Presale Report SFO 2021-555
DBRS Morningstar Capital Structure April 27, 2021 Commercial Mortgage Pass-Through Certificates
Description Rating Action Balance ($) BLTV (%) DBRS Morningstar Rating Trend
Chaz Schmidt Class A New Rating - Provisional 638,400,000 47.50 AAA (sf) Stable Senior Analyst Class B New Rating - Provisional 79,400,000 53.96 AA (sf) Stable +1 646 560-4597 [email protected] Class C New Rating - Provisional 70,300,000 59.25 AA (low) (sf) Stable Class D New Rating - Provisional 111,400,000 67.62 A (low) (sf) Stable Audrey Chew-Pei Lee Vice President Class E New Rating - Provisional 164,600,000 80.00 BBB (low) (sf) Stable +1 646 560-4522 Class F New Rating - Provisional 75,900,000 85.70 BB (sf) Stable [email protected] Class HRR New Rating - Provisional 60,000,000 90.21 BB (low) (sf) Stable
Ed Dittmer Class R New Rating - Provisional n/a 90.21 NR Stable Senior Vice President 1. NR = Not Rated. +1 212 806-3285 2. The provisional rating for Class HRR is recommended at BB (low) because it is within the 1.0% LTV tolerance range for rounding of that class. [email protected] The result is a one notch deviation from the analytical-tool implied rating.
Kurt Pollem Managing Director +1 212 548-6394 [email protected]
Erin Stafford Managing Director +1 312 332-3291 [email protected]
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Table of Contents
Capital Structure ...... 1 Collateral Spotlight ...... 3
Transaction Summary ...... 6
DBRS Morningstar Perspective ...... 7 Strengths ...... 7 Concerns...... 8 Summary of the Debt Capital Structure ...... 10 Collateral Summary...... 11 Tenant Summary and Lease Terms ...... 13 Market Overview ...... 15 Submarket Overview ...... 16 Lease and Sales Comparable ...... 17 DBRS Morningstar NCF Analysis ...... 19 DBRS Morningstar Valuation ...... 20 Third-Party Reports ...... 20 Site Inspection ...... 21 Rating Rationale ...... 23 Priority of Payments ...... 23 Loan-Level Legal and Structural Features ...... 24 Transaction Legal and Structural Features ...... 30 Methodologies ...... 33 Surveillance ...... 33 Glossary ...... 34 Definitions ...... 35
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Collateral Spotlight
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Source: DBRS Morningstar.
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Transaction Summary Trust Characteristics
Trust Loan Notional Balance ($) 1,200,000,000.00 No. Properties 3 Structure REMIC Property Type Office
DBRS Morningstar BLTV (%) 90.21 Location(s) San Francisco, CA
DBRS Morningstar ELTV (%) 90.21 DBRS Morningstar Cap Rate (%) 6.5
DBRS Morningstar NCF Debt Yield (%) 7.21 DBRS Morningstar Value ($) 1,330,200,434.78
DBRS Morningstar NCF DSCR (x) 3.37 Quality/Volatility Adjustment (%) 8.0
Appraised LTV (%) 58.50 Herfindahl Adjustment (%) n/a Issuer NCF DSCR (x) 3.48 DBRS Morningstar NCF Variance -3.34 (%) Rated Final Distribution Date in May 9, 2038.
Participants
Depositor J.P. Morgan Chase Commercial Mortgage Securities Corp.,
Mortgage Loan Sponsors JPMorgan Chase Bank, National Association
Trustee Wells Fargo Bank, National Association
Master Servicer Midland Loan Services, a Division of PNC Bank, National Association
Special Servicer Situs Holdings, LLC
Certificate Administrator Wells Fargo Bank, National Association
Operating Advisor Park Bridge Lender Services LLC,
SFO 2021-555 is a single-asset/single-borrower transaction collateralized by the borrower’s fee-simple interest in the 555 California Street Campus (the Campus), a 1.8 million-sf Class A office complex in the North Financial District of San Francisco. J.P. Morgan will fund the total debt of $1.2 billion for the refinancing of the Campus. The IO floating-rate, $1.2 billion loan has an initial term of two-years with five one-year extension options. The total capitalization of $2.0 billion includes $850.0 million of sponsor equity, which will be used to refinance $532.7 million of existing debt, return $616.0 million of sponsor equity, fund $19.8 million of outstanding TI/LC reserve and $12.5 million of free rent, fund capital improvement reserves for Bank of America for $6.9 million, and pay $12.0 million of closing costs. The transaction has a slightly elevated Morningstar Issuance LTV of 90.21%, based on the trust debt. The LTV based on the appraised value of $2.1 billion is 58.5%.
The sponsor is a 70/30 joint venture between Vornado Realty L.P. and Donald J. Trump. The loan is 100% controlled by Vornado Realty Trust, a publicly traded real estate investment trust and a member of the S&P 500 Index. Vornado’s portfolio is concentrated in New York City, Chicago, and San Francisco. Vornado acquired the Campus in 2007 and has invested $164.8 million ($90.63 per square foot (psf)) into the Campus since 2016.
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DBRS Morningstar Perspective DBRS Morningstar has a positive view on the near- to midterm sustainability of the Campus’ net cash
flow (NCF), based on its location, tenancy, and historical performance. The Campus is in the North Financial District in the San Francisco central business district (CBD) market. According to the Q4 2020
appraisal information, the North Financial District has 26.3 million sf of inventory with an overall
occupancy rate of 82.4% and a direct weighted-average (WA) Class A rent of $85.96 psf, compared with the South Financial District’s total inventory of 27.9 million sf, occupancy rate of 87.7%, and direct WA Class A rent of $85.44 psf. The North Financial District has no office space under construction at this time.
Although the North Financial District has a high overall vacancy rate, the Campus significantly outperforms the submarket. As of the February 1, 2021, rent roll, the Campus was 92.7% occupied, including the vacant property, 345 Montgomery, which has completed its renovation. The Campus has a WA occupancy rate of 95.3% since 2010 and benefits from a granular rent roll with only one tenant, Bank of America at 18.1% of net rentable area (NRA), accounting for more than 10.0% of NRA. Additionally, Bank of America is the only investment-grade-rated tenant receiving any DBRS Morningstar Long Term Credit Tenant (LTCT) treatment. The second-largest tenant is Kirkland & Ellis LLP, which accounts for 8.4% of NRA. The rent roll is well diversified, consisting of 41 unique tenants with 19 investment-grade tenants, accounting for 34.4% of NRA. Such diversification is credit positive as the cash flow will be less susceptible to revenue swings, making it more resilient during economic downturns such as during the Coronavirus Disease (COVID-19) pandemic.
Although the ongoing pandemic continues to pose challenges and risks to virtually all major commercial real estate property types, the property has shown strong performance during these unprecedented times with approximately 2.1% of the tenants based on total NRA requesting rent relief and a current vacancy rate of 7.3%. The Campus has demonstrated very strong performance with a 11-year historical occupancy rate of 95.3%, greater than the Reis submarket’s 91.7%. Tenants plan to bring employees back to the office around May or June for those who want to come into the office. Currently, the Campus is averaging 200 people per day at 555 California and approximately 15 per day at 315 Montgomery; pre-pandemic 555 California used to average approximately 4,500-5,200 people per day.
Strengths • Strong Historical Occupancy - The Campus’ 11-year average occupancy is 95.3% and outperforms the North Financial District’s historical occupancy of 91.7%. • Strong Submarket and Location – The Campus has great exposure with a full block frontage on California Street, a primary two-way, four-lane major arterial that runs east to west in downtown San Francisco with the San Francisco Streetcar line, along with full frontage on Pine Street, Montgomery Street, and Kearny Street. Additionally, the location affords excellent access to public transportation, with four BART subway lines that stop twice in the Financial District and transport commuters to and from San Francisco to the East Bay. • Asset Quality and Recent Capital Improvements – Although 315 Montgomery was built in 1921 and 555 California Street and 345 Montgomery were built in 1971, the Campus has received approximately
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$164.8 million or $90.63 psf of capital improvements. 555 California received $64.3 million ($42.72 psf) in capital improvements for concourse renovation and retail enhancements, the opening of the Vault
restaurant, roof replacement, new lobby furnishings, HVAC upgrades, and modernizations to the restrooms. 315 Montgomery received $39.7 million ($168.74 psf), and 345 Montgomery received $60.8
million ($779.56 psf) to complete a full renovation and restoration transforming the building into a new
creative office building with a five-story atrium. Additionally, 555 California has 30,000-sf office plates with 700,000 sf of protected, unobstructed views, twice as much as its direct competitors.
• Strong Tenancy and Granular Rent Roll – Bank of America, at 18.1% of NRA, is the only tenant at the property accounting for more than 10.0% of NRA. Bank of America recently executed a lease extension commencing in October 2025 for 10 years. The highly granular rent roll is well diversified, consisting of 41 unique tenants with 19 investment-grade tenants and AM Law rated tenants, accounting for 68.7% of NRA. Additionally, only 1.4% of NRA (25,701 sf) of leases are subleased for a WA rent of $90.12 psf to FTV Management Company (962 sf), KKR Credit Advisors (4,673 sf), and LendingHome Corporation (20,066 sf), greater than the in-place WA rent of $79.85 psf. Five tenants, accounting for 2.1% of NRA (37,544 sf), have requested rent relief between May 2020 and July 2020 and are scheduled to repay in 2021. • Recent Leasing Momentum – Since 2019, the Campus has renewed or signed approximately 512,825 sf with a WA rent psf of $101.56 equal to $27.0 million of total net. Most recently, the Goldman Sachs Group (Goldman Sachs) executed a five-year lease renewal for 90,000 sf at 555 California, increasing its rent to $110 psf from a base rent of $59-$75 psf. Additionally, Kohlberg Kravis Roberts & Co. L.P. recently executed a four-year renewal for 50,515 sf at a base rent of $110 psf.
Concerns • Coronavirus-Related Risks – The ongoing coronavirus pandemic continues to pose challenges and risks to virtually all major commercial real estate property types and has created an element of uncertainty around future demand for office space, even in gateway markets that have historically been highly liquid. While some tenant spaces are not completely occupied as employees have continued to work from home during the pandemic, all tenants are now open and operating. Approximately 2.1% of the tenants based on total NRA have requested rent relief, most of which are retail tenants. Between December 2020 and March 2021, collections equated to approximately 98.0% with deferrals and abatements combined equating to less than 1% of total revenue. According to management, daily headcount at the property is still much lower than average. At 555 California, the average has been 200 a day compared to about 4,500-5,200 a day prior to the pandemic. • Lease Turnover – The Campus has three years during the loan term with tenant rollover exceeding 10% of NRA: 2023, 2025, and 2026 with 10.4%, 22.6%, and 18.8% rollover, respectively. Leases representing approximately 64.3% of the NRA at the property will roll over through 2028. The loan’s cash management provisions are based on a simple 5.5% debt yield trigger in order to sweep excess cash flow or collect reserves for re-tenanting expenses. Furthermore, the tenant rollover reserve is capped at $3,637,800 in aggregate, and the replacement reserve is capped at $1,000,000 in the aggregate. Also, the borrower is allowed to replace any actual cash reserves with a letter of credit or guaranty from an affiliate as further detailed in the loan document.
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• Vacant Building – 345 California is currently 100% vacant after undergoing a $60.8 million renovation. The space is not easily subdivided and is best suited for a single tenant. Management indicates there
are no tenant letters of intents (LOI) issued. However, during the site inspection on-site management stated there has been interest by prospective tenants.
• Seismic Risk – The aggregate probable maximum loss (PML) for 555 California and 345 Montgomery
according to the seismic consultant is 14%, and the 315 California building PML is 19% due to its much older construction. The borrower carries an all-risk blanket insurance policy that includes earthquake coverage.
• Interest-Only Loan: The loan is IO for the entire term. The lack of principal amortization during the loan term can increase the refinance risk at maturity. The loan leverage is considered moderate at a 58.5% LTV based upon the market appraised value and a DBRS Morningstar 90.21% LTV. Furthermore there is no additional debt allowed other than trade payables capped at 4% of the initial loan amount. • Cash-Out refinance – The sponsor is cashing out approximately $616.0 million of equity, equal to 30.1% of the cost basis. Although the sponsor is extracting an exceptional amount of capital out of the assets, it has also invested substantially in the properties since 2016, spending an estimated $164.8 million on the campus to improve it. • Bank of America, Kirkland & Ellis LLP, and UBS Financial Services (collectively 32.0% of NRA and 33.1% of UW base rent) have the options to terminate their leases. DBRS Morningstar did not give LTCT credit for the Bank of America spaces on floors 11 and 44 that carry the early termination options. All of the tenants have spent considerable amounts of their own capital to improve their spaces, and Bank of America is currently undertaking a full renovation of its space. • Legal and Structural Considerations • No Guarantor - There is no recourse carve-out guarantor for the loan, and certificateholders must look solely to the net revenues from the operation of the property and any net proceeds from the refinancing or sale of the property for payment of amounts due on the loan. The borrower “Bad Boy” guarantees and consequent access to a guarantor help mitigate the risk and increased loss severity of bankruptcy, additional encumbrances, unapproved transfers, fraud, misappropriation of rents, physical waste, and other potential bad acts of the borrower or its sponsor. The borrower is a recycled special purpose entity (SPE) indirectly owned and controlled by a joint venture between Vornado Realty L.P. (“VRLP” or “Vornado”) (70.0% of the equity interest) and Donald J. Trump or one or more trusts for such individual or any affiliate (30.0% of the equity interest). • Permitted equity transfers - a transfer of the indirect beneficial interests in the borrower owned by Trump may occur, provided that Vornado and/or eligible qualified owners will still control the borrower and directly or indirectly own at least 20% of the direct or indirect beneficial interests in borrower in the aggregate. If any transfer results in any person (together with its affiliates and family members) acquiring more than 49% of the direct or indirect equity interest in borrower, an additional insolvency opinion must be delivered that in the lender’s (servicer’s) reasonable judgment satisfies the then-current rating agency criteria. The transfer must meet all legal requirements including OFAC, the Patriot Act and ERISA. Any person that acquires, directly or indirectly, 50% or more of the equity interests in borrower must be an institutional investor. The eligible qualified owner and institutional
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investor definitions generally require real estate assets owned to be in excess of $2 billion and net worth in excess of $1 billion. The borrower may not permit any transfer of any
Vornado direct or indirect interest in the borrower to Trump without the express written consent of the lender, which can granted or withheld in the lender’s sole and absolute
discretion, and any such transfer of any direct or indirect interest in the Borrower held by
Vornado to Trump will not be considered a permitted transfer.
• Libor Elimination and Benchmark Transition – The underlying mortgage loan for the transaction will pay floating rate, which presents potential benchmark transition risk as the deadline approaches for the elimination of Libor. The transaction documents provide for the transition to an alternative benchmark rate, which is primarily contemplated to be either Term Secured Overnight Financing Rate (SOFR) or Compounded SOFR plus the applicable Alternative Rate Spread Adjustment. Term SOFR does not currently exist and there is no assurance it will fully develop or be widely adopted. Compounded SOFR, which is expected to be a backward-looking rate generally calculated using actual rates during the applicable interest accrual period, is considered by some servicers to be less practical to implement. The servicer for the transaction will have sole discretion over various aspects of a benchmark transition. Any uncertainty or delay in transitioning to an alternative to Libor could lead to unforeseen issues for both the mortgage loan borrower and certificateholders. Additionally, in order to extend the loan, the borrower must also obtain a replacement interest rate cap agreement. If a replacement agreement is not commercially available, the borrower can propose an alternative hedging instrument that would provide substantially equivalent protection from increases in the interest rate. However, the servicer can reject any proposal and impose its own hedging solution, if any.
Summary of the Debt Capital Structure JPMorgan Chase Bank, National Association originated the two-year (seven year fully extended) mortgage loan that pays fixed-rate interest of 2.11% on an IO basis through the term of the loan.
Mortgage Loan Summary
Mortgage Loan Balance 1,200,000,000 Cash Management Springing Amortization IO Lockbox Hard Interest Rate L + 2.00% Interest Accrual Actual/360 Fixed/Floating Rate Floating (Libor) Assumable Yes Interest Rate Cap, Strike Rate Yes, 4.00% Prepayable Yes Initial Loan Term: Two Extension Terms: Five one-year
Debt Structure
Tier Debt Amount ($) Interest Payment Term DBRS Morningstar DBRS Morningstar Rate (%) Terms (Months) DSCR (x) LTV (%) Senior Mortgage 1,200,000,000 2.11 Interest-only 84 3.37 90.2 Total/WA 1,200,000,000
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Sources and Uses The mortgage loan proceeds of $1.2 billion will be used to refinance existing debt, fund outstanding
tenant improvements, outstanding leasing commissions, free rent reserves, Bank of America capital improvements, cover closing costs, and return $617.8 million of equity to the loan sponsor.
Source Amount ($) % of Total Uses Amount ($) % of Total
Senior Mortgage 1,200,000,000 100.0 Existing Debt 532,737,699 44.3 Return of Equity 51.5 616,040,299 Outstanding TI's Reserve 1.6 19,777,161
Outstanding LC's Reserve 5,054 0.0
Free Rent Reserve 12,509,463 1.0 BofA Capital Improvement Reserve 6,930,324 0.6 Closing Costs 12,000,000 1.0 Totals 1,200,000,000 100.0 1,200,000,000 100.0
Analytical Metrics The table below presents DBRS Morningstar's key NCF and valuation metrics as compared with the Issuer/arranger's assumptions:
Metric DBRS Morningstar Issuer/Arranger
Gross Potential Rent ($) 148,584,793.34 147,906,704.05 Net Operating Income ($) 97,776,672.53 100,546,823.85 Replacement Reserve ($) 11,313,644.27 11,092,282.33 Net Cash Flow ($) 86,463,028.26 89,454,541.53 Variance to Arranger NCF (%) -3.34% n/a Capitalization Rate (%)1 6.5 4.36
Concluded Value/Appraised Value ($) 1,330,200,434.78 2,050,000,000.00 Value PSF ($) 731.32 1,127.05 Mortgage Loan DSCR on NCF (x)2 1.18 1.23
Mortgage LTV (%) 90.21 58.5 1. The issuer's capitalization rate was derived from the issuer NCF and the appraised value. 2. The NCF DSCR was based on a spread of 2.000% on the trust debt and assumed 1-month Libor of 0.11%.
Collateral Summary The 555 California Street Campus is a 1.8 million-sf Class A office complex in the North Financial District of San Francisco. The Campus comprises three office buildings, 555 California, a 1.5 million-sf, 52-story building containing more than 1.4 million sf of office space, a 20,493 sf fitness center, a 10,000 sf auditorium, and a 5,326 sf restaurant; 315 Montgomery, a 235,441-sf, 17-story office building composed of 221,251 sf of office space and 14,190 sf of street level retail; and 345 Montgomery, a 77,999-sf office building, which is nearing completion after its $60.8 million ($780 psf) renovation and conversion to a creative office space. Since 2016, the properties have collectively received $164.8 million ($90.63 psf) in
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capital improvements. 555 California features 420 parking spaces managed and operated by ABM Parking Systems, Inc. 555 California also features a 20,493-sf fitness club, over 20,000 sf of storage
space, and a 10,000-sf auditorium. The property was minimally affected by the coronavirus pandemic with approximately 2.1% of the tenants based on total NRA requesting rent relief, including Boys’ Deli,
Bay Club, Bright Horizons, Proper Foods, and Servcorp. Collections have remained between 98% and
100%.
The Campus had approximately 512,825 sf of new and renewal leasing since December 2019 with a WA lease rate of $101.56 psf, including Bank of America and Goldman Sachs. Goldman Sachs recently executed a five-year lease renewal at a base rent of $110 psf. Bank of America executed two lease extensions, including a 10-year extension at 555 California commencing in October 2025, with a base rent equal to 100% of the determined fair market value 15 months prior to current lease expiration in July 2024. Additionally, Bank of America will have the right of first offer to lease the third, fifth, 12th, and 13th floor for fair market value. Bank of America has the option to terminate the entire fourth or 11th floor, but not both, effective September 30, 2025, with a minimum of 18 months’ notice.
Additionally, the tenant can terminate its 44th floor lease any time at $35 psf given 18 months' notice independent of any decisions made with the fourth and 11th floor. DBRS Morningstar did not give straight line rent step credit to the 11th and 44th floor to account for these termination options.
Bank of America also executed a five-year extension at 315 Montgomery in March 2019 for 55,940 sf of office space at $80 psf with annual steps and a tenant allowance of $32.50 psf, 6,597 sf of utility space at $35 psf with annual steps. The tenant has the termination right to suites 001B to 0016 at any time with a minimum of 12 months' notice. The termination fee for each is the sum of the base rent and operating expenses payable six months following termination and unamortized tenant improvements, leasing commissions, and free rent.
The Campus comprises three LEED Gold certified and Energy Star rated office buildings, 555 California Street and 345 Montgomery were built in 1971 while 315 Montgomery was built in 1921. Although the Campus’s vintage is generally older, it has received approximately $164.8 million or $90.63 psf of capital improvements since 2016, maintaining the properties’ best-in-class status. 555 California received $64.3 million for concourse renovations and retail enhancements, the opening of the Vault restaurant, roof replacement, new lobby furnishings, HVAC upgrades, and modernizations to the restrooms. 315 Montgomery received $39.7 million, and 345 Montgomery received $60.8 million to complete a full gut renovation and restoration, transforming the building into a new creative office building with a five-story atrium. Capital improvements often play a significant role in retaining existing tenants as well as attracting new tenants to a property. Additionally, 555 California has 30,000 sf floor plates with 700,000 sf of completely protected, unobstructed views, which helps drive demand.
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Property Improvements Building SF $ PSF
555 California $64.3 million 1,505,461 42.72
Concourse Renovation and Retail Enhancement
Opening of The Vault Restaurant
Roof Replacement
New Lobby Furnishings
Supplemental HVAC Upgrades
Restroom Modernization
315 Montgomery $39.7 million 235,441 168.74
Roof Deck Installation
Lobby Remodeling Restroom Modernization
Exterior Lighting Upgrade Security Technology Upgrades 345 Montgomery $60.8 million 77,999 779.56
Gut Renovation and Development of New Creative Office Building
New Glass Level Storefronts Installation of Two New OTIS Elevators
New Restrooms with SOM Designed Finishes on Each Floor Structural Seismic Upgrade
Tenant Summary and Lease Terms The top three tenants at the Campus are Bank of America, Kirkland & Ellis, and Morgan Stanley. The top five tenants by base rent account for 48.1% of the tenant base and they are either law firms or in the financial services sector. Only the largest tenant, Bank of America, qualified for LTCT treatment.
Bank of America - (M/F/S&P:A2/A+/A-) – A multinational investment bank and financial services company and is considered the second-largest banking institution in the U.S. by total assets. Bank of America serves approximately 66 million customers throughout the U.S. and 34 other countries. Bank of America executed a 10-year lease extension commencing in October 2025 for 100% of the fair market value rent, which will be determined 15 months prior to the extensions. Bank of America has termination options in September 2025 for the fourth or 11th floor, and the 44th given 18 months' prior notice and at any time for the basement suites at 315 Montgomery given 12 months' prior notice.
Kirkland & Ellis was founded in 1909 and is now an international law firm with more than 2,700 attorneys in 15 offices throughout the world, serving clients in private equity, M&A, and other corporate transactions, litigation, white collar government disputes, restructurings,
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and intellectual property matters. Kirkland & Ellis LLP has a one-time termination option for 30,453 sf on the 24th floor effective September 2025 subject to 12 months' notice and payment of a termination fee
equal to $1,804,470.
Morgan Stanley - (M/F/S&P:A3/A/A+) - A global financial services company headquartered in New York City. Morgan Stanley has more than 55,000 employees operating in 42 countries globally providing services in institutional securities, wealth management, and investment management.
Tenant Name Lease Start Lease Remaining NRA (sf) % of Expiration Term (yrs) NRA
Bank of America NA 10/1/2015 9/30/2035 14.0 329,013 18.1 Kirkland & Ellis LLP 4/15/2004 9/30/2030 9.0 152,502 8.4 Morgan Stanley & Co. 1/1/1988 10/31/2023 2.0 131,792 7.2 LLC Dodge & Cox 2/3/2003 9/30/2025 4.0 122,307 6.7 UBS Financial Services 11/19/2007 9/30/2029 8.0 101,319 5.6 The Goldman Sachs 3/23/2010 9/30/2026 5.0 90,624 5.0 Group, Inc. Fenwick & West LLP 10/1/2015 1/31/2026 4.0 85,905 4.7 Jones Day 9/12/2014 12/31/2025 4.0 62,943 3.5 Sidley Austin LLP 3/1/2006 2/28/2026 4.0 54,283 3.0 McKinsey & Company, 5/1/2017 4/30/2027 6.0 53,981 3.0 Inc. Total/WA Occupied 7.7 1,184,669 65.1
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Rollover Schedule The Campus has 71.0% of the cumulative rent expiring through the maturity date with three years
exceeding 10.0%: 2023, 2025, and 2026, which account for 10.1%, 24.7%, and 21.7% of total rent, respectively.
Expiry Year Expiring SF % of NRA Cumulative SF Cumulative % of % of Gross Rent Cumulative % of
Expiring Total SF Expiring Rolling Gross Rent MTM 4,369 0.2 4,369 0.2 0.0 0.0
Prior 0 0.0 0 0.2 0.0 0.0
2021 385 0.0 385 0.3 0.0 0.0
2022 18,656 1.0 19,041 1.3 1.4 1.4
2023 189,510 10.4 208,551 11.7 10.1 11.5 2024 82,069 4.5 290,620 16.2 5.5 17.0 2025 411,436 22.6 702,056 38.8 24.7 41.7 2026 342,175 18.8 1,044,231 57.7 21.7 63.4 2027 92,358 5.1 1,136,589 62.7 5.9 69.3 2028 28,017 1.5 1,164,606 64.3 1.7 71.0 2029 111,270 6.1 1,275,876 70.4 7.5 78.5 2030 152,016 8.4 1,427,892 78.7 8.9 87.4 Beyond 253,006 13.9 1,680,898 92.7 12.6 100.0 Vacant 133,634 7.3 1,814,532 100.0 0.0 100.0 Total 1,818,901
Market Overview According to the appraisal, the collateral is in the North Financial District of Northeast San Francisco, the most concentrated employment center in northern California. The appraiser added that most construction in the market took place between 1950 and 1990, and now the market is incredibly supply- constrained with 98% of the area built up, leaving only minimal space for redevelopment. The San Francisco CBD’s office inventory includes 54.2 million sf (65% of total inventory) of office space. In addition, there are several apartment and high-rise hotels within the submarket, although the majority uses are office and retail. The market saw a significant slowdown in Q4 2020 as a result of weak demand caused by the coronavirus pandemic and limited modern inventory, which increased the average vacancy rate by 11.3 percentage points, to 16.7% year-over-year. The San Francisco average asking rate grew to an all-time high of $83.11 psf in Q2 2020; however, average rent fell to $75.11 psf by Q4 2020, a decline of 8.8% from the prior year while the CBD submarket’s decreased by $8.36 psf year over year to $77.32 psf. Although leasing activity slowed to 2.2 million sf from 7.7 million sf the previous year, most leasing activity took place in the North Financial District.
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Submarket Overview
Exhibit 1 Historical Occupancy
Reis Submarket The Campus
100.00%
98.00%
96.00%
94.00%
92.00%
90.00%
88.00%
86.00%
84.00%
82.00%
80.00% 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011
Note: Historical Vacancy at the Campus from 2015 to 2020 is inclusive of historical vacancy at the 555 California Street and 315 Montgomery Street properties as the 345 Montgomery Street property underwent a complete renovation that was completed in 2021. Source: DBRS Morningstar.
According to the appraisal, the North Financial District is the center of business activity in San Francisco and accounts for approximately half of the San Francisco CBD inventory with 26.3 million sf of office space. The property is located north of Market Street, surrounded by mostly high-rise office buildings with street level retail and service businesses. The CBD has demonstrated strong historical occupancy, ranging from approximately 87% to 96% since 2010. As of Q4 2020, the North Financial District has an overall office vacancy rate of 17.6% and a direct WA Class A rent of $85.96 psf, slightly higher than the Southern Financial District at $85.44 psf. The appraiser noted an anticipated 3.1 million sf of office inventory coming to market between 2021 and 2023, none of which will enter the North Financial District; however, 1.3 million sf will enter the South Financial District. According to Reis, only 57,000 sf of office space has been added to the submarket since 2011 and 247,000 sf was added by conversion, equal to an annualized inventory growth rate of 0.1%.
DBRS Morningstar is concerned about the coronavirus’ impact on office and retail space. However, the submarket is strong, demonstrating high historical demand. Additionally, the property has seen a significant amount of lease renewals from large, credit-rated tenants with significant rent increases, a testament to both the submarket’s performance and the Campus’ overall property quality.
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Lease and Sales Comparable The appraiser has identified the competitive office buildings, comparable leases, and recent sales
comparable for the property as shown below:
Direct Competitive Buildings for 555 California Street and 345 Montgomery Street
Property SF Year Built
Four Embarcadero 1,035,779 1980 One Embarcadero 832,030 1970 Market Center 470,726 1975
101 Mission Street 206,455 1984
Transamerica Pyramid 512,395 1972 101 California Street 1,243,000 1982 WA 716,731 1977 555 California 1,505,461 1971 345 Montgomery 77,999 1971 Source: Appraisal.
Direct Competitive Buildings for 315 Montgomery Street
Property SF Year Built
The Rialto Building 135,489 1910 20 California Street 51,412 1908 Pacific Bank Building 130,000 1920 Insurance Center Building 125,000 1967 101 Montgomery Street 278,000 1984 WA 143,980 1938 315 Montgomery 235,441 1921 Source: Appraisal.
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Direct Competitive Buildings for 555 California Street and 345 Montgomery Street
Tenant Address SF Lease Date Term (Yrs.) Initial Rent Free Rent (mo.) TI's psf ($psf) Parthenon Capital Partners Four Embarcadero 5,181 9/20 5 108.00 2 20.00
Frank Rimerman and Company One Embarcadero 5,000 8/20 7 105.00 6 70.00
Consulate General of Norway Market Center 5,261 6/20 5 98.52 0 25.00
Constellation Brands 101 Mission Street 26,914 5/20 10.5 122.00 6 20.00
Orbis Investment Management Transamerica Pyramid 19,800 5/20 3 94.80 0 0.00
Sitecore 101 California Street 24,907 4/20 3 99.00 1 0.00
WA 14,511 6 106.01 3 8.71
Source: Appraisal.
Lease Rent Comps
Tenant Address SF Lease Date Term (Yrs.) Initial Rent Free Rent (mo.) TI's psf ($psf) Ginger.io The Rialto Building 14,338 7/20 1.0 91.56 0 0.00 Etsy 20 California Street 15,870 7/20 2.0 78.96 1 0.00 AlphaSights Pacific Bank Building 8,435 7/20 4.0 84.00 5 0.00 Impact Community Capital Insurance Center Building 5,557 5/20 7.3 84.00 3 45.00 DGE Investments 101 Montgomery Street 2,339 5/20 5.0 80.00 1 50.00 WA 9,308 2.8 84.41 2 22.47 Source: Appraisal.
Office Sales Comparables
Property Date Closed NRA (SF) Occupancy (%) Price ($ million) $ PSF Cap Rate (%)
The Exchange 3/2021 750,370 100.0 1,080,000,000.00 1,439.29 4.9 510 Townsend Street 11/2020 295,333 100.0 363,700,000.00 1,231.49 4.9 Park Tower at Transbay 8/2019 764,700 100.0 1,100,000,000.00 1,438.47 4.5 Townsend Center 7/2019 670,000 100.0 602,679,598.00 899.52 5.7 Gap Inc. 1/2019 289,408 100.0 342,500,000.00 1,183.45 4.0 600 California Street 8/2019 358,590 100.0 322,800,000.00 900.19 - 301 Howard St 8/2018 310,418 98.0 292,500,000.00 942.28 4.8 WA n/a 491,260 99.8 717,819,082.59 1,193 4.9 Source: Appraisal.
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DBRS Morningstar NCF Analysis
NCF Analysis
Budget - Year 1 Issuer NCF DBRS Morningstar NCF NCF Variance (%)
GPR ($) 144,453,927 147,906,704 148,584,793 0.5 Recoveries ($) 16,372,680 16,372,680 15,023,416 -8.2
Other Income ($) 3,646,470 3,646,470 3,485,905 0 Vacancy ($) -3,818,203 -10,307,795 -10,323,773 0.2 EGI ($) 160,654,874 157,618,059 156,770,341 -0.5 Expenses ($) 60,793,491 57,071,235 58,993,668 3.4 NOI ($) 99,861,383 100,546,824 97,776,673 -2.8 Capex ($) 0 363,780 745,970 105.1
TI/LC ($) 8,396,861 10,728,502 10,567,675 -1.5 NCF ($) 91,464,522 89,454,542 86,463,028 -3.3
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.
EGI – DBRS Morningstar concluded its EGI based on the rent roll provided, including 12 months of contractual rent steps. DBRS Morningstar provided LTCT treatments for the Bank of America suites located in 555 California, excluding floors 18 and floors 44 due to the termination options previously mentioned. DBRS Morningstar used the in-place economic vacancy of 7.1%, of 6.6% of EGI. DBRS Morningstar concluded the to the 2019 reimbursement ratio for CAM and Utility Reimbursements. Real Estate Tax Reimbursements, Storage Income, and Miscellaneous Recoveries were equal to the 2022 Budget.
Operating Expenses – DBRS Morningstar most expense line items to the 2022 Budget.
Management Fee and Fixed Expenses – DBRS Morningstar concluded management fees to the higher of $1 million or a floor of 1.5% of EGI.
DBRS Morningstar concluded real estate taxes to the Appraiser’s assumption for both Ad Valorem Taxes and Special Assessments. DBRS Morningstar assumed the Real Estate - Prop C equal to the Budget 2022 value.
Insurance is equal to the Budget 2022 value.
Replacement Reserves and TI/LCs – DBRS Morningstar concluded capex/replacement reserves of $0.41 psf, equal to the Property Condition Report’s assumptions for both 555 California and 315 Montgomery, values of $0.42 psf per year and $0.40 psf per year, respectively. DBRS Morningstar assumed a value equal to $0.25 psf per year for 345 Montgomery.
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DBRS Morningstar based its TI/LC assumptions on a WA $73.85 psf for new leases and $36.92 psf for renewals on a 10-year term with a renewal probability of 65% across all spaces (excluding Bank of
America’s suites receiving LTCT treatment, which received no TI/LCs on their respective spaces) and storage suites. LCs were based on 4.0% for new leases and 2.0% for renewals.
DBRS Morningstar Valuation DBRS Morningstar concluded a capitalization rate of 6.5% for the property, which resulted in a value of $1.33 billion or $731.32 psf.
Third-Party Reports Appraisal DBRS Morningstar reviewed the appraisal reports prepared by Cushman & Wakefield for the property. The as-is appraised value as of March 16, 2021, was concluded to be $2.05 billion or $1,127.05 psf. The appraiser also concluded a prospective as-stabilized value as of March 1, 2022, of $2.12 billion or $1,165.54 psf. The property has an appraised land value of approximately $473.0 million or $260.05 psf.
Property Condition Assessment EBI Consulting performed a property condition assessment report for the property dated March 26, 2021. The report did not identify any immediate repairs. The assessment recommended an inflated replacement reserve of $0.42 psf per year for 555 California, $0.40 psf per year for 315 Montgomery, and $0.0 psf per year for 345 Montgomery.
Engineering Report EBI Consulting performed a Phase I environmental site assessment report for the property dated March 25, 2021. It concluded that there are no recognized environmental concerns associated with the property. No concerns regarding hazardous material use and storage were identified during the site inspection.
Seismic Report EBI Consulting performed a seismic report for the property dated March 26, 2021. The properties are located in a seismic zone 4, and the probable maximum loss (PML) estimates are listed in the table below. The properties do not meet the building stability requirements but do meet site stability requirements. The building stability concerns are related to the pre-Northridge earthquake steel moment frames in all three buildings. In particular, it was noted the as-built framing system for 315 California appears to have some potential for a localized collapse. The steel moment frames may be susceptible to brittle fracture failures and the masonry elements are susceptible to out-of-plane failure during seismic ground motions.
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Property Damage Ratio (PML) (%)
555 California 13
345 California 13 315 California 19
Aggregate 14
Source: EBI Consulting.
Site Inspection
DBRS Morningstar toured the property on Wednesday, April 14, 2021, at 11:00 a.m. with property
representatives. Based on the site inspection, DBRS Morningstar found the property quality to be Above
Average. The collateral is an iconic, trophy office campus consisting of three Class A office buildings in the North Financial District of downtown San Francisco. The property occupies the entire city block bounded by California Street, Kearny Street, Pine Street, and Montgomery Street.
The North Financial District, which serves as the city’s CBD, is surrounded by Chinatown to the northwest, North Beach to the north, the Embarcadero waterfront and San Francisco Bay to the east, and Market Street, with the iconic retail shopping area known as Union Square to the south. The surrounding area is fully developed with mid- and high-rise office buildings, hotels, and street-level retail. One of the city’s three famous cable-car lines operates along California Street, directly in front of the subject. Other public transportation includes bus service (the San Francisco Muni), as well as train service and BART, which now share the major, newly completed TransBay Terminal located less than one mile to the southeast.
The subject three buildings include 1) 555 California Street, a 1.5 million-sf , 52-floor property; 2) 315 Montgomery Street, a 235,441-sf, 17-floor mid-rise; and 3) 345 Montgomery Street, a 77,999-sf, five- story property. 555 California Street, which was constructed in 1971, was built by Bank of America and served as its headquarters until 1998, when the firm merged with Charlotte, North Carolina-based NationsBank. When completed, it was the tallest building west of the Mississippi River until the nearby Transamerica Tower Pyramid displaced it in 1972. However, the building continued to serve as a pinnacle of the San Francisco skyline until the 1,070-foot Salesforce Tower was completed in 2018. Colloquially known as "Triple Five" and/or "Triple Nickel," 555 California Street was meant to display the wealth, power, and importance of Bank of America. The building was designed by Wurster, Bernardi and Emmons; and Skidmore, Owings and Merrill, with architect Pietro Belluschi consulting. The building has thousands of bay windows, meant to improve the rental value and to symbolize the bay windows common in San Francisco residential real estate. The irregular cutout areas near the top of the building were designed to suggest the Sierra Nevada Mountain Range in eastern California. The property features a total of 28 primary passenger elevators. At the north side of the skyscraper is a broad plaza named in honor of Bank of America founder A.P. Giannini. The plaza, stairways, and sidewalk are clad in costly polished or rough carnelian granite. This property also features a four-level subterranean garage.
The second of the three-building project, 315 Montgomery Street, also known as the Commercial Union Assurance Building, was built in the Renaissance Revival style in 1921. This property is fully improved as
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a Class A office property. 345 Montgomery Street was completed soon after 555 California Street and served as a major Bank of America branch and retail banking center until 2009. This structure has
recently completed a $60.8 million ($779.56 psf) renovation that transformed it into a multilevel, creative office center surrounding an impressive five-story atrium. Finishes such has final flooring and demising
will be subject to the needs of future tenants.
Pursuant to a March 2021 Rating Agency Presentation provided by J.P. Morgan, the subject campus is currently 92.7% occupied by a total of 41 tenants, including Bank of America (18.1% of NRA), the international law firm of Kirkland & Ellis (8.4% of NRA), Morgan Stanley (7.2% of NRA), the fund management firm of Dodge & Cox (6.7% of NRA), UBS (5.6% of NRA), and Goldman Sachs (5.0% of NRA). Tenant leases representing approximately 71.0% of the total NRA are scheduled to expire before 2028. Per a management representative, there have been no substantive changes to the tenant rent roll since January 2021. Most of the property’s vacancy (78,000 sf) is centered in the now-completed 345 Montgomery Street building. There has been significant interest in this building, even during the pandemic, because it could represent enhanced visibility with signage for a single tenant.
Management reports that during the past several months, the total number of individuals (both employees and visitors) entering the main building, 555 California Street, has averaged about 200 daily, compared with more than 4,500 on a typical weekday during 2019. Many offices are completely closed, relying on offsite staff during the work-from-home period. Others, although not technically open, retain small onsite staffs. However, none of the major tenants have requested rent deferrals or discussed decreasing their footprints. In fact, several larger tenants have committed to renewals of existing space during the past six months. Office asking rates within 555 California Street vary but generally reflect a range of $65.00 psf to $110 psf, depending on floor level and TI requirements. Except for the Vault Restaurant (fine dining) which has remained active during weekends, all the food service vendors, concentrated in the interior concourse that connects 555 California and 345 Montgomery, have been closed for several months; none, however, have terminated occupancy.
During the last half of the 2010–20-decade, San Francisco office space gained a reputation as being significantly constrained. There has been little major new construction in the North Financial District for more than two decades. However, with the substantial demand generated by web-based firms and social media companies, rapid development of Class A office has been centered in the South of Market (SoMa) and Mission Bay Districts, to the south. A number of professional market participants (Kidder Matthews, JLL, CBRE, etc.) have reported that rates may continue to soften somewhat through 2021, but overall office availability, estimated at about 15% for Q1 2021, will plateau and may slowly return to about 10% with 18-24 months. In summary, the 555 California Street Campus is not only a strong competitor, it is a leader within this market/submarket. Existing tenants apparently remain confident that many/most employees will return to the office environment after the waning of the coronavirus pandemic. Others suggest that, even though the need for office space may decrease, overall space will remain consistent thanks to future expansions of dedicated space/employees. The 555 California Street Campus has been an iconic trophy property for more than 50 years and remains a contemporary center for office deployment within San Francisco.
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Rating Rationale
DBRS Morningstar determined the 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. DBRS Morningstar determined its concluded sustainable NCF and sustainable value of the underlying properties 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), borrowers, trust LTV, limited property type and geographic diversity, and other factors relevant to the credit analysis. DBRS Morningstar adjusted its maximum LTV thresholds (the Quality/Volatility Adjustment) to account for the following factors: • Property Quality: The Campus consists of three Class A office properties that recently received a total of $164.8 million in capital improvements. 555 California is a high-quality asset with unmatched views. 315 Montgomery benefits from an extensive renovation completed over the past four years, with approximately $39.7 million in capital invested in the building. 345 Montgomery is nearly completed with its $60.8 million full renovation and conversion into a multilevel modern creative office building. DBRS Morningstar increased its LTV threshold 2.5% to account for property quality • Market Fundamentals: The Campus has a full block of frontage space on California Street in the North Financial District, an incredibly supply-constrained submarket with minimal space for redevelopment and a 10-year historical occupancy rate of 91.7% according to Reis. DBRS Morningstar raised the maximum LTV threshold by 2.5% to account for market fundamentals. • Cash Flow Volatility: The Campus’ occupancy rate is 92.7% as of the February 1, 2021, rent roll, occupied by 41 unique tenants. The Campus benefits from 68.7% of the NRA represented by 19 investment-grade tenants and AM Law rated tenants. DBRS Morningstar raised the maximum LTV threshold by 3.0% to account for cash flow volatility.
DBRS Morningstar determined the 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.
DBRS Morningstar determined its concluded sustainable NCF and sustainable value of the underlying property by applying its 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, 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.
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):
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To the Class A certificates then outstanding:
1. First, to the Class A Certificates, (a) first to interest entitlements; (b) next, to the principal
distribution amount for such distribution date until the certificate balance is reduced to zero, and then (c) to reimburse Class A Certificates then outstanding for any previously unreimbursed
losses previously allocated.
2. After the Class A certificates then outstanding are paid all amounts to which they are entitled for such distribution date, the remaining funds available for distribution will be used to pay interest and principal to the Class B, C, D, E and F certificates sequentially in that order in a manner analogous to the Class A certificates in paragraph 1 above, until the certificate balance of each class is reduced to zero.
3. Next to the Class HRR Certificates, (a) first to interest entitlements; (b) next, to the principal distribution amount for such distribution date until the certificate balance is reduced to zero, and then (c) to reimburse Class HRR Certificates then outstanding for any previously unreimbursed losses previously allocated. 4. When the certificate balances of all of the above classes have been reduced to zero and after all trust expenses have been reimbursed to the Class R Certificates, any remaining amounts.
Realized Losses: On each distribution date any realized losses on the trust loan will be allocated sequentially to the Class HRR, Class F, Class E, Class D, Class C, Class B, and Class A Certificates in each case until the Certificate Balance of that Class has been reduced to zero.
Loan-Level Legal and Structural Features Security: The loan is secured by (i) a mortgage, assignment of leases and rents and security agreement on the property, including the borrower’s fee-simple interest in the property, including all fixtures, equipment, and personal property used in the operation of the property and owned by the borrower and (ii) certain contract rights of the borrower, including certain rights of the borrower relating to the management agreement, cash management agreement, environmental indemnity agreement, interest rate cap 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 Guarantor(s): The borrower is HWA 555 Owners, LLC, a special purpose Delaware limited liability company. The borrower is a recycled special purpose entity indirectly owned and controlled by a joint venture between Vornado Realty L.P. (VRLP or Vornado) (70.0% of the equity interest) and Donald J. Trump or one or more trusts for such individual or any affiliate (30.0% of the equity interest). The loan does not require any additional non-recourse carve-out guarantor. Certificateholders must look solely to the net revenues from the operation of the property and any net proceeds from the refinancing or sale of the property for payment of amounts due on the loan.
General Loan Terms: The total debt financing is composed of in the aggregate principal amount of $1,200,000,000, which is expected to be deposited into the trust. For purposes of calculating interest and
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other amounts payable, the mortgage loan is divided into seven components, each corresponding to a class of certificates.
Cash Management: The borrower has established and is required to maintain one or more lockbox
accounts into which income from the property will be deposited and is required to direct all tenants to
remit all payments due under their respective leases to the lockbox account. The lockbox account is owned by or on behalf of the borrower but controlled by and pledged to the mortgage lender. The funds on deposit in the lockbox account will be directed into an operating account of the borrower as long as there is no trigger period (defined below) or event of default under the mortgage loan is continuing. During a trigger period or an event of default under the mortgage loan, all excess cash flow (after payment of all debt service, required reserves and operating expenses at the property) will be deposited to an excess cash flow reserve account controlled by the lender.
Trigger Period: During the loan term a trigger period occurs if the debt yield falls below 5.50% for two consecutive calendar quarters and is cured when the debt yield exceeds 5.50% for two consecutive calendar quarters. The debt yield will be calculated using the net operating income for the immediately preceding 12 full calendar month period without deduction for actual management fees incurred in connection with the operation of the property, or amounts paid to the reserve funds, less management fees equal to the greater of (1) assumed management fees of 3.00% of gross operations income from and (2) the actual management fees incurred.
Reserves: As part of the mortgage loan, an upfront reserves was funded for outstanding leasing costs in the amount of $39,222,002.
Upfront Reserves
Free Rent 12,509,463 TI/LC 19,782,215 Capital Improvements 6,930,324 Total 39,222,002
Ongoing reserves for taxes and insurance, rollover re-tenanting costs and property capital expenditures are only collected during a trigger period. Furthermore, the tenant rollover reserve is capped at $3,637,800 in aggregate, and the replacement reserve is capped at $1,000,000 in the aggregate. Also, the borrower is allowed to replace any actual cash reserves with a letter of credit or guaranty from an affiliate as further detailed in the loan document.
Maturity Date: The loan is structured with an initial maturity date of May 9, 2023, exclusive of 5 additional 12-month extension options. The borrower can extend under the following conditions: (a) no Event of Default has occurred; (b) the borrower provides the Lender (servicer) with written notice to extend no later than 30 days nor earlier than 120 days prior to the maturity date;
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(c) obtains a new interest rate cap agreement that will have a the LIBOR rate index or alternate rate index strike price equal to the applicable strike price in the loan document;
(d) in connection with borrower’s exercise of the fourth extension option, the spread will increase by 25 basis points; and
(e) in connection with borrower’s exercise of the fifth extension option, the spread will increase
by an additional 25 basis points.
Recourse Carveouts: Recourse on the loan is generally limited to the property and other assets that have been pledged as collateral for the loan. 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 imposed under the carveout guaranty under the loan documents, together with other carveout liabilities identified in the loan documents, including full recourse for voluntary or collusive bankruptcy filing. There is no recourse carveout guarantor for the transaction.
Existing or Future Additional Debt: The loan documents do not permit additional debt as part of this transaction, with the exception of customary exceptions for trade payables and other property expenses, not to exceed 4% of the initial principal amount of the loan which liabilities are not more than 60 days past the date incurred, are not evidenced by a note and are paid within 60 days of the date incurred.
Prepayment: The mortgage loan may be voluntarily prepaid in whole or in part at any time with the payment of a spread maintenance premium if prepaid prior to the payment date in May 2023 (except for prepayments in connection with casualty or condemnation).
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: i. the lender receives 30 days’ prior written notice thereof, unless the transfer (A) does not result in any person acquiring 10% (or following the securitization 20%) or more interest in the borrower and such person did not own 10% (or following the securitization, 20%) or more of the borrower prior to the transfer, or (B) is between or among the beneficial owners of the borrower, or their affiliates; ii. after the transfer, Vornado and/or eligible qualified owners control the borrower and own at least 20% of the beneficial interests in the Borrower in the aggregate; iii. immediately prior to such Transfer, no Mortgage Loan Event of Default will have occurred and be continuing; iv. the Borrower will remain an SPE; v. the transfer does not violate any legal requirements; vi. if the Transfer results in any person acquiring more than 49% of the equity interest in the borrower and such person did not own more than 49% of the borrower before, a new non- consolidation opinion will be required;
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vii. the property will continue to be managed by a qualified manager; and viii. any person that acquires 50% or more of the borrower will be an institutional investor.
Property Management: The property is managed and operated by borrower-affiliated SO Hudson 555
Management Inc. The management agreement became effective on March 1, 2006 with automatic one-
year renewals. The borrower cannot surrender, terminate or cancel (unless being replaced with a Qualified Manager and a new management agreement) or modify in any material respect, renew or extend any management agreement without the express consent of the lender (servicer), provided however, for the appointment by the borrower of a new property manager other than a Qualified Manager, a rating agency confirmation must be delivered.
Per the loan agreement, a Qualified Manager can be either: a. the existing manager; b. VRT, VRLP and/or any of their property management affiliates; c. CB Richard Ellis, Inc.; d. Jones Lang LaSalle,; e. Cushman & Wakefield; f. Newmark Knight Frank; g. a property manager that • i. has at least five years’ experience in the management of Class-A office properties in major metropolitan areas of the United States, • ii. has under management leasable square footage (excluding the Property) equal to or greater than 5,000,000 leasable square feet and • iii. is not the subject of a Bankruptcy Action, or h. in the reasonable judgment of the lender (servicer), a reputable and experienced management organization (which could be an borrower affiliate) possessing experience in managing properties similar in size, scope, use and value as the subject property; provided that if required by the lender (servicer), the borrower obtains a rating agency confirmation and an additional insolvency opinion if the manager is a borrower affiliate.
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 property is covered by a blanket insurance policy. The all-risk insurance policy currently includes a $2 billion limit per occurrence, reinstating after each loss, subject to a $100,000 deductible. The all-risk limit includes coverage for business interruption and wind/named storm up to the full $2 billion limit per occurrence, also subject to a $100,000 deductible. The terrorism limit under the policy is $6 billion subject to a $100,000 deductible.
Earthquake insurance is required at all times in an amount not less than the 475-year annual aggregate probable maximum loss as indicated in a portfolio seismic risk analysis. The earthquake limit under the policy is $350 million with a deductible with a deductible equal to 5% of the total insurable value with a minimum of $100,000. Additionally, the borrower is required to maintain a portion of the property
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coverage with Cumis Specialty Insurance Company (rated “A XII by AM Best), Mercer Insurance Company (rated “A X” by AM Best) and Palomar Excess & Surplus Insurance Company (rated “A-IX” by
AM Best), on the California earthquake policy in their current participation amounts and positions within the syndicate, for so long as the ratings of the insurers as of the closing date are not withdrawn or
downgraded. If the insurer ratings are withdrawn or downgraded below the initial ratings as of the
closing date, the borrower is required to replace them with an insurer meeting the rating requirements in the mortgage loan agreement.
Casualty and/or Condemnation Proceeds: If there is no existing event of default under the loan documents, the threshold for any casualty insurance or condemnation loss proceeds to be deposited into a lender controlled account is $40,000,000.
Subject to satisfying other conditions in the loan documents, net insurance proceeds will be made available to the borrower if the cost of restoration would not exceed 40% (in the case of a casualty) or 15% (in the case of a condemnation) of the mortgage loan amount and the pro forma debt yield following restoration must equal at least 5%. If at any time the net proceeds in the reasonable opinion of the lender 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 (or provide other qualified credit support) before any further disbursement of the net proceeds are disbursed.
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. Floating Rate: The loan has a floating rate initially based on Libor. To mitigate the borrower’s exposure to increases in Libor, the loan documents require borrower to enter into a rate cap agreement. Per the offering documents, the borrower has entered into a rate cap agreement with an initial Libor strike rate of 4.00%, expiring. During an extension term the strike price will be the greater of 4.00% and the annual rate which when added to the sum of the spread and, if applicable, the an alternate rate spread adjustment would result in a DSCR equal or greater than 1.10x.
Libor Benchmark Transition: The mortgage loan pays floating-rate interest, initially based on a spread to Libor, which is anticipated to be phased out by the end of 2021. The loan documents include a mechanism for a replacement index and the orderly conversion to such index in the order described below, based on what can be determined by the lender (servicer) on the Benchmark Replacement Date (defined below): 1. the sum of (a) Term SOFR and (b) the Benchmark Replacement Adjustment; 2. the sum of (a) Compounded SOFR and (b) the Benchmark Replacement Adjustment; 3. the sum of (a) the alternate rate of interest that has been selected or recommended by the relevant governmental body as the replacement for the then current benchmark and (b) the Benchmark Replacement Adjustment; 4. the sum of: (a) the ISDA Fallback Rate and (b) the Benchmark Replacement Adjustment; or
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5. the sum of: (A) the alternate rate of interest selected by Lender and (B) the Benchmark Replacement Adjustment
Benchmark Replacement Adjustment: The spread adjustment added to the benchmark rate will be the
first alternative set forth in the order below that can be determined by the lender (servicer) as of the
Benchmark Replacement Date (defined below):
1. the spread adjustment (which may be a positive or negative value or zero), or method for calculating or determining such spread adjustment, that has been selected, endorsed or recommended by the Relevant Governmental Body for the applicable unadjusted benchmark replacement;
2. if the applicable unadjusted benchmark replacement is equivalent to the ISDA Fallback Rate, then the ISDA Fallback Adjustment; and 3. the spread adjustment (which may be a positive or negative value or zero) that has been selected by the lender giving due consideration to any evolving or then prevailing market convention for determining a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of the then-current benchmark with the applicable unadjusted benchmark replacement for U.S. dollar-denominated floating rate CMBS loans at such time; provided that, in the case of clauses (1) and (2) above, such adjustment is displayed on a screen or other information service that publishes such benchmark replacement adjustment from time to time as selected by the lender in its reasonable discretion.
Benchmark Replacement Date: 1. in the case of clause (1) or (2) of the definition of Benchmark Transition Event (defined below) the later of (a) the date of the public statement or publication of information referenced therein and (b) the date on which the administrator of the benchmark permanently or indefinitely ceases to provide the benchmark; and 2. in the case of clause (3) of the definition of Benchmark Transition Event, the date of the referenced public statement or publication of information.
Benchmark Transition Event: The occurrence of one or more of the following events with respect to the then-current benchmark will generally trigger a rate transition event: 1. a public statement or publication of information by or on behalf of the administrator of the benchmark announcing that it has ceased or will cease to provide the benchmark, permanently or indefinitely, provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide the benchmark; 2. a public statement or publication of information by the regulatory supervisor for the administrator of the benchmark, the central bank for the currency of the benchmark, an insolvency official with jurisdiction over the administrator for the benchmark, a resolution authority with jurisdiction over the administrator for the benchmark or a court or an entity with similar insolvency or resolution authority over the administrator for the benchmark, which states that the administrator of the benchmark has ceased or will cease to provide the benchmark permanently or indefinitely,
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provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide the benchmark; or
3. a public statement or publication of information by the regulatory supervisor for the administrator of the benchmark announcing that the benchmark is no longer representative.
Transaction Legal and Structural Features Appraisal Reductions: Following the date on which (1) the mortgage loan is 60 days delinquent in monthly payments or 90 days delinquent in the case of the balloon payment (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 a new appraisal 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 controlling class will be as of the date of determination the Class HRR certificates until the occurrence of a consultation termination event. No other class of Certificates will be eligible to act as the controlling class or appoint a controlling class representative. The controlling class representative will generally be the controlling class certificateholder or representative selected by at least 50.0% of the controlling class certificateholders.
For so long as no control termination event is continuing, the controlling class representative will have certain consent and consultation rights under the trust and servicing agreement with respect to certain major decisions and other matters. The controlling class representative will have the right to replace the special servicer at any time with or without cause and will have certain consent rights with respect to major decisions described in the trust and servicing agreement. During a control termination event, these consent rights will terminate and the controlling class representative will instead have certain consultation rights until the occurrence of a consultation termination event, as described in the trust and servicing agreement. For so long as a consultation termination event is continuing, no class of certificates will act as the controlling class and the controlling class representative will have no rights under the trust and servicing agreement.
It is expected that PCSD PR Cap IV NR Reten Private Limited, a Singapore private limited company, will be the third-party purchaser of the Class HRR certificates and appoint Prima Capital Advisors LLC as the initial directing certificateholder.
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 appointed, from time to time, including: (1) being replaced by the controlling class representative with or without cause at any time, as long as no Control Termination Event has occurred and is continuing; or (2) after the occurrence and
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during the continuance of a Control Termination Event, removed at the written direction of (a) holders of principal balance certificates representing at least 75% of the voting rights that vote so long as they
constitute 66 2/3% of such voting rights or (b) holders of principal balance certificates representing more than 50% of the Voting Rights of each Class of Non-Reduced 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, 0.25% of each collection of interest and principal following a workout and (2) with respect to liquidation fees, 0.25% of liquidation proceeds. Special servicing fees during the continuance of a special servicing event are limited under the trust and servicing agreement to 0.125% per year payable monthly.
The special servicer will not be entitled to any liquidation fees from the trust with respect to the whole loan if it becomes specially serviced due to a balloon default and the whole loan is paid off within 90 days of the initial maturity date as a result of a refinancing or other final payment (other than a discounted payoff) obtained by the borrower. In addition, the Special Servicer will not be entitled to receive a Liquidation Fee in connection with (i) a repurchase of the Mortgage Loan by the Sponsors pursuant to the mortgage loan purchase agreement, (ii) a sale of the Mortgage Loan or any portion thereof by the Special Servicer to the Special Servicer or an affiliate of the Special Servicer pursuant to the TSA, (iii) a purchase of the Mortgage Loan or a Foreclosed Property by the Controlling Class Representative or its affiliate, if such purchase occurs within 90 days after the date on which the Special Servicer first delivers notice of a Mortgage Loan Event of Default to the Controlling Class Representative.
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. Any unanticipated and other default related expenses incurred by the trust (including all interest on advances and any other unanticipated expenses reimbursable or payable by the borrower under the mortgage loan agreement) and all other amounts such as special servicing fees, workout fees and liquidation fees are permitted to be retained, reimbursed or withdrawn and remitted by the servicer, the special servicer, the operating advisor or the certificate administrator, as applicable, from the trust collection account or the distribution account.
Offsetting of Modification Fees: There is no cap on modification fees that the special servicer may charge the borrower 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.
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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 horizontal interest” in the form of the Class HRR Certificates. The retaining sponsor (GSMC) intends to satisfy the risk retention requirements through the
purchase and retention by a third-party purchaser.
Forbearance Related to the Coronavirus: A payment accommodation for the mortgage loan means the entering into of a temporary forbearance agreement as a result of the coronavirus emergency (as reasonably determined by the special servicer in accordance with accepted servicing practices) relating to payment obligations or operating covenants under the loan documents or the use of funds on deposit in any reserve account or escrow account for any purpose other than the explicit purpose described in the related loan documents, that in each case (i) defers no greater than three monthly debt service payments in the aggregate with any other payment accommodations, (ii) occurs no later than March 5, 2022, and (ii) requires full repayment of deferred payments, reserves, and escrows within 12 months following the date of the first payment accommodation.
Rating Agency Confirmation: Rating agency confirmation 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, the mortgage loan purchase agreement, and the co-lender agreement. In addition, rating agency confirmation 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 rating agency confirmation and/or prior notice of such items was provided.
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Methodologies
The principal methodology DBRS Morningstar applied to assign ratings to this transaction is the North American Single-Asset/Single-Borrower Methodology. This methodology 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.
For a list of the related methodologies for our principal Structured Finance asset class methodologies that may be used during the rating process, please see the DBRS Morningstar Global Structured Finance Related Methodologies document on www.dbrsmorningstar.com. Please note that not every related methodology listed under a principal Structured Finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.
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 April 27, 2021. 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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