inspection. The Home Depot reported sales of $605.00 psf in 2019, which outperformed the chain average of $455.00 psf in 2019. • Sponsor Cash-Out: The borrower sponsor for the transaction, SODO Center, Inc. (SODO Center), is using loan proceeds to repatriate approximately $170.2 million of equity. DBRS Morningstar views cash-out refinancing transactions as less favorable than acquisition financings as sponsors typically have less incentive to support a property through times of economic stress if less of their own cash equity is at risk. The sponsor will have no cash equity remaining in the collateral as a result of this transaction. Based on the appraised value of $819.8 million, the sponsor will have approximately $394.8 million of market equity remaining in the transaction. • Space Conversion Borrower Obligation: Starbucks has the option to convert approximately 72,000 sf of storage space on the second level of the Starbucks Center to office space in October 2023. If Starbucks elects to exercise the space conversion option, the borrower is obligated to deliver the conversion space to Starbucks in conversion space delivery condition and to pay the Starbucks office conversion space allowance to the tenant without secured funding. Assuming that Starbucks converts all of its storage space to office and Starbucks makes that election right away, the estimated cost would be approximately $6.0 million. If the election occurs after October 1, 2025, and the borrower does not deposit the appropriate amount within 10 business days, an EOD will occur and the lender will sweep
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excess cash flow, which will be approximately $3.0 million per month in October 2025. Starbucks does have the ability to offset its rent obligations per the remedies in its lease if the landlord does not fund
amounts for allowance.
• Legal and Structural Considerations:
• No Guarantor – No guarantor was required under the loan documents. A guarantor of the borrower’s obligations for certain recourse carveout events and the environmental indemnity is customary for rated stand-alone transactions involving similar collateral. The lack of a guarantor is a material limitation of the powerful economic disincentives that in a standard CMBS nonrecourse carveout and environmental indemnity structure.
• Recycled Special-Purpose Entity (SPE) – The loan is structured with a recycled SPE. The borrower has given backward-looking representation, from the date of the SPE’s formation, that it does not carry any prior liabilities. Additionally, if the borrower’s SPE representations are breached, a sponsor guarantee is triggered.
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Summary of the Debt Capital Structure On December 10, 2020, DBNY originated the five-year ARD loan that pays fixed-rate interest of
2.34400% on an IO basis though the entire term of the loan. The whole loan features an ARD period of five years and a maturity date of November 2028, which is a total of eight years from closing. Prior to the
ARD, the loan is IO. After the ARD, the loan accrues interest at a fixed rate per annum, which is equal to
the sum of 2.00% and the higher of the initial interest rate and the five-year yield for the U.S. Treasury note plus 1.88% though the 96th month (the last month of the scheduled monthly payment date).
Debt Structure Tier Debt Amount ($) Interest Rate Payment Terms DBRS Morningstar DBRS Morningstar (%) DSCR (x) LTV (%) First Mortgage Loan 425,000,000 2.3 4400 Interest-Only 3.95 71.91
Total/WA 425,000,000 3.95 71.91
Sources and Uses The borrower will use loan proceeds to retire the existing loan, which is currently securitized in JPMDB 2016-C4, CD 2016-CD2, and COMM 2016-COR1 conduit transactions, which are not rated by DBRS Morningstar; to fund outstanding landlord obligations, including leasing costs and remaining landlord work; to pay closing costs; and to return equity to the sponsor.
Source Amount ($) % of Total Uses Amount ($) % of Total Mortgage Loan 425,000,000 1.00000 Refinance Existing Debt 140,000,000 32.94 Upfront Reserves 88,259,656 20.77 Closing Costs 26,544,119 6.25 Repatriation of Equity 170,196,225 40.05 Totals 425,000,000 100% 425,000,000 100%
Analytical Metrics The table below presents DBRS Morningstar's key NCF and valuation metrics compared with the Issuer’s/arranger's assumptions:
Metric DBRS Morningstar Issuer/Arranger GPR ($) 40,938,937 29,507,175 NOI ($) 40,222,784 33,559,179 Replacement Reserves ($) 54,410 309,066 NCF ($) 39,893,047 33,085,673 Variance to Arranger NCF (%) 20.60 n/a Capitalization Rate (%) 6.75 4.04 Concluded Value/Appraised Value ($) 462,137,656 819,800,000 Value PSF ($) 383.19 531.53 Trust Loan DSCR on NCF (x) 3.95 3.28 Trust LTV Ratio (%) 71.91 51.84
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Note Structure The mortgage loan does not have senior or junior notes and includes the $425 million whole loan as
outlined below:
Note Balance ($) Placement/Noteholder Total Whole Loan 425,000,000 SBX Trust COMM 2020-SBX Trust 425,000,000 SBX Trust
Collateral Summary
Starbucks Center is a Class A office and mixed-use campus in the South-of-Downtown (SODO) district of
Seattle, Washington. The property was built in 1912 and consists of the LEED Gold-certified Starbucks
Building, which comprises three conjoined nine-story buildings. The collateral also includes a single- story retail box store, occupied by the Home Depot, which the current ownership built in 1993 as well as two seven-story parking structures for a property total area of 1,545,331 sf on 17.2 acres. The collateral for the loan, including the Starbucks Center and the Home Depot, was 96.6% leased as of the November 1, 2020, rent roll.
Photo: Term Sheet.
Starbucks Center The Starbucks Center is a 1.3-million-sf Class A office property with retail and storage components. The Union Pacific Railroad originally constructed the Starbucks Center in 1912 for Sears, Roebuck & Company. Prior to the conversion of the property into a predominately office property, the building was home to a Sears department store and its primary Pacific Northwest distribution and warehouse center. The building offers 135,000 to 160,000 floorplates with expansive deck-to-deck heights. Starbucks moved its administrative offices to the original Sears building in 1993 because it wanted an inexpensive space in which to grow. The Starbucks Center is currently home to Starbucks’ global corporate headquarters.
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The Starbucks Center building, which excludes the Home Depot collateral, was 96.4% occupied as of the November 1, 2020, rent roll. Starbucks is the sole office-space occupant at the Starbucks Center, but the
building also contains suites leased to retail and storage tenants. Starbucks Reserve & Princi Bakery, the Starbucks Merchandise & Gift Shop, Amazon Fresh, and U.S. Bank are ground-floor retail tenants at the
building. Six tenants—Starbucks, Aquatherm, the Seattle Children’s Theatre Association, GreenStage,
Voss, and Michael Gross Productions—lease storage space at the property. With the exception of Aquatherm and Starbucks, all storage tenants lease storage space on the second floor of the building and have leases that expire in September 2023. Aquatherm leases 3,670 sf of basement space in the Starbucks Center and has a lease that expires in May 2030. Starbucks is currently using 63,538 sf of its space for storage, representing 4.8% of its total leased NRA at the subject. The building’s ownership leases 3,025 sf of space for building maintenance, office, and storage, and there is no gross rent revenue attributable to this space per the November 1, 2020, rent roll.
Home Depot Parcel The Home Depot built its location at the subject property in 1993, which currently operates as its only downtown Seattle location. The 108,000-sf pad site also includes a 104,000-sf single-story retail box store that is 100.0% occupied by Home Depot. The loan documents permit the Home Depot parcel to be released at a release price of $20,500,000, subject to certain release provisions such as debt yield thresholds and criteria that would prevent the remaining property from violating any zoning or parking legal requirements. The Home Depot Parcel is well located, given SODO’s primarily industrial makeup and the store’s positioning within one mile of Seattle’s three major arterials: I-5, I-90, and Hwy. 99. Many retail stores in the surrounding area are home improvement and construction focused, including Benjamin Moore and Sherwin Williams, as well as several kitchen and bathroom supply stores and building materials stores.
Photo: Appraisal.
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Parking The collateral includes two seven-story stand-alone parking structures—the north garage and the south
garage—built in 1976 and 2001, respectively. Overall, 1,524 parking spaces serve the Starbucks Center, which comprise 1,138 parking spaces within the garages and 368 open spaces in the two public north
and south docks. The Starbucks Center has a parking ratio of 1.2 spaces per 1,000 sf of rentable area,
which is reportedly above the Seattle office market average. The Home Depot parcel contains 264 surface parking spaces for a parking ratio of 2.54 spaces per 1,000 sf. Starbucks currently leases the north and south garages for $2.9 million annually, but the rental rates will increase by 2.75% annually beginning in October 2025. The leases for the north and south garages are coterminus with Starbucks’ office lease at the property. Amazon.com, Inc. (Amazon) leases 30 stalls in the south dock at a current rate of $145 per stall. Starbucks also has the exclusive right to the entire front parking lot, subject to a handful of spaces allocated to Amazon retail and U.S. Bank, free of charge. The north and south docks offer MTM leases and options for transient parking.
Tenant Summary and Lease Terms The Starbucks Center benefits from stable, long-term cash flow attributable to several major tenant leases, one of which qualifies for DBRS Morningstar LTCT treatment. The collateral was 96.6% leased as of the November 1, 2020, rent roll to three major tenants: Starbucks, the Home Depot, and Amazon. These three tenants account for 99.9% of the DBRS Morningstar Gross In-Place Rent in its NCF assumption and these leases all have additional lease extension options. The WA remaining lease term for the collateral is 16.4 years, which provides strong cash flow stability. Starbucks leases 1.3 million sf, representing 85.9% of the NRA and 93.8% of DBRS Morningstar Gross In-Place Rent, has a lease that expires in 2038—10 years after the anticipated maturity date on the loan. The Home Depot leases 108,000 sf, representing 7.0% of the NRA and 3.3% of DBRS Morningstar Gross In-Place Rent, and has a lease that expires in January 2024. Amazon leases 45,867 sf, representing 3.0% of the NRA and 2.8% of DBRS Morningstar In-Place Gross Rent, and has a lease that expires in August 2026. Five storage tenants, representing 0.3% of the NRA, and building ownership, representing 0.2% of the NRA, occupy the remaining leased square footage.
Loan Year Expiring SF % NRA Cumulative SF Cumulative % Total DBRS Cumulative Expiring of Total SF Morningstar Percentage of Expiring Rent Expiring ($) DBRS Morningstar Rent (%) 2023 9,200.00 0.6 9,200.00 0.6 18,989.00 0.1 2024 108,670.00 7.0 117,870.00 7.6 1,978,975.40 14.0 2026 45,867.00 3.0 163,737.00 10.6 914,340.00 20.4 Beyond 1,329,868.00 86.1 1,493,605.00 96.7 11,349,362.50 100.0 Vacant 51,726.00 3.3 1,545,331.00 100.0 n/a 100.0 Total 1,545,331.00 100.0 1,545,331.00 100.0 14,261,666.90 100.0
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Tenant Lease Lease Options NRA Percentage DBRS DBRS % of Total Credit Rating LTCT Start Expiration of NRA (%) Morningstar Morningstar DBRS M/F/S&P/DBRS
Base Rent Base Rent Morningstar Morningstar ($) PSF Base Rent
Starbucks 10/01/18 09/30/38 3 x 7.5 year 1,324,698 85.9 37,313,688 28.17 93.8 Baa1 / BBB / Yes BBB+ / n/a
Home Depot 10/01/93 01/31/24 2 x 5 year 108,000 7.0 1,969,425 18.24 3.3 A2 / A / A / A No
Amazon Various 08/31/26 4 x 5 year 45,867 3.0 1,051,134 22.92 2.8 A2 / A+ / AA- / No n/a Subtotal/WA Various Various Various 1,478,565 95.9 40,334,247 27.28 99.9 Various Various Other Tenants Various Various Various 12,046 0.8 65,529 5.44 0.1 n/a No Vacant Space n/a n/a n/a 51,726 3.4 n/a n/a n/a n/a n/a Total/WA Various Various n/a 1,542,337 100.0 40,334,247 27.10 100.0 Various Various
Central Seattle Office Submarket Vacancy (%)
16.00%
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 3Q20
Source: DBRS Morningstar.
Starbucks Starbucks is a retailer and producer of specialty coffee with over 31,000 locations worldwide. The company has over 346,000 employees with revenue of 26.5 billion in 2019. Starbucks sells coffee and other beverages as well as food and snacks in its retail locations. The company also sells coffee grounds and other products through large national retailers. Starbucks first took occupancy of its space at the property in 1993 and has expanded more than 60 times to 1.3 million sf from 60,000 sf. Since 2015, Starbucks has spent over $128 million of its own capital for buildouts, lobby renovations, amenities, and other projects. Amenities at the property specifically allocated to Starbucks include a fitness center, onsite daycare centers, a cafeteria, and covered parking. Prior to the Coronavirus Disease (COVID-19) pandemic, 4,500 employees were working out of the Starbucks Center. In connection with the amended and restated Starbucks lease dated November 16,
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2018, Starbucks’ base rent at the property will increase to $28.17 psf in November 2025 from $8.52 psf as of the November 1, 2020, rent roll. The company has the option to convert an additional 72,000 sf of
storage space on the second level of the building to office space to accommodate additional growth. Under this option, the space could be converted in October 2023 to the office-space rate of $27.95 psf
from the storage-space rate of $6.33 psf after a free-rent period. DBRS Morningstar did not give credit to
the potential upside to the conversion of this specific space in the DBRS Morningstar NCF analysis. With concerns related to the coronavirus pandemic, Starbucks has begun planning for a more socially distanced return to office and could use this conversion option to facilitate that long-term change. Per the site inspection, Starbucks hired Gensler to redesign its interior space for the post-coronavirus working environment. Starbucks is rated Baa1, BBB, and BBB+ by Moody’s, Fitch, and S&P, respectively.
The Home Depot The Home Depot is a home improvement retailer selling building materials, tools, lawn and garden products, and other home improvement-focused items. The company has over 400,000 employees with revenue of $100.2 billion in 2019. The company has 2,291 locations through the United States, Canada, China, and Mexico. The Home Depot has operated its location at the Starbucks Center since 1993 as the company’s only downtown Seattle location. The collateral’s Home Depot store exhibited sales of $609 psf in 2019, which is well above the company’s average store sales of $455 psf for 2019. The Home Depot’s lease expires in January 2024 and includes two five-year extension options. The Home Depot is rated at “A” with a Stable trend by DBRS Morningstar. The Home Depot is also rated A2, A, and A by Moody’s, Fitch, and S&P, respectively.
Amazon Amazon is an online retailer that sells a wide array of products, including electronics, computers, books, music, household goods, and other items. Amazon is one of the largest online retailers in the world with revenue of $280.0 billion in 2019. The company uses its 45,000 sf at the Starbucks Center for its Amazon Prime (a premium paid subscription program) and Amazon Fresh (a grocery delivery service) platforms and services. The subject location also features covered pullup spots for customers to park and pick up their orders with its Amazon Fresh pickup concept. The indoor retail portion of Amazon’s space includes an Amazon locker for customers to pick up online orders and a return station for customers to process Amazon returns. Amazon signed its lease for the ground-floor retail in 2016 and recently executed a lease in October 2019 for 300 sf for the exterior Amazon Fresh pickup area. While Amazon’s lease expires in August 2026, the tenant has four five-year renewal options remaining for both of its spaces. Amazon’s retail space has a rent step occurring in September 2021, which will increase its base rent to $23.00 psf NNN from $20,00 psf NNN. Amazon’s exterior space has a rent step occurring in October 2021, which will increase its base rent to $10.31 psf gross from $10.00 psf gross. Amazon is rated A2, A+, and AA- by Moody’s, Fitch, and S&P, respectively.
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Market Overview General Market Overview
Starbucks Center is in the SODO district, one mile south of downtown Seattle. According to the U.S. Bureau of Labor Statistics, the Seattle-Bellevue-Everett, WA Metropolitan Division (Seattle Metro)
exhibited an unemployment rate of 4.8% as of October 2020, 11.3% lower than the unemployment rate
of 16.1% in April 2020. According to Reis, job losses from Q3 2019 to Q3 2020 were most prevalent in the following sectors: leisure and hospitality (44.0% of total job losses) and manufacturing (13.0% of total job losses). Because Seattle is a major port for cruises, the decline of tourism caused by the coronavirus- related lockdown restrictions has significantly affected the leisure and hospitality sector in the Seattle Metro. Job losses in manufacturing have generally corelated with job cuts at the Boeing Company (Boeing) as Boeing laid off 1,800 workers in the Seattle Metro in 2020. The airline manufacturer had struggled prior the pandemic with problems related to the 787 Max, and the decreased travel resulting from the pandemic has also decreased demand for airplanes. Per the Puget Sound Business Journal, the three largest employers in the Seattle Metro in 2019 were Boeing; Amazon and; Microsoft Corporation (Microsoft). Starbucks was also the eighth-largest employer in the Seattle Metro in 2019.
In October 2020, the U.S. Department of Transportation announced that it would provide a $10.7 million grant to the Northwest Seaport Alliance to expand the trade industry along the northeastern and southern shores of Puget Sound. The first phase of The North Satellite Modernization Project at the Seattle-Tacoma International Airport finished in July 2019 and expanded the number of gates in the North Terminal by eight new gates for a total of 20 gates. The second phase, which is expected to be completed by 2021, will modernize the existing terminal and retail space around the 20 existing gates in the North Terminal. The Port of Seattle is currently building a new International Arrivals Facility (IAF), which is expected to be completed by 2021. The IAF renovation will upgrade eight existing gates and add an additional 12 international-capable gates to the airport. Companies with headquarter space in the Seattle Metro, such as the Starbucks headquarter space at Starbucks Center, will continue to rely on domestic and international travel at the Seattle-Tacoma International Airport as business travel rebounds from the pandemic. The Central Puget Sound Regional Transit Authority has been implementing a $54.0 billion project to improve and expand the mass transit system in the region since 2017, but the project is experiencing cost overruns and a decline in revenue because of the pandemic. Starbucks Center is well located within one mile of Seattle’s three major arterials (I-5, I-90, and Hwy. 99) and within two blocks of the Sound Transit – SODO Station.
In July 2020, the Seattle City Council voted to impose a new payroll tax for companies with higher than $7.0 million in annual payroll. These companies will be charged a percentage, ranging from 0.7% to 2.4%, based on how many people are employed with annual salaries of at least $150,000. While this measure will not affect suburban office submarkets in the Seattle Metro, the new tax will affect firms that lease space in the Central Submarket, including the collateral. The tax increase intended to raise at least $200.0 million per year to fund affordable housing, the Green New Deal, and community groups; however, the City of Seattle intends to divert the money raised from this tax toward the city’s 2021 budget to cover shortfalls and avoid mass layoffs due to the impact of the pandemic on government funding.
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According to Reis, the Seattle Metro office market contained 93.4 million sf of office space as of Q3 2020. Technology companies including Amazon; Microsoft; Facebook, Inc.; Oracle Corporation; and
Google, LLC have continued to expand their presence in the Seattle Metro area. In September 2020, Amazon announced that it will add 25,000 employees in Bellevue, Washington. Amazon is planning to
lease approximately 2.0 million sf of office space at 555 Tower and West Main, which are expected to be
constructed by 2023. Additionally, Amazon is developing a 27-story office and a separate 43-story office tower at its Bellevue 600 project, which is expected to be completed by 2025. Microsoft’s headquarter expansion in Redmond, Washington, is scheduled to be completed in 2022 and will include over 2.5 million of office space for 8,000 employees. Despite the coronavirus pandemic, Microsoft has continued its expansion plan, making modifications to allow for social distancing at its new space. Expedia Group, a Fortune 500 online travel brand, moved its company headquarters to Seattle's Interbay neighborhood from Bellevue in 2019. The continued expansion of legacy Seattle-based firms reinforces the city’s standing as a global cloud-computing and technology hub. High-tech employment comprised 11.5% of Seattle’s job market compared with the national average of 5.0% in 2019, according to Moody’s Analytics.
Submarket Overview Office According to Reis, the collateral is within the Central Submarket of the Seattle Metro’s office market. The Central Seattle submarket contains 45.9 million market-rate rental sf, or 49.1% of the Seattle Metro's total inventory of office space. The submarket reported a vacancy rate of 10.0% and an asking rental rate of $44.26 psf for Q3 2020. While the asking rental rate is up from $43.94 psf as of Q3 2019, the submarket vacancy rate increased from 9.5% as of Q3 2020. In 2021 and 2022, developers are expected to deliver 2.1 million sf of office space to the submarket, amounting to 72.0% of the new office construction introduced in the Seattle Metro. Reis is currently projecting that the submarket vacancy rate will increase to 14.1% in 2023, but decrease to 13.0% in 2025. Reis is also projecting a 5.0/1.0 construction/absorption ratio for the Central Submarket through YE2024, which is higher than the projection for the greater Seattle Metro office market at 3.3/1.0 for the same period. The Seattle Metro office market experienced a decline in performance in 2020 with an influx of subleased space and a decrease in leasing activity because of continued uncertainty related to the coronavirus pandemic. The Seattle Metro office market benefits from a well-educated workforce as well as strong private industries, especially in the technology sector.
The collateral’s office tenant, Starbucks, exhibited a WA base rental rate of $8.71 psf net, which is well below the Reis submarket rental rate and the appraiser’s office market rental rate of $40.00 psf net. Starbucks’ office space lease contains a rent step-up provision occurring in November 2025, which will increase the WA rental rate to $29.51 psf net, which is still well below current and projected market rental rates per Reis and the appraisal. The primary impetus behind the below-market rental rates is that Starbucks agreed to fund any building system or amenity improvements for its occupancy and all TIs with its initial lease in a raw warehouse space. Starbucks has spent approximately $128.0 million of its own capital building out its space from 2015 to 2020, which is equal to $96.28 psf in total and $19.33 psf
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annualized. In comparison, the appraiser concluded to a new TI figure of $65.00 psf on a 10-year lease with a $40.00 psf net rental rate for office properties.
The SODO neighborhood, where the subject property is located, is a transitional area between Pioneer
Square and the International Districts at the south end of the Seattle CBD. This area includes Duwamish
Manufacturing and Industrial Center, which has the largest concentration of industrially zoned land in Seattle. SODO is also home to T-Mobile Park (originally Safeco Field; home of Major League Baseball’s Seattle Mariners) and Lumen Field (previously Centurylink Field; home of the National Football League’s Seattle Seahawks and the Major League Soccer’s Seattle Sounders). Much of the area’s industrial properties rely on the container terminals at the Port of Seattle’s Harbor Island, which is located in the submarket. Because of its proximity to a major port, SODO is made up of primarily industrial properties and zoning in the area generally does not allow for large office buildings. The City of Seattle has continued to adopt policies that indicate the SODO neighborhood will continue to be mainly industrial, despite a few office buildings recently built in the northern part of the neighborhood. Recent sales of land in the area imply increasing land values. Comparable No. 1 in Exhibit X (Land Sales Comparable) below was purchased in February 2017 for $948,250 ($105.36 psf) and sold in June 2020 for $1,500,000 ($166.67 psf), which represents a 13% increase in value per year. The subject property is 0.3 miles from this comparable.
Retail The SODO Home Depot, which is part of the subject collateral, is in the W. Seattle/Tukwila/Kent/Auburn submarket, which totals 8.7 million sf and comprises 31.8% of Seattle’s total retail inventory. The vacancy rate in the submarket for Q3 2020 was 10.3% and the asking submarket rental rate was $21.76 psf. Reis projects that vacancy will rise in the submarket, increasing to 11.0% to close 2020 and 11.4% for 2024. The overall vacancy rate for Seattle retail was 6.5% and Reis projects that vacancy will close 2020 at 7.3% and rise to 8.3% in 2024. The appraiser concluded a market base rent for the Home Depot space of $19.00 psf gross, which is in line with the in-place rent at $18.94 psf that Home Depot pays. Amazon and U.S. Bank both lease retail space in the Starbucks Center. Amazon’s retail space rent is $20.00 psf and U.S. Bank’s rental rate is $20.32 psf, both of which are in line with the appraiser’s concluded retail market rent of $20.00 psf net.
Reis is projecting a -1.5/1.0 construction/absorption ratio through YE2024, which is lower than the projection for the greater Seattle Metro retail market at -1.7/1.0 for the same period. Reis reported that no additional speculative retail inventory is planned for the rest of 2020 and estimates that net total absorption for 2020 will be -62,000 sf. Looking ahead to 2021 and 2022, 22,000 sf of community shopping center and neighborhood space will be introduced to the submarket, representing 13.3% of the total new retail construction in the Seattle retail market.
Lease and Sales Comparables The appraiser identified a variety of competitive buildings and comparable leases, in addition to sales comparables as shown below:
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Office Sales Comparables Property Sale Date NRA (SF) Occupancy (%) Price ($ millions) $ PSF Cap Rate (%) Amazon.com Phase VIII 12/2019 317,804 100 270.1 850 4.08
F5 Tower 12/2019 515,518 100 458.0 888 4.80
Roosevelt Commons 12/2019 229,299 100 157.0 685 5.15 Park Place Building 10/2019 310,633 95 176.9 569 5.00
Troy Block 03/2019 810,004 100 740.0 914 4.40 Maritime Building 03/2018 211,640 89 186.0 879 4.10
Total / WA n/a 399,150 98 439 830 4.57 Source: Appraisal.
Office Rent Comparables Tenant Address NRA Lease Date Term (Yrs.) Initial Rent PSF TIs psf Free Rent (mos.) Pushspring/T-Mobile 900 North 34th Street Seattle, WA 11,950 04/2020 10 50 90 4 Weber Thompson 900 North 34th Street Seattle, WA 21,806 04/2020 12 51 95 6 Unum 800 5th Avenue, Seattle, WA 4,600 01/2020 5.25 47 45 3 Adobe Systems 801 North 34th Street, Seattle, WA 31,840 07/2020 7 40 20 2 Axon Enterprise 1100 Olive Way, Seattle, WA 20,965 04/2020 5.5 56 60 3 Apple 333 Dexter Avenue North, Seattle, WA 616,854 04/2019 10.4 45 90 5 WeWork 4300 Roosevelt Way NE, Seattle, WA 32,306 07/2019 12.7 37.5 24 0 Nestle USA 450 Alaskan Way South, Seattle, WA 57,610 10/2018 10 40 85 0 Total/WA n/a 797,931 n/a 10.21 44.68 83.26 4.27
W. Seattle/Tukwila/Kent/Auburn Submarket Vacancy (%)
16.00%
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 3Q20
Source: DBRS Morningstar.
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Retail Sales Comparables Property Sale Date NRA (SF) Occupancy (%) Price ($ millions) $ PSF Cap Rate (%) Lacey Safeway 04/2020 56,199 100 16.6 295 5.35 Poulsbo Safeway 09/2018 62,854 100 17.3 275 5.45
Port Angeles Safeway 06/2018 55,634 100 18.0 323 5.51 La Grande Safeway 04/2019 56,238 100 9.5 168 5.76 Salem Safeway 08/2019 35,008 100 11.1 316 5.30 Home Depot 10/2019 131,900 100 19.2 145 5.42
Lowe's 02/2020 129,044 100 18.5 143 6.38 Total / WA n/a 75,268 100 17 209 5.69 Source: Appraisal.
Retail Rent Comparables Tenant Address NRA Lease Date Term (Yrs.) Initial Rent PSF Tis psf Confidential Pierce County, WA 36,200 01/2020 20 18.25 13 Confidential King County, WA 26,600 10/2019 25 35 30 At Home 301 37th Avenue SE, Puyallup, WA 83,000 07/2018 10 10.36 0 Safeway 19651 Highway 2, Monroe, WA 56,446 07/2018 20 12.81 0 Safeway 19245 10th Avenue NE, Pouldsbo, WA 62,854 10/2017 20 15 0 Safeway 28810 Military Road South, Federal Way, WA 25,766 10/2017 20 15.52 0 McLendon Hardware 440 Rainer Avenue South, Seattle, WA 105,800 04/2017 20 9.6 0 Total/WA n/a 396,666 n/a 18.24 13.95 3.20
Land Sale Comparables Property Sale Date Size (Acres) Price ($ millions) $ PSF SODO Development Site 6/2020 0.21 1.5 167 SODO IG2 U/85 Redevelopment Site 9/2019 0.58 4.8 192 SODO Redevelopment Site 07/2019 4.56 22.0 111 SODO Redevelopment Site 07/2019 0.21 0.9 101 SODO Redevelopment Site 01/2019 1.09 4.9 102 SODO Industrial Redevelopment Site 11/2018 7.26 18.3 58 Total / WA n/a 14 17.4 87 Source: Appraisal.
DBRS Morningstar Site Inspection Based on the DBRS Morningstar site inspection and management meeting conducted on December 3, 2020, at 10:00 a.m., DBRS Morningstar found the property quality to be Above Average.
The Starbucks Center, an office property with retail and storage space, and the Home Depot, a big-box retail property, are located west of Utah Avenue, a north-south secondary street in a densely built-out area of Seattle’s SODO district. Utah Avenue runs one block west of First Avenue South, a heavily trafficked arterial throughfare in the neighborhood. The Starbucks Center building is bordered by Colorado Avenue South on the west, followed by a large rail-switching yard, the Alaskan Way Viaduct, and the Duwamish Waterway docks. Properties to the north, east, and south of the property comprise various industrial uses, including light manufacturing, service buildings, and warehouses. The area is a heavily developed industrial district, but there also many retail properties near the collateral including local restaurants, a brewery, a distillery, wineries, a cannabis dispensary, and bars. The property representative relayed that there are no competitive Class A office properties or proposed Class A office properties in the SODO district as industrial zoning does not allow for such construction and there are
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limited options for office expansion in the submarket. Starbucks moved its administrative offices to the original Sears building in 1993 because the company wanted an inexpensive space in which it could
grow.
The subject is ideally positioned to benefit from high transit use with the SODO Busway within a few
blocks as well as easy access to major freeways with I-5 access just over one mile to the southeast and I-90 access just over one mile to the northwest. Because of this ease of access, employees that work at Starbucks live throughout the Seattle Metro area and suburbs. During nonrush-hour times, the collateral is less than a 10-minute drive from downtown Seattle and around a 15-minute drive to Seattle-Tacoma International Airport. The two collateral parking garages and the surface parking lots are well maintained and provide a short walk for employees and visitors to the Starbucks Center. The large Starbucks logo mural on the exterior of the north parking garage is highly visible to the surrounding area.
The Starbucks Center is the largest building in this historically industrial district. The exterior facade of the property is a mixture of red bricks and tan-painted stucco, white stucco accents, and black-metal framed windows. The property’s brick facade reportedly underwent repointing from 2018 to 2019, which enhanced the property’s exterior curb appeal. The roof tower of the building features a large clock with roman numerals and a partial Starbucks logo. The exterior facade and clock tower provide an attractive contemporary-industrial aesthetic for the building. The Starbucks Center appeared to be more modern than most of the industrial buildings in the immediate area.
The lobby of the Starbucks Center features stained and polished concrete-tiled flooring, large round marble columns, an open ceiling with exposed ductwork, modern pendant lighting, and ornate wooden landscape planters backed by a landscape mural. The decor and lobby build-out were impressive and in line with the quality of a recently renovated or constructed Class A headquarter office building in a major North American city. The office and lounge areas throughout the Starbucks’ leased area have an open-office concept design with natural light from large continuous windows and floor-to-ceiling windows on all exterior walls. At nine stories, the property’s height relative to other buildings in the immediate area delivers an attractive view of the downtown Seattle skyline and Mount Rainier for most of the Starbucks office space. Office spaces have tall open ceilings with exposed ductwork and suspended specialty lighting. Flooring in the office reception areas is typically hardwood with carpeting in the open office areas. The walls of the Starbucks office were typically painted with Starbucks warm- earth tones and often decorated with inspirational quotes, photography, and art. The building’s expansive floorplates allow for a variety of collaboration spaces, conference rooms, class rooms, and cubicle areas.
The third floor features a large auditorium area, which can seat over 600 people and which Starbucks has historically used to host large company events. The Starbucks’ cafeteria on the fifth floor features two third-party food vendors, an Asian-fusion restaurant (Little Pond) and a Mexican restaurant (Taqueria ). The Starbucks’ cafeteria was closed at the time of DBRS Morningstar’s inspection because of pandemic restrictions. The cafeteria build-out was more comparable to a high-end urban food hall
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than a traditional office cafeteria. The seventh floor features a full-service business center with a satellite mailing station for the full-service mailing service in the loading dock area. The ninth floor
features a partial pitched-glass ceiling, gathering space, and Starbucks roastery area. Starbucks has historically used the roastery space for coffee taste testing and press events. The gym amenity was
clean and included a wide array of high-end equipment and locker rooms. Restrooms throughout the
office space were clean and included tile floors, granite countertops, dropped ceilings, and painted walls. Starbucks planned an additional four elevators as part of its recent expansion, which will bring the total number of elevators to 13. An interconnected staircase can take Starbucks employees from the ninth floor to the lobby of the building. Starbucks has reportedly contemplated building out a rooftop deck, but there is currently no specific timeline or guarantee that this will occur.
The Starbucks office space is fully built out but, because of the coronavirus, employees are not scheduled to return to the office until October 2021. Per the property contact, there were over 4,500 employees at the collateral pre-coronavirus, but this number has reduced to 400 since lockdown restrictions began. Starbucks could potentially reconfigure its space to add additional employees; however, the property representative relayed that Starbucks has hired Gensler to redesign its interior space for the post-coronavirus working environment to expand space per employee.
The storage space on the second floor features exposed ceilings, a combination of cement floor and wooden floors, and leased storage space walled with chain-link fencing. Five freight elevators serve the storage area, three of which have capacity of 12,000 pounds and two of which have capacity of 6,0000 pounds. The second-floor storage space showed signs of wear with instances of chipped painting on the ceiling and building support beams and wear on the flooring. There are no significant differences in the build-out between leased storage spaces, except for small signs on the chain-linked fencing that denote the tenancy of the leased storage space. If a tenant wished to lease additional storage space, there are plenty of options in the SODO district. Sears previously used the second floor for storage space and the space was similar in appearance to a Class B urban warehouse space. The dearth of build-out on the second floor exemplified the amount of capital Starbucks has invested into its office space over the years and the quality of the tenant’s current office build-out.
Amazon Fresh is on the first floor of the Starbucks Center and is configured more like a bulk-discount store than a regular grocery store. Amazon Fresh features tiled flooring, wide accessible aisles, tall metal shelving, and open ceilings. Store finishes are utilitarian and functional, and the store is clean, well lit, and well stocked. The Starbucks Reserve roastery includes coffee roasteries, on-site bakeries, cafes, coffee education, and retail areas. The roastery is finished with open kitchens, tiled flooring, and open wood-rafter ceilings with suspended specialty lighting. The build-out of the reserve restaurant area is similar in quality to a large high-end cafe. Customer traffic to the ground-level floor retail tenants in Amazon Fresh, U.S. Bank, and the Starbucks Reserve roastery was light at the time of inspection. Traffic has reportedly decreased significantly since the start of the pandemic because Starbucks employees are no longer commuting to and from work.
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The Home Depot building, which is directly south of the Starbucks Center, offered the classic appearance with a tan-painted exterior and large orange Home Depot signage. The parking lot was fairly
full with parked-car traffic at the time of the inspection. The property contact relayed that this location is reportedly one of the busiest Home Depots on the U.S. West Coast. The interior of the Home Depot was
in line with the latest Home Depot interior build-out, featuring high ceilings, cement flooring, and wide
walkways between tall shelving stocked with a variety of merchandise. The Home Depot has similar accessibility for car traffic traveling on First Avenue South compared with the ground-floor retail tenants at the Starbucks Center building.
DBRS Morningstar NCF Analysis DBRS Morningstar analyzed the property’s historical cash flow, occupancy levels, operating expenses, fixed expenses, and capital costs. DBRS Morningstar’s revenue and expenses estimates, as well as its analytical approach, are discussed below.
Effective Gross Income DBRS Morningstar concluded the base rent based on the actual rent roll provided, including 12 months of contractual rent steps. For Starbucks’ rental rate, DBRS Morningstar applied the WA contractual rent step of $28.17 psf, occurring in October 2025, which takes effect three months prior to the initial ARD on January 6, 2026. Starbucks’ in-place rental rate as of the November 1, 2020, rent roll of $8.52 psf and the October 2025 rent step of $28.17 psf are significantly below the appraiser’s concluded market rent of $40.00 psf. DBRS Morningstar’s assumed rental rate for the Starbucks at the October 2025 rental rate because DBRS Morningstar considers Starbucks a LTCT with a lease that extends almost 10 years beyond the ARD and Starbucks’ rental rate is significantly below market. As a result, DBRS Morningstar grossed up vacant office space at $40.00 psf based on the appraisal and vacant basement storage space at $10.00 psf based on recent leasing. Because DBRS Morningstar assumed higher operating expenses than historical levels, recoverable expense were passed through to in-place tenants with net-lease reimbursement structures.
DBRS Morningstar applied a 4.0% vacancy rate to the straight-line average contractual rent obligation from Starbucks for capital project reimbursements, garage real estate taxes, and additional rent. DBRS Morningstar applied a 5.0% vacancy rate to overtime utility reimbursements as Starbucks and Amazon generate this income. DBRS Morningstar based other income, which includes food-vendor income and other miscellaneous income, on the sponsor's year one projection, which is below the T-12 period ended October 31, 2020 (T-12). DBRS Morningstar concluded to a vacancy rate of 4.1% based on a blend of 10.0% for storage, in-line retail, and office spaces, respectively, 5.0% for anchor retail space (Amazon and the Home Depot); and 4.0% for the LTCT Starbucks spaces.
Expenses DBRS Morningstar concluded most expense line items to the sponsor's year one budgeted figure; however, DBRS Morningstar assumed an additional expense plug of $5.60 psf, resulting in total operating expenses, including insurance, of $11.04 psf. The DBRS Morningstar total operating expenses,
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excluding real estate taxes, are directly in line with the average total operating expenses, excluding real estate taxes, of the appraiser’s operating expense comparables at $11.04 psf.
Management Fee and Fixed Expenses
DBRS Morningstar concluded management fees to the higher of $1 million or a floor of 1.5% of the EGI
(in this case, $1.0 million).
DBRS Morningstar assumed insurance and garage real estate taxes at the sponsor's year one projection.
DBRS Morningstar concluded to property real estate taxes at 9.5% of EGI, which is in line with the appraiser’s expense comparable straight-line average of 9.4%. The DBRS Morningstar real estate expense of $3.91 psf is well above the T-12 real estate tax expense of $1.51 psf, but accounts for a higher EGI than in YE2019 because of the acceptance of Starbucks’ rent step revenue in October 2025. The resulting DBRS Morningstar total expense ratio of 36.7% is below the T-12 total expenses ratio of 39.4%, but supported by the range of comparable securitized office-property expense ratios in the Seattle market.
Replacement Reserves and TI/LCs DBRS Morningstar concluded to replacement reserves of $0.25 psf, which is higher than the engineer’s inflated estimate of $0.19 psf. DBRS Morningstar excluded the NRA from the LTCT Starbucks from the replacement reserve calculation.
DBRS Morningstar concluded to $0.18 psf of total TI/LC cost as the NRA for the LTCT Starbucks, and excluded occupied nonrevenue-generating sponsor space and management-occupied space from the total TI/LC costs.
For the office components of the property, DBRS Morningstar's TI assumptions were based on $65.00 psf for new leases and $15.00 for renewals on a 10-year term. For the in-line retail tenants, DBRS Morningstar concluded to $65.00 psf for new leases and $4.00 for renewals on a 10-year term. For the Home Depot, DBRS Morningstar concluded to $5.00 psf for new leases and $1.00 for renewals on a 20- year term. For storage, basement, and exterior leases, DBRS Morningstar concluded to $5.00 psf for new leases and $1.00 for renewals on a 10-year term. The appraiser used the same leasing cost assumptions for the storage and office spaces. DBRS Morningstar analyzed the leasing costs associated with the storage space separately from the office space because of the storage-space buildout on the site inspection and because in-place rental rates for storage tenants are significantly lower than the market rent for office tenants.
LCs were based on 6.0% for new leases and 3.0% for renewals on office and retail spaces. For storage, basement, and exterior spaces, LCs were based on 5.0% for new leases or 2.5% for renewals. DBRS Morningstar concluded to a renewal probability of 65.0% across all spaces.
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Mixed Use NCF Analysis YE2018 YE2019 T-12 Ended Budget Issuer NCF DBRS NCF October 2020 (Year 1) Morningstar Variance NCF ($) (%) GPR ($) 14,668,005 12,954,390 13,177,677 14,850,158 29,507,175 40,935,037 38.7 Recoveries ($) 4,911,572 8,901,395 8,963,661 8,853,049 8,851,601 19,265,085 117.6 Other Income ($) 5,925,235 7,063,339 7,049,116 7,048,372 7,048,372 5,787,474 0.0
Vacancy ($) 0 0 0 -539,492 -1,135,179 -2,481,723 118.6 EGI ($) 25,504,812 28,919,124 29,190,454 30,212,088 44,271,969 63,505,873 43.4 Expenses ($) 8,279,295 11,095,059 11,486,530 10,712,790 10,712,790 23,283,089 117.3 NOI ($) 17,225,518 17,824,066 17,703,924 19,499,298 33,559,179 40,222,784 19.9 Capex ($) 0 0 0 0 309,066 54,410 -82.4 TI/LC ($) 0 0 0 0 164,440 275,327 67.4 NCF ($) 17,225,518 17,824,066 17,703,924 19,499,298 33,085,673 39,893,047 20.6
DBRS Morningstar Valuation DBRS Morningstar’s concluded capitalization rate for the property was 6.75%, which resulted in a value of $591.0 million, or $383.19 psf.
Third-Party Reports Appraisal As part of its analysis, DBRS Morningstar reviewed the appraisal reports prepared by Cushman & Wakefield for the property. The appraised values are listed in the table below.
Appraisal Value Conclusions Appraisal Premise Real Property Date of Value Starbucks Home Aggregate Interest Center Depot Value ($ Value ($ Value ($ millions) millions) millions) Market Value As-Is Leased Fee 11/16/2020 696.0 35.8 731.8 Prospective Market Value Upon NOI Stabilization Leased Fee 10/1/2025 967.0 0.0 967.0 Hypothetical Market Value As-Is Assuming Leased Fee 11/16/2020 784.0 0.0 784.0 Landlord Leasing Reserve Dark Value Assuming Vacant Possession Fee Simple 11/16/2020 592.0 23.2 615.2 Land Value As-If Unimproved Fee Simple 11/16/2020 58.7 37.0 95.7 Insurable Value N/A 11/16/2020 352.0 9.6 361.6 Appraised Value Leased Fee 11/16/2020 784.0 35.8 819.8 Source: Appraisal.
The DBRS Morningstar concluded valuation represents a -27.9% variance from the appraiser’s valuation based on the aggregate values of the Hypothetical Market Value As-Is Assuming Landlord Leasing (LL) Reserve for the Starbucks Center and the Market Value As-Is Value for the Home Depot Parcel. Additionally, the DBRS Morningstar concluded valuation represents a -19.2% variance from the appraiser’s concluded as-is valuation.
Engineering Report As a part of its analysis, DBRS Morningstar reviewed the PCR prepared by AEI Consultants (AEI) dated November 24, 2020. The PCR identified one immediate repair totaling $1,000 related to a roof leak. The
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report concluded replacement reserves of $0.19 psf per year on an inflated basis, below the DBRS Morningstar conclusion of $0.25 psf per year.
Environmental Report
As a part of its analysis, DBRS Morningstar reviewed the Phase I Environmental Site Assessment (ESA)
report prepared by AEI dated November 24, 2020. AEI identified one recognized environmental condition (REC). The subject property site was home to a former Sears Automotive Center and is an open Hazardous Site List site per the state of Washington because there are residual levels of petroleum hydrocarbon contamination within the groundwater. Soil and groundwater samples were collected in October 1994 and did not contain any total petroleum hydrocarbons constituents, polychlorinated biphenyls, volatile organic compounds, or heavy metals. At this time, it is unclear if the 1994 results were sent to the Washington State Department of Ecology and, as a result, the site remains under open investigation. In 2006, the Department of Ecology stated that the site was “mostly cleaned up,” but a No Further Action determination was never issued as there was a lack of documentation. There were no other RECs at the property. AEI did not identify any controlled RECs during the course of its assessment.
Ratings Rationale DBRS Morningstar’s provisional ratings on COMM 2020-SBX reflect its analysis of the sustainable cash flow and value of the property securing the loan that is held by the trust; the presence of certain loan structural features; the presence of loan structural features such as lack of amortization; and qualitative factors such as DBRS Morningstar's opinion of the quality of the underlying collateral property, the current and expected performance of the real estate markets in which the properties are located, and the current and future state of the macroeconomic environment and its potential impact on the performance of commercial properties.
The transaction is supported by the payment stream from the borrower’s fee-simple interest in the Starbucks Center, a Class A office property with retail and storage components, and the Home Depot, a single-tenant retail property, in Seattle’s SODO district. DBRS Morningstar assigned provisional ratings to each class of certificates by analyzing the property’s cash flow, giving consideration to the property’s quality and location, the fundamentals of its real estate market, and the mortgage loan’s legal and structural features. DBRS Morningstar’s analysis of the property’s operations, based on information provided on the arranger’s website as of December 11, 2020, yielded an NCF of $39.893 million. DBRS Morningstar’s concluded NCF is 20.6% higher than the Issuer’s underwritten NCF. The DBRS Morningstar NCF resulted in an IO DSCR of 3.95x on the mortgage loan, assuming a fixed mortgage rate of 2.3440%. DBRS Morningstar valued the collateral at $591.01 million based on the concluded NCF and a capitalization rate of 6.75%. DBRS Morningstar’s valuation resulted in an LTV ratio of 71.91% on the $425.0 million first-mortgage loan.
DBRS Morningstar determined the provisional ratings on each class of certificates by performing quantitative and qualitative collateral, structural, and legal analysis. This analysis incorporates DBRS Morningstar’s North American Single-Asset/Single-Borrower Ratings Methodology and the DBRS Morningstar LTV Benchmark Sizing tool.
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DBRS Morningstar determined its concluded sustainable NCF and sustainable value of the underlying
property by applying the DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria. DBRS Morningstar’s maximum LTV thresholds at each rating category were based on the
transaction’s sequential-pay waterfall, the underlying property type, lack of amortization (full-term IO),
borrower, trust LTV, limited property type and geographic diversity, and other factors relevant to the credit analysis. DBRS Morningstar determined its ratings on the IO certificates based on the lowest rating of the applicable reference obligation, which DBRS Morningstar may or may not elect to notch up one rating, as per its approach to rating IO certificates. Please refer to the Rating North American CMBS Interest-Only Certificates on DBRS Morningstar’s website at www.dbrsmorningstar.com.
DBRS Morningstar adjusted its maximum LTV thresholds (the Quality/Volatility Adjustment) to account for the following factors: 1. Cash Flow Volatility: Starbucks, the world's largest coffeehouse chain, is an investment-grade tenant and the collateral serves as its international headquarters. Starbucks’ lease expires in September 2038 with three 7.5-year lease extensions options remaining. Starbucks’ rent represents 93.8% of the total DBRS Morningstar base rent in the DBRS Morningstar NCF analysis. Starbucks’ lease has a rent step that occurs in October 2025 that will increase Amazon’s WA base rent to $28.17 psf from $8.52 psf as of the November 1, 2020, rent roll. As a result of these factors, DBRS Morningstar elected to increase its LTV thresholds by 3.5% to account for minimal cash flow volatility. 2. Property Quality: The collateral is a LEED Gold, Class A, mixed-use urban campus, which is home to Starbucks’ global headquarters. Since 2015, the sponsor and Starbucks have collectively invested approximately $148.0 million ($96.00 psf) of capital into the property. From 2015 to present, Starbucks has spent $128.0 million of its own capital into build-outs, lobby renovations, amenities, and various other projects in its space at the property. As a result, DBRS Morningstar elected to increase its LTV thresholds by 1.0% to account for superior property quality. 3. Market/Location: The collateral is located in Seattle’s SODO district, which is a densely built-out historically industrial area that has benefited from Starbucks’ growth since the firm took occupancy at the collateral in 1993. Because of local zoning restrictions, there are no existing or planned competitive Class A offices properties in the SODO district. The Starbucks Center and the Home Depot are located in an area with a DBRS Morningstar Market Rank of 6. As a result, DBRS Morningstar elected to increase its LTV thresholds by 1.5% to account for superior market/location. 4. Amortization/ARD Credit: The loan is structured as a five-year ARD with a three-year tail period. Starbucks’ lease expires in September 2038, which is 12.6 years and 9.6 years after the ARD and the stated maturity date, respectively. During this tail period, the loan documents specify that the interest rate will step up and there is a provision which requires that all NCF after debt service be applied to principal. DBRS Morningstar assessed the potential deleveraging that would occur following the ARD by taking into account only the rent and reimbursements attributable to Starbucks and assuming the full expense load on the property. As a result of this amortization
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during the tail period, DBRS Morningstar elected to increase its LTV thresholds by 2.0% to account for the amortization benefit.
Priority of Payments
On each distribution date, funds available for distribution will be distributed in the following amounts
and order of priority (in each case to the extent of remaining available funds).
1. Class A and Class X IO Certificates then outstanding: (A) first, to interest on such certificates up to, and pro rata in accordance with, their respective interest entitlements; (B) next, to the Class A Certificates then outstanding, up to the principal distribution amount for such class and for such distribution date until their certificate balance is reduced to zero; and then (C) to reimburse the Class A Certificates then outstanding for any previously unreimbursed losses allocated to such classes of certificates. 2. Class B Certificates: (A) first, to interest on such certificates up to its interest entitlements; (B) next, to the Class B Certificates, up to the principal distribution amount for such class and for such distribution date until their certificate balance is reduced to zero; and then (C) to reimburse the Class B Certificates for any previously unreimbursed losses allocated to the Class B Certificates.
After the Class A and Class X IO Certificates and the Class B Certificates then outstanding are paid all amounts to which they are entitled, the remaining funds available for distribution will be used to pay interest and principal to the Class C, Class D, and Class E Certificates sequentially, in that order, in a manner analogous to the Class B Certificates in (2) above until the certificate balance of each such class is reduced to zero. The interest and principal payment for the VRR Interest is allocated per the sequential-pay waterfall structure for the Class A, Class B, Class C, Class D, and Class E Certificates.
Loan-Level Legal and Structural Features Security The loan is secured by (1) a mortgage, assignment of leases and rents, and security agreement on the property, including the borrower’s fee-simple interest in the property, such as all fixtures, equipment, and personal property used in the operation of the property and owned by the borrower; and (2) certain contract rights of the borrower, including rights relating to the management agreement, cash management agreement, environmental indemnity agreement, and all other documents delivered in connection with the loan (collectively, the Collateral). The mortgage lien is subject to permitted encumbrances as further described in the loan documents.
Borrower, Sponsor, and Indemnitor(s) The borrower is First and Utah Properties, LLC, a recycled Delaware limited liability company. The borrower is indirectly wholly owned by SODO Center, which is controlled by Peter P. Nitze (President and Chairman of Nitze-Stagen & Company, Inc.) and Kevin Daniels (President of Daniels Real Estate, LLC). There is no guarantor for this transaction. Daniels Real Estate, LLC is the Environmental Indemnitor for this transaction, responsible for environmental hazards pursuant to an environmental indemnity agreement providing that the Environmental Indemnitor’s liability under the environmental indemnity
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agreement shall not exceed $1,000,000. The Environmental Indemnitor is also required to obtain and maintain a secured lender environmental insurance policy acceptable to the lender for the term of the
mortgage loan.
General Loan Terms
The total debt financing is composed of one promissory note in the aggregate principal amount of $425,000,000, which is expected to be deposited into the trust.
Cash Management Sweep Trigger Period During the loan term, a cash management sweep period will commence (1) upon an EOD under the mortgage loan (and end upon the acceptance of a cure of such default); (2) if Starbucks defaults, goes bankrupt, or is both downgraded and goes dark; (3) when the DSCR is less than 1.50x for two consecutive calendar quarters (and end when the DSCR is 1.50x or higher for two consecutive calendar quarters or if funds on deposit in the cash collateral account equal or exceed the cap described in the loan documents); or (4) the ARD. The cash management sweep period triggers certain lender rights as further described in the loan documents.
Reserves As part of the mortgage loan, $78,205,906 of upfront rollover reserves were funded for outstanding approved leasing expenses for the Starbucks space, $10,000,000 was deposited into an Elevator Repair Reserve for the completion of elevator repair/refurbishment, and $53,750 was slated for certain environmental work. Additionally, the loan agreement may stipulate required deposits for ongoing reserves into specified accounts during a trigger period.
Upfront Reserve Account Deposits Upfront Rollover Reserve ($) Upfront Rollover Reserve 78,205,906 Elevator Repair Reserve 10,000,00 Environmental Work Reserve 53,750
Recourse Carveouts Recourse on the loan is generally limited to the properties and other assets that have been pledged as collateral for the loan. There is no carveout guarantor for this loan and liability runs only to the borrower. The loan does not contain the typical nonrecourse carveout liabilities for fraud, willful misconduct, or intentional misrepresentation in connection with the loan; wrongful removal or destruction; certain physical waste; misappropriation; conversion of certain funds; and certain transfers or encumbrances are all included in the carveout guaranty under the loan documents, along with other carveout liabilities identified in the loan documents. There is no carveout guarantor for this loan and liability for the carveouts runs only to the borrower.
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Future Additional Debt The loan documents do not permit future additional debt as part of this transaction.
Prepayment and Property Release Provisions
The borrower is permitted to voluntarily prepay the loan in whole from and after the loan payment date
in September 2025. Voluntary prepayment after the defeasance lockout expiration date but prior to the payment date in September 2025 must be accompanied by the applicable prepayment fee equal to the greater of the yield maintenance amount or 1.0% of the unpaid principal balance as of the prepayment date or an additional 3.0% of the unpaid principal balance of the note if the prepayment during an Event of Default. The defeasance lockout expiration date is defined as the earlier of two years from the securitization of the last note to be securitized or three years after the origination date.
The Lender shall release the Home Depot parcel, including the parking lot, in connection with an arm’s- length sale to an unrelated third party of the 108,000-sf pad site or to an affiliate of the borrower in connection with the construction of additional parking for Starbucks after the expiration of the defeasance/prepayment lockout expiration date, or in connection with the potential future construction of additional parking for Starbucks after the Special Lockout Date, which is subject to the prepayment provisions. The Home Depot parcel may be released if the debt yield for the remaining collateral is more than the greater of the closing date aggregate debt yield or the aggregate debt yield prior to the release of the collateral. Additionally, the Home Depot parcel release is subject to rating agency confirmation (RAC) and the release cannot adversely affect the use or the operation of the remaining property or cause the remaining property to be in violation of any legal requirement, such as a zoning and parking requirement. The release amount for the Home Depot parcel is equal to $20,500,000.
Beginning after the defeasance lockout expiration date, the borrower may also obtain the release of the entire mortgage property from the lien of the mortgage in exchange for a grant of a security interest in certain U.S. government securities. Such release is subject to certain conditions, including but not limited to no existing EOD under the loan.
Permitted Transfers Subject and in addition to other permitted transfers and/or requirements for transfers further detailed in the loan documents, the transfer of the property and/or certain equity interests in the borrower is generally permitted so long as: (1) no EOD exists under the mortgage loan; (2) the transferee is controlled by an entity that (A) meets certain eligibility requirements in the loan documents, including total assets under management that exceeds $750,000,000 or shareholder equity of at least $300,000,000 and (B) whose experience, financial condition, and creditworthiness are otherwise acceptable to the lender; and (3) satisfaction of customary equity transfer or loan assumption procedures.
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Property Management The property is managed and operated by Kidder Mathews, Inc., an affiliate of the borrower. The
lender’s rights to terminate the property manager are subject to the loan documents. Under the loan documents, an unaffiliated, qualified property management company must have at least five years of
experience managing similar multiuse office properties, have leasable sf with an aggregate of 5,000,000
leasable sf, and manage at least five properties that are similar to the mortgaged property in terms of quality, location, and type used as multiuse office space.
Insurance The loan agreement requires the borrower to insure the mortgage property and operations at the property with insurance coverage from insurers described in the loan documents. The insurance is required in amounts set forth in the loan documents, subject to certain deductibles, and a blanket policy is permitted.
Casualty and/or Condemnation Proceeds If there is no existing EOD under the loan documents, the threshold for any casualty or condemnation insurance proceeds to be deposited into a lender-controlled account is equal to $12,000,000. Subject to satisfying other conditions in the loan documents, (1) net insurance proceeds in the case of a casualty will be made available to the borrower if less than 30% of the total floor area of the improvements on the property has been damaged, destroyed, or rendered unusable; (2) net insurance proceeds in the case of a condemnation will be dispersed to the borrower if less than 10% of the land constituting the property is taken and such land is located along the perimeter or periphery of the property and no portion of the improvements (other than immaterial fixtures) is located on such land; and (3) leases demising in the aggregate 75% or more of the total rentable space in the improvements, which has been demised under executed and delivered leases in effect as of such casualty or condemnation shall remain in effect during and after the restoration. If at any time the net proceeds, in the lender’s reasonable opinion in consultation with the casualty consultant, are determined to be insufficient to pay in full the balance of the costs estimated to be incurred in connection with the restoration, the borrower is required to deposit the deficiency before any further disbursement of the net proceeds. In connection with a casualty or condemnation, the use of casualty and condemnation proceeds may be further restricted by or required to satisfy leases, development agreements, or similar documents.
Certain Alterations In addition to other rights and restrictions set forth in the loan documents, the borrower may not, without the lender’s consent, perform alterations that (1) materially affect structural elements of the improvements, utility or HVAC systems, or the exterior of the property, the cost of which exceeds 5.0% of the outstanding principal balance of the mortgage loan; or (2) materially adversely affect the value of the property or the borrower’s financial condition. The lender may require that the borrower deliver security for payment of the cost of such alteration as additional security for the borrower’s obligations. Additional security may be in the form of cash, a letter of credit, a completion bond, certain U.S. obligations, or other securities acceptable to the lender.
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Transaction Legal and Structural Features
Realized Losses
On each distribution date, any realized losses on the trust loan will be allocated to the Class E, Class D, Class C, Class B, and Class A Certificates, in that order, in each case until the certificate balance of that
class has been reduced to zero. The notional amount of the Class X Certificates will be reduced by the
aggregate amount of realized losses allocated to the Class A, Class B, and Class C Certificates. Realized losses to the VRR Interest will be reduced by the aggregate amount of realized losses allocated to the Class E, Class D, Class C, Class B, and Class A Certificates.
Appraisal Reductions Following the date on which (1) the mortgage loan is 90 days delinquent in monthly payments or (2) certain other adverse events affecting the mortgage loan (as set forth in the trust and servicing agreement) have occurred, the special servicer will generally be required to obtain new appraisals on the property. Based on the new appraisal, the amount of delinquent loan interest payments on the mortgage loan thereafter advanced to certificateholders may be reduced, the identity of the directing holder may change, and the voting rights of certain classes of certificates may be reduced. If such appraisal is not required or is delayed, the trust and servicing agreement may allow for automatic adjustments, which could have a similar impact on advances. Additionally, certain parties under the trust and servicing agreement may have certain rights to challenge the appraisal or request a new appraisal.
Control Rights The underlying legal documents do not allocate a controlling class of certificates or a directing holder. As such, no single class of certificates will have the right to make decisions. The master servicer, the special servicer, and the trustee generally make decisions with respect to the servicing of the mortgage loan and the administration of the trust, subject to the express terms of the trust and servicing agreement.
Replacement of the Special Servicer The special servicer under the trust and servicing agreement may be removed, with or without cause, and a successor special servicer may be appointed, from time to time, including by the written direction of (1) holders of principal balance certificates evidencing at least 75% of a minimum certificateholder quorum or (2) holders evidencing more than 50% of the aggregate voting rights allocable to the nonreduced certificates. Certificateholder quorum are the holders of principal balance certificates evidencing at least two-thirds of the aggregate voting rights of all principal balance certificates on an aggregate basis. The aggregate voting rights account for all realized losses and the application of any appraisal-reduction amounts to notionally reduce the certificate balance of each class of the principal balance certificates.
Amount of Workout, Liquidation, and Special Servicing Fees The workout fees and liquidation fees payable to the special servicer, if any, will be limited under the trust and servicing agreement to (1) with respect to workout fees, 0.50% of each collection of interest and principal following a workout and (2) with respect to liquidation fees, 0.50% of liquidation proceeds.
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Special servicing fees during the continuance of a special servicing event are limited under the trust and servicing agreement to 0.25% per annum, payable monthly.
The special servicer will not be entitled to any liquidation fees with respect to the mortgage loan if (1) it
becomes specially serviced because of a balloon default and is paid off within three months following
the related maturity date as a result of a refinancing or other repayment in full, (2) the mortgage loan is repurchased by the loan seller within the time period specified in the loan purchase and sale agreement, or (3) the mortgage loan is sold to the sole certificateholder, servicer, or the special servicer, as described in the trust and servicing agreement. In addition, the mortgage loan purchase agreement and the loan agreement may contain restrictions on the amount of the special servicing fee, workout fee, and/or liquidation fee and such documents may also specify certain time periods during which a liquidation fee and/or workout fee are not payable.
Obligation of Borrower to Pay Fees The loan documents require the borrower to pay liquidation fees, workout fees, and special servicing fees, subject to any caps set forth in the loan documents. The special servicer is required to take reasonable efforts to collect such fees from the borrower.
Offsetting of Modification Fees There is no cap on modification fees that the special servicer may charge the borrowers and all modification fees received by the special servicer over the lifetime of the mortgage loan are required to offset (on a 1:1 basis) any liquidation and workout fees that the special servicer could otherwise charge the issuing entity. Modification fees are fees with respect to a modification, extension, waiver, or amendment that modifies, extends, amends, or waives any term of the loan documents, other than (1) any assumption fees, defeasance fees, consent fees, or assumption application fees; and (2) liquidation, workout, and special servicing fees.
Credit Risk Retention This securitization transaction will be subject to the credit risk retention requirements of Regulation RR, 12 C.F. R. Part 244. An economic interest in the credit risk of the trust loan is expected to be retained as an “eligible vertical interest” in the form of the Class VRR Certificates. The retaining sponsor intends to satisfy the risk retention requirements through DBNY’s purchase and retention.
Forbearance Related to the Coronavirus The master servicer or the special servicer, as applicable, may grant a forbearance on the loan related to the global coronavirus pandemic without additional consents or a RAC only if (1) prior to December 31, 2021, the period of forbearance granted, when added to any prior periods of forbearance granted before or after the trust acquired the loan (whether or not such prior grants of forbearance were specifically covered by Revenue Procedure 2020-26), does not exceed nine months (or such longer period of time as may be allowed by future guidance that is binding on federal income tax authorities) and such forbearance is specifically covered by Revenue Procedure 2020-26; (2) such forbearance is permitted under another provision of the trust and servicing agreement and the requirements under such provision
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are satisfied, and (3) an opinion of counsel is delivered to the effect that such forbearance will not result in an Adverse REMIC Event.
Rating Agency Confirmation
RAC may have certain timing restrictions and/or not be required over certain material loan amendments,
modifications, borrower requests, and/or material amendments to the loan agreement, the trust and servicing agreement, and the mortgage loan purchase agreement. In addition, an RAC may be requested and/or notice of such items may be provided to the rating agency after such items are effectuated. Because the rating agency may obtain knowledge of these various items later, surveillance activities and any related rating adjustments may occur later than if the RAC and/or prior notice of such items was provided.
Methodologies The following are the methodologies DBRS Morningstar applied to assign ratings to this transaction. These methodologies can be found on www.dbrsmorningstar.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 Single-Asset/Single-Borrower Ratings Methodology • DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria • Rating North American CMBS Interest-Only Certificates
Surveillance DBRS Morningstar will perform surveillance subject to the North American CMBS Surveillance Methodology.
Notes: All figures are in U.S. dollars unless otherwise noted.
This report is based on information as of December 15, 2020. Subsequent information may result in material changes to the rating assigned herein and/or the contents of this report.
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Glossary
ADR average daily rate MSA metropolitan statistical area ARA appraisal-reduction amount n.a. not available ASER appraisal subordinate entitlement reduction n/a not applicable BOV broker’s opinion of value NCF net cash flow
CAM common area maintenance NNN triple net capex capital expenditures NOI net operating income CBD central business district NRA net rentable area CBRE CB Richard Ellis NRI net rental income CMBS commercial mortgage-backed securities NR – PIF not rated – paid in full CoStar CoStar Group, Inc. OSAR operating statement analysis report CREFC CRE Finance Council PCR property condition report DPO discounted payoff P&I principal and interest DSCR debt service coverage ratio POD probability of default EGI effective gross income PIP property improvement plan EOD event of default PILOT property in lieu of taxes F&B food & beverage PSA pooling and servicing agreement FF&E furniture, fixtures and equipment psf per square foot FS Hotel full-service hotel R&M repairs and maintenance G&A general and administrative REIT real estate investment trust GLA gross leasable area REO real estate owned GPR gross potential rent RevPAR revenue per available room HVAC heating, ventilation and air conditioning sf square foot/square feet IO interest only STR Smith Travel Research LC leasing commission SPE special-purpose entity LGD loss severity given default TI tenant improvement LOC letter of credit TIC tenants in common LOI letter of intent T-12 trailing 12 months LS Hotel limited-service hotel UW underwriting LTC loan-to-cost WA weighted average LTCT long-term credit tenant WAC weighted-average coupon LTV loan-to-value x times MHC manufactured housing community YE year end MTM month to month YTD year to date
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Definitions
Capital Expenditure (Capex) Costs incurred in the improvement of a property that will have a life of more than one year. DBRS Morningstar Refi DSCR A measure that divides the DBRS Morningstar stabilized NCF by the product of the loan’s maturity balance and a stressed refinance debt constant. DBRS Morningstar Term DSCR A measure that divides the DBRS Morningstar stabilized NCF by the actual debt service payment Debt Service Coverage Ratio (DSCR) A measure of a mortgaged property’s ability to cover monthly debt service payments, defined as the ratio of net operating income or net cash flow to the debt service payments. Effective Gross Income (EGI) Rental revenue minus vacancies plus miscellaneous income. Issuer UW Issuer underwritten from Annex A or servicer reports. Loan-to-Value (LTV) The ratio between the principal amount of the mortgage balance, at origination or thereafter, and the most recent appraised value of the underlying real estate collateral, generally from origination. Net Cash Flow (NCF) The revenues earned by a property’s ongoing operations less the expenses associated with such operations and the capital costs of tenant improvements, leasing commissions and capital expenditures (or reserves). Moreover, NCF is net operating income less tenant improvements, leasing commissions and capital expenditures. NNN (Triple Net) A lease that requires the tenant to pay operating expenses such as property taxes, insurance and maintenance, in addition to the rent. Net Operating Income (NOI) The revenues earned by a property’s ongoing operations less the expenses associated with such operations but before mortgage payments, tenant improvements, replacement reserves and leasing commissions. Net Rentable Area (NRA) The area (sf) for which rent can be charged. NRA includes the tenant’s premises plus an allocation of the common area directly benefiting the tenant, such as common corridors and restrooms. Revenue Per Available Room (RevPAR) A measure that divides revenue by the number of available rooms, not the number of occupied rooms. It is a measure of how well the hotel has been able to fill rooms 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 demand for hotel rooms. Tenant Improvements (TIs) The expense to physically improve the property or space, such as new improvements or remodeling, paid by the borrower. Weighted Average (WA) Calculation is weighted by the size of each mortgage in the pool. Weighted-Average Coupon (WAC) The average coupon or interest payment on a set of mortgages, weighted by the size of each mortgage in the pool.
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