PRESALE REPORT BANK 2019-BNK24
DECEMBER 2019 STRUCTURED FINANCE: CMBS Table of Contents
Capital Structure 3 Transaction Summary 4 Rating Considerations 5 DBRS Morningstar Credit Characteristics 7 Largest Loan Summary 8 DBRS Morningstar Sample 9 Transaction Concentrations 11 Loan Structural Features 12 55 Hudson Yards 16 Jackson Park 21 1412 Broadway 26 Bronx Multifamily Portfolio II 32 DoubleTree New Orleans 37 The Parklawn Building 42 Austin Marriott Portfolio 47 Galleria 57 53 Park Tower at Transbay 58 West LA Multifamily Portfolio 63 Hampton Inn & Suites – John Wayne Airport 68 Giant Anchored Portfolio 73 Baytown Portfolio 79 Hualapai Commons 85 ILPT Industrial Portfolio 90 Transaction Structural Features 96 Methodologies 98 Surveillance 98 Glossary 99 Definitions 99
Jake Noeldner Dan Kastilahn Senior Financial Analyst Vice President +1 312 332-9576 +1 312 332-9444 [email protected] [email protected]
Kevin Mammoser Erin Stafford Managing Director Managing Director +1 312 332-0136 +1 312 332-3291 [email protected] [email protected] Presale Report | BANK 2019-BNK24
Capital Structure
Description Rating Action Balance ($) Subordination (%) DBRS Morningstar Trend Rating
Class A-1 New Rating - Provisional 16,763,000 30.000 AAA (sf) Stable
Class A-SB New Rating - Provisional 26,123,000 30.000 AAA (sf) Stable
Class A-2 New Rating - Provisional TBD 30.000 AAA (sf) Stable
Class A-3 New Rating - Provisional TBD 30.000 AAA (sf) Stable
Class X-A New Rating - Provisional 815,237,000 -- AAA (sf) Stable
Class A-S New Rating - Provisional 125,197,000 19.250 AAA (sf) Stable
Class B New Rating - Provisional 49,496,000 15.000 AAA (sf) Stable
Class X-B New Rating - Provisional 221,278,000 -- AA (sf) Stable
Class C New Rating - Provisional 46,585,000 11.000 AA (low) (sf) Stable
Class D New Rating - Provisional 30,572,000 8.375 A (low) (sf) Stable
Class X-D New Rating - Provisional 53,864,000 -- A (low) (sf) Stable
Class E New Rating - Provisional 23,292,000 6.375 BBB (high) (sf) Stable
Class X-F New Rating - Provisional 24,749,000 -- BBB (low) (sf) Stable
Class F New Rating - Provisional 24,749,000 4.250 BB (high) (sf) Stable
Class X-G New Rating - Provisional 11,646,000 -- BB (sf) Stable
Class G New Rating - Provisional 11,646,000 3.250 BB (low) (sf) Stable
Class X-H NR 37,850,589 -- NR n/a
Class H NR 37,850,589 0.000 NR n/a
RR Interest NR 61,296,031 -- NR n/a
Notes: 1. NR = Not Rated. 2. Classes X-D, X-F, X-G, X-H, D, E, F, G, H, and RR will be privately placed. 3. The exact initial certificate balances of the Class A-2 and A-3 certificates will be determined based on the final pricing of those classes of certificates. The aggregate initial certif icate balance of the Class A-2 and A-3 certificates is expected to be approximately $772,351,000, subject to a variance of plus or minus 5%. 4. The Class X-A, X-B, X-D, X-F, X-G, and X-H certificates are notional amount certificates and will not be entitled to distributions of principal. The notional amount of the Class X-A certificates will be equal to the aggregate certificate balance of the Class A 1, A-SB, A-2, and A-3 certificates. The notional amount of the Class X-B certificates will be equal to the aggregate certificate balance of the Class A-S, B, and C certificates. The notional amount of the Class X-D certificates will be equal to the aggregate certificate balance of the Class D and E certificates. The notional amount of each class of the Class X-F, X-G, and X-H certificates will be equal to the certificate balance of the class of principal balance certificates that, with the addition of “X-“ has the same alphabetical designation as the subject class of Class X certificates. 5. The Class X-A, X-B, X-D, X-F, X-G, and X-H balances are interest-only (IO) certificates that reference a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated reference tranche adjusted upward by one notch if senior in the waterfall.
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Transaction Summary
POOL CHARACTERISTICS
Trust Amount ($) 1,225,920,621 Wtd. Avg. Interest Rate (%) 3.538
Number of Loans 71 Wtd. Avg. Remaining Term (Months) 119
Number of Properties 104 Wtd. Avg. Remaining Amortization (Months) 368
Average Loan Size ($) 17,266,488 Total DBRS Morningstar Expected 4.0 Amortization (%)
DBRS Morningstar Issuance LTV1 (%) 53.1/62.8 DBRS Morningstar Balloon LTV1 (%) 51.2/60.4
Appraised Issuance LTV1 (%) 52.3/61.6 Appraised Balloon LTV1 (%) 50.4/59.2
Wtd. Avg. DBRS Morningstar DSCR1 (X) 3.23 Wtd. Avg. Issuer Term DSCR1 (X) 3.23
Top 10 Loan Concentration (%) 59.3 Avg. DBRS Morningstar NCF Variance (%) -10.2
1. Excludes shadow-rated and co-op loans.
PARTICIPANTS
Depositor Banc of America Merrill Lynch Commercial Mortgage, Inc.
Mortgage Loan Sellers Morgan Stanley Mortgage Capital Holdings LLC (16 loans, 25.4%)
Bank of America, National Association (11 loans, 30.0%)
National Cooperative Bank, N.A. (32 loans, 8.9%)
Wells Fargo Bank, National Association (10 loan, 19.4%)
Wells Fargo Bank, National Association; Morgan Stanley Mortgage Capital Holdings LLC (1 loan, 8.2%)
Bank of America, National Association; Wells Fargo Bank, National Association (1 loan, 8.2%)
Trustee Wilmington Trust, National Association
Master Servicers Wells Fargo Bank, National Association and National Cooperative Bank, N.A.
Special Servicers Midland Loan Services, a Division of PNC Bank, National Association and National Cooperative Bank, N.A.
Certificate Administrator and Custodian Wells Fargo Bank, National Association
Operating Advisor Park Bridge Lender Services LLC
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Rating Considerations
The collateral consists of 71 fixed-rate loans secured by 104 commercial and multifamily properties. The transaction is a sequential-pay pass-through structure. DBRS Morningstar analyzed the conduit pool to determine the provisional ratings, reflecting the long-term probability of loan default within the term and its liquidity at maturity. Four loans, representing 22.4% of the pool, are shadow-rated investment grade by DBRS Morningstar. When DBRS Morningstar measured the cut-off loan balances against the DBRS Morningstar Stabilized NCF and their respective actual constants, the initial DBRS Morningstar WA DSCR for the pool was 2.94x. The WA DSCR is elevated because 22.4% of the pool is shadow- rated investment grade and the concentration of low-leverage residential co-operative loans represent 8.9% of the pool. Residential co-operative loans have very low loan-level credit enhancement at the AAA level and near-zero loan-level credit enhancement at the BBB (low) level. Only one loan, Totowa Shoppes, had a DBRS Morningstar Term DSCR below 1.30x, a threshold indicative of a higher likelihood of mid-term default. The WA LTV of the pool at issuance was 53.1%, and the pool is scheduled to amortize down to a WA LTV of 51.2% at maturity. The pool includes 17 loans, representing 24.6% of the pool by allocated loan balance, with issuance LTVs equal to or higher than 65.0%, a threshold historically indicative of above-average default frequency. Fifty-four loans, representing 65.4% of the pool balance, were originated in connection with the borrower’s refinancing of an existing mortgage loan. Fourteen loans, representing 29.9% of the pool, were originated in connection with the borrower’s acquisition of the related mortgage property. The remaining pool was originated in connection with the recapitalization of the related property.
STRENGTHS –– The transaction includes four loans, representing 22.4% of the total pool balance, that are shadow-rated investment grade by DBRS Morningstar, including 55 Hudson Yards, Jackson Park, Park Tower at Transbay, and ILPT Industrial Portfolio. Park Tower at Transbay exhibits credit characteristics consistent with a AAA shadow rating, Jackson Park exhibits credit characteristics consistent with a AA (high) shadow rating, ILPT Industrial Portfolio exhibits credit characteristics consistent with a AA (low) shadow rating, and 55 Hudson Yards exhibits credit characteristics consistent with a BBB shadow rating. For more information on Park Tower at Transbay, Jackson Park, ILPT Industrial Portfolio, and 55 Hudson Yards, please see pages 57, 21, 89, and 16, respectively. –– Thirty-two loans in the pool, representing 8.9% of the transaction, are backed by residential co-operative loans. Residential co-operatives tend to have minimal risk, given their low leverage and low risk to residents if the co-operative associations default on their mortgages. The WA LTV for these loans is 12.5%. –– Twenty-seven loans, representing an extremely high 42.4% of the aggregate pool balance, are in highly dense urbanized areas (e.g., New York City or San Francisco) with DBRS Morningstar Market Ranks of 7 and 8. These markets benefit from increased liquidity driven by consistently strong investor demand; therefore, these markets tend to benefit from lower default frequencies than less-dense suburban, tertiary, and rural markets. –– Fifty loans, representing 69.7% of the pool, have collateral located in MSA Group 3, which represents the best-performing group in terms of historical CMBS default rates among the top 25 MSAs. The MSA Group 3 has a historical default rate of 17.25%, which is 50.00% lower than the overall CMBS historical default rate of approximately 28.00%. –– Three of the top 10 loans, representing 20.4% of the pool, have Strong sponsorship. In contrast, just four loans, representing 9.1% of the pool, have sponsorship and/or loan collateral associated with a voluntary bankruptcy filing, a prior DPO, a loan default, limited net worth and/or liquidity, a historical negative credit event, and/or inadequate commercial real estate experience. –– Forty-seven loans, representing 67.8% of the pool by allocated loan balance, exhibit issuance LTVs of equal to or less than 60.0%, a threshold historically indicative of relatively low-leverage financing and generally associated with below-average default frequency. –– Only one loan had property quality deemed to be Average (-) while none had property quality deemed Below Average or Poor. Additionally, nine loans, representing 46.6% of the pool balance, exhibited Average (+), Above Average, or Excellent
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property quality. One of the top 10 loans, Park Tower at Transbay, is secured by collateral that had property quality that DBRS Morningstar deemed Excellent.
CHALLENGES AND CONSIDERATIONS –– Four loans, representing 11.1% of the pool (two of which are top 10 loans, including The Parklawn Building and Park Tower at Transbay), are secured by properties that are either fully or partially leased to a single tenant. –– Park Tower at Transbay, the ninth-largest loan in the pool, is shadow-rated investment grade by DBRS Morningstar based on its low leverage. Additionally, the largest tenants at The Parklawn Building and Park Tower at Transbay are both rated investment-grade. –– The WA issuance LTV for the four properties leased to single tenants is 58.0%, which is considered low-leverage financing and generally associated with below-average default probability. –– The DBRS Morningstar IO DSCRs for both The Parklawn Building and the Park Tower at Transbay are higher than 2.35x. The remaining two loans, Blue Point and Walgreens Franklin, have DBRS Morningstar DSCRs of 1.45x and 1.96x, respectively. –– The pool has a relatively high concentration of loans secured by office properties as 10 loans, representing 33.7% of the pool by allocated loan balance, are secured by this property type. DBRS Morningstar considers office properties to be a riskier property type with a generally above-average historical default frequency. –– Two of the 10 office loans (55 Hudson Yards and Park Tower at Transbay), comprising 12.2% of the pool balance, are shadow-rated investment grade by DBRS Morningstar. –– Five office properties, totaling 18.9% of the pool balance, have DBRS Morningstar DSCRs higher than 2.00x while the remaining five office loans, totaling 14.8% of the pool balance, have DBRS Morningstar DSCRs higher than 1.45x. –– Four office loans, representing 73.1% of the office concentration, are secured by office properties in areas characterized as extremely dense and desirable urban markets, which have a DBRS Morningstar Market Rank of 8. –– Thirty loans, representing 75.2% of the pool by allocated loan balance, are structured with full-term IO periods. –– Of these 30 loans, 12 loans, representing 42.5% of the pool by allocated loan balance, are in areas with a DBRS Morningstar Market Rank of 6, 7, or 8. These markets benefit from increased liquidity even during times of economic stress. –– Four of the 30 identified loans, representing 22.4% of the total pool balance, are shadow-rated investment grade by DBRS Morningstar: Park Tower at Transbay, Jackson Park, ILPT Industrial Portfolio, and 55 Hudson Yards. –– The collateral pool has relatively high MSA and property-type concentrations compared with recent conduit/fusion transactions. Of the loans in the pool, 43.5% are in the top MSA of New York-Northern New Jersey-Long Island, NY-NJ-PA. New York/multifamily assets also have the top MSA/property-type concentration of 17.0%. –– This MSA has historically performed quite well as it benefits from a diverse economy and has attracted substantial capital from institutional and foreign investors over time.
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DBRS Morningstar Credit Characteristics
DBRS MORNINGSTAR TERM DSCR
% of the Pool DSCR (Trust Balance1)
0.00x-0.90x 0.0
0.90x-1.00x 0.0
1.00x-1.15x 0.0
1.15x-1.30x 0.5
1.30x-1.45x 4.6
1.45x-1.60x 3.9
1.60x-1.75x 24.1
>1.75x 66.9
Wtd. Avg. 2.94x
DBRS MORNINGSTAR ISSUANCE LTV DBRS MORNINGSTAR BALLOON LTV
% of the Pool % of the Pool Issuance LTV (%) (Trust Balance1) Balloon LTV (%) (Trust Balance1)
0.0-50.0 35.5 0.0-50.0 36.0
50.0-55.0 2.6 50.0-55.0 8.9
55.0-60.0 13.2 55.0-60.0 13.0
60.0-65.0 23.6 60.0-65.0 23.9
65.0-70.0 13.5 65.0-70.0 16.4
70.0-75.0 9.7 70.0-75.0 0.0
>75.0 1.8 >75.0 1.8
Wtd. Avg. 53.1 Wtd. Avg. 51.2
1. Includes pari passu debt, but excludes subordinate debt.
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Largest Loan Summary
LOAN DETAIL
DBRS DBRS Morningstar Morningstar DBRS Trust Balance Shadow Issuance LTV Morningstar Loan Name ($) % of Pool Rating (%) DSCR (x)
55 Hudson Yards 100,000,000 8.2 BBB 39.38 3.03
Jackson Park 100,000,000 8.2 AA (high) 34.38 3.70
1412 Broadway 100,000,000 8.2 n/a 58.33 1.63
Bronx Multifamily Portfolio II 77,000,000 6.3 n/a 67.66 1.64
DoubleTree New Orlean 74,000,000 6.0 n/a 60.66 2.77
The Parklawn Building 65,400,000 5.3 n/a 60.00 2.48
Austin Marriott Portfolio 62,300,000 5.1 n/a 59.73 2.10
Galleria 57 52,000,000 4.2 n/a 43.69 1.91
Park Tower at Transbay 50,000,000 4.1 AAA 49.11 2.93
West LA Multifamily Portfolio 45,800,000 3.7 n/a 61.23 1.74
Hampton Inn & Suites - John Wayne Airport 33,250,000 2.7 n/a 71.05 1.65
Giant Anchored Portfolio 30,000,000 2.4 n/a 74.33 1.38
Baytown Multifamily Portfolio 29,475,000 2.4 n/a 69.85 2.13
Hualapai Commons 26,120,000 2.1 n/a 60.28 2.57
ILPT Industrial Portfolio 25,080,000 2.0 AA (low) 39.20 4.67
PROPERTY DETAIL
Loan per Maturity DBRS Morningstar Year SF/Units Balance per Loan Name Property Type City State Built SF/Units (%) SF/Units ($)
55 Hudson Yards Office New York NY 2018 1,431,212 660 70
Jackson Park Multifamily Long Island City NY 2018 1,871 293,960 53,447
1412 Broadway Office New York NY 1926 421,396 498 237
Bronx Multifamily Portfolio II Multifamily New York NY 1929 526 146,388 146,388
DoubleTree New Orleans Full-Service Hotel New Orleans LA 1977 367 201,635 201,635
The Parklawn Building Office Rockville MD 1970 1,283,646 204 51
Austin Marriott Portfolio Limited-Service Hotel Austin TX 1998 602 103,488 93,356
Galleria 57 Office New York NY 1975 179,562 290 290
Park Tower at Transbay Office San Francisco CA 2018 764,659 719 65
West LA Multifamily Portfolio Multifamily Los Angeles CA 2008 96 477,083 477,083
Hampton Inn & Suites - John Wayne Limited-Service Hotel Irvine CA 2018 164 202,744 158,728 Airport
Giant Anchored Portfolio Retail Various PA 2001 548,482 177 50
Baytown Multifamily Portfolio Multifamily Baytown TX 1973 481 61,279 61,279
Hualapai Commons Retail Las Vegas NV 1999 252,947 103 103
ILPT Industrial Portfolio Industrial Various Various 2011 8,209,036 26 3
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DBRS Morningstar Sample
DBRS MORNINGSTAR SAMPLE RESULTS
DBRS DBRS DBRS Morningstar Morningstar Prospectus Morningstar NCF Variance DBRS Morningstar Major Property ID Loan Name % of Pool NCF ($) (%) Variance Drivers Quality
1 55 Hudson Yards 8.2 85,005,411 -15.0 TI/LCs, Rent Steps, Vacancy Above Average
2 Jackson Park 8.2 67,130,879 -5.5 Vacancy, Taxes, and Above Average Management Fee
3 1412 Broadway 8.2 12,564,282 -14.9 TI/LCs, Mark-to-Market Average (+)
4 Bronx Multifamily 6.3 4,848,325 -11.3 Vacancy, Taxes Average Portfolio II
5 DoubleTree New 6.0 7,983,023 -10.1 RevPAR, Operating Expenses Average (+) Orleans
6 The Parklawn Building 5.3 22,327,761 -7.6 Other Income, TI/LCs Average (+)
7 Austin Marriott Portfolio 5.1 7,086,818 -7.4 RevPAR, Operating Expenses Average
8 Galleria 57 4.2 3,505,046 -21.5 TI/LCs, Vacancy Average
9 Park Tower at Transbay 4.1 56,413,769 0.2 Vacancy, Reimbursements Excellent
10 West LA Multifamily 3.7 2,852,573 -10.6 Operating Expenses, Taxes Average Portfolio
11 Hampton Inn & Suites - 2.7 2,972,042 -16.1 Operating Expenses, Taxes Average (+) John Wayne Airport
12 Giant Anchored 2.4 7,539,893 -9.3 Vacancy Average Portfolio
13 Baytown Multifamily 2.4 2,270,320 -6.4 Operating Expenses Average Portfolio
14 Hualapai Commons 2.1 2,368,347 -8.9 Reimbursements, Mark-to- Average Market, TI/LCs
15 ILPT Industrial Portfolio 2.0 26,940,362 -7.6 Vacancy, Replacement Average Reserves, Rent Steps
16 One Palm Apartments 1.8 1,966,190 -3.6 Operating Expenses Average (+)
17 Diplomat Park 1.7 1,632,954 -6.6 Mark-to-Market, Vacancy, Average Apartments Operating Expenses
18 325-329 Third Avenue 1.6 1,309,308 -14.9 Operating Expenses, Vacancy, Average Management Fee
19 Blue Point 1.4 1,376,888 -0.1 Mark-to-Market, Operating Average Expenses, TI/LCs
20 3800 Broadway 1.3 1,010,401 -9.3 Vacancy, TI/LCs, Management Average Fee
22 2200 Paseo Verde 1.2 1,260,329 -15.8 Vacancy, Operating Expenses, Average Management Fee
24 Haven at Highland 1.1 990,973 -7.7 Vacancy, Management Fee Average (+) Knolls
28 Huntington Park Plaza 0.9 940,423 -9.4 Vacancy, Management Fee, Average (-) Operating Expenses
30 Yarmouth Apartments 0.7 665,984 -12.1 Vacancy, TI/LCs Average
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DBRS MORNINGSTAR SAMPLE RESULTS
DBRS DBRS DBRS Morningstar Morningstar Prospectus Morningstar NCF Variance DBRS Morningstar Major Property ID Loan Name % of Pool NCF ($) (%) Variance Drivers Quality
35 Woodland Court Office 0.5% $569,629 -17.0% Vacancy, TI/LCs Average Center Finley Road
55 Park Harbor Retail 0.2% $214,137 -17.3% Reimbursements, Vacancy Average Center
DBRS MORNINGSTAR SITE INSPECTIONS DBRS Morningstar Sampled Property Quality The DBRS Morningstar sample included 26 of the 71 loans # of % of in the pool, representing 83.5% of the pool by allocated loan Loans Sample balance. DBRS Morningstar performed site inspections Excellent 1 4.9% on 50 of the 104 properties in the deal, comprising 81.0% Above Average 2 19.5% of the pool by allocated loan balance. DBRS Morningstar Average + 6 30.2% conducted meetings with an on-site property manager, a Average 16 44.3% leasing agent or a representative of the borrowing entity Average - 1 1.1% for 19 loans, which represent 76.1% of the pool by allocated Below Average 0 0.0% loan balance. Poor 0 0.0%
DBRS MORNINGSTAR CASH FLOW ANALYSIS DBRS Morningstar completed a cash flow review and a cash flow stability and structural review on 26 of the 71 loans, representing 83.5% of the pool by loan balance. For loans not subject to an NCF review, DBRS Morningstar applied the average NCF variance of its respective loan seller.
DBRS Morningstar generally adjusted cash flow to current in-place rent and, in some instances, applied an additional vacancy or concession adjustment to account for deteriorating market conditions or tenants with above-market rent. In certain instances, DBRS Morningstar accepted contractual rent bumps if they were within market levels. Generally, DBRS Morningstar recognized most expenses based on the higher of historical figures or the borrower’s budgeted figures. Real estate taxes and insurance premiums were inflated if a current bill was not provided. Capex was deducted based on the higher of the engineer’s inflated estimates or the DBRS Morningstar standard, according to property type. Finally, leasing costs were deducted to arrive at the DBRS Morningstar NCF. If a significant upfront leasing reserve was established at closing, DBRS Morningstar reduced its recognized costs. DBRS Morningstar gave credit to tenants not yet in occupancy if a lease had been signed and the loan was adequately structured with a reserve, LOC or holdback earn-out. The DBRS Morningstar sample had an average NCF variance of -10.2% and ranged from -21.5% (Galleria 57) to +0.2% (Park Tower at Transbay).
DBRS Morningstar Sampled Property Type 40.0% 45.0% 35.0% 40.0% 30.0% 35.0% 30.0% 25.0% 25.0% 20.0% 20.0% 15.0% 15.0% 10.0% 10.0% 5.0% 5.0% 0.0% 0.0% Full Service HotelIndustrialLimited Service MultifamilyOfficeMixed Use Retail Unanchored Retail Hotel Excellent Above Average Average (+) Average Average (-) Below Average Poor Pool
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Transaction Concentrations
DBRS Morningstar Property Type Geography
# of % of # of % of Property Type Loans Pool State Properties Pool Full Service Hotel 1 6.0% NY 49 49.3% Industrial 2 3.4% CA 11 15.8% Limited Service Hotel 4 9.3% TX 11 9.0% Mixed Use 1 0.9% LA 1 6.0% Multifamily 44 38.5% MD 2 5.4% Office 10 33.7% NV 2 3.3% Self Storage 3 1.8% All Others 28 11.1% Retail 2 4.6% Unanchored Retail 4 1.7%
Loan Size DBRS Morningstar Market Types
# of % of # of % of Loan Size Loans Pool Market Type Properties Pool Very Large 18 76.1% 1 1 0.2% (>$20.0 million) 2 10 9.6% Large 10 11.4% 3 9 12.7% ($10.0-$20.0 million) 4 5 3.8% Medium 9 5.0% ($5.0-$10.0 million) 5 16 16.4% Small 25 6.5% 6 3 15.0% ($2.0-$5.0 million) 7 13 10.8% Very Small 9 0.9% 8 14 31.7% (<$2.0 million)
Largest Property Location
Property Name City State 55 Hudson Yards New York NY Jackson Park Long Island City NY 1412 Broadway New York NY Bronx Multifamily Portfolio II New York NY DoubleTree New Orleans New Orleans LA The Parklawn Building Rockville MD Austin Marriott Portfolio Austin TX Galleria 57 New York NY Park Tower at Transbay San Francisco CA West LA Multifamily Portfolio Los Angeles CA Hampton Inn & Suites - John Irvine CA Wayne Airport Giant Anchored Portfolio Various PA Baytown Multifamily Portfolio Baytown TX Hualapai Commons Las Vegas NV ILPT Industrial Portfolio Various IN
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Loan Structural Features
Pari Passu Notes: Seven loans, representing 38.4% of the pool, have pari passu debt and are identified in the table below.
PARI PASSU NOTES
% of % of Total Pari Controlling Piece Property Name Balance Pool Deal ID Passu Loan (Y/N) 55 Hudson Yards $100,000,000 8.2% BANK 2019-BNK24 8.0% N
$802,900,000 Hudson Yards 2019-55HY 64.5% Y
$334,500,000 Future Secutizations 26.9% N
$7,600,000 Hudson Yards 2019-55HY 0.6% N
$1,245,000,000 n/a n/a 100.0% n/a
Jackson Park $100,000,000 8.2% BANK 2019-BNK24 10.0% N
$650,000,000 JAX 2019-LIC 65.0% N
$100,000,000 BANK 2019-BNK24 10.0% N
$75,000,000 JAX 2019-LIC 7.5% Y
$75,000,000 Future Secutizations 7.5% N
$1,000,000,000 n/a n/a 100.0% n/a
1412 Broadway $100,000,000 8.2% BANK 2019-BNK24 47.6% Y
$110,000,000 Future Secutizations 52.4% N
$210,000,000 n/a n/a 100.0% n/a
The Parklawn Building $65,400,000 5.3% BANK 2019-BNK24 25.0% N
$70,000,000 MSC 2019-L3 26.8% Y
$65,400,000 Future Secutizations 25.0% N
$60,800,000 CF 2019-CF3 23.2% N
$261,600,000 n/a n/a 100.0% n/a
Park Tower at Transbay $50,000,000 4.1% BANK 2019-BNK24 9.1% N
$120,000,000 BANK 2019-BNK20 21.8% N
$115,000,000 BANK 2019-BNK22 20.9% N
$100,000,000 BANK 2019-BNK23 18.2% N
$100,000,000 BANK 2019-BNK21 18.2% Y
$50,000,000 Future Secutizations 9.1% N
$15,000,000 BANK 2019-BNK21 2.7% N
$550,000,000 n/a n/a 100.0% n/a
Giant Anchored Portfolio $30,000,000 2.4% BANK 2019-BNK24 30.9% N
$38,500,000 CGCMT 2019-C7 39.7% Y
$28,500,000 Future Secutizations 29.4% N
$97,000,000 n/a n/a 100.0% n/a
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PARI PASSU NOTES
% of % of Total Pari Controlling Piece Property Name Balance Pool Deal ID Passu Loan (Y/N)
ILPT Industrial Portfolio $25,080,000 2.0% BANK 2019-BNK24 7.2% N
$135,600,000 Third Party Holder 38.7% Y
$75,000,000 BANK 2019-BNK23 21.4% N
$50,000,000 MSC 2019-L3 14.3% N
$34,320,000 CSAIL 2019-C18 9.8% N
$30,000,000 UBSCM 2019-C18 8.6% N
$350,000,000 n/a n/a 100.0% n/a
Additional Debt: Three loans — 55 Hudson Yards, Jackson Park and ILPT Industrial Portfolio — representing 18.4% of the pool, have additional debt in the form of a B-note. One loan, DoubleTree New Orleans, is encumbered with an unsecured key money loan. Only two loans, Jackson Park and Huntington Park Plaza, representing 9.1% of the pool, are permitted to incur mezzanine debt in the future if certain LTV, debt yield and/or DSCR thresholds are met and there is a lender-approved Intercreditor Agreement.
SUBORDINATE DEBT
Mezz/ Unsecured Future Mezz/ Pari Passu B-Note Debt Unsecured Debt Total Debt Loan Name Trust Balance Balance Balance Balance (Y/N) Balance
55 Hudson Yards $100,000,000 $845,000,000 $300,000,000 $0 N $1,245,000,000
Jackson Park $100,000,000 $450,000,000 $450,000,000 $0 Y $1,000,000,000
DoubleTree New Orleans $74,000,000 $0 $0 $0 N $74,000,000
ILPT Industrial Portfolio $25,080,000 $189,320,000 $135,600,000 $0 N $350,000,000
700 Shore Road Waters Edge, $15,000,000 $0 $0 $1,000,000 Y $16,000,000 Inc.
Gerard Owners Corp. $12,000,000 $0 $0 $0 Y $12,000,000
Huntington Park Plaza $11,600,000 $0 $0 $0 Y $11,600,000
29-45 Tenants' Corporation $5,100,000 $0 $0 $500,000 Y $5,600,000
Edgebrook Cooperative Inc. $4,700,000 $0 $0 $250,000 Y $4,950,000
315 West 23rd Street Owners $4,500,000 $0 $0 $1,000,000 Y $5,500,000 Corp.
Sunnybrook Gardens Owners, $4,500,000 $0 $0 $250,000 Y $4,750,000 Inc.
Crestwood Apartment Owners $4,250,000 $0 $0 $1,000,000 Y $5,250,000 Corp.
The Pavilion Owners Corp. $4,000,000 $0 $0 $500,000 Y $4,500,000
Park and 76th St. Inc. $3,600,000 $0 $0 $500,000 Y $4,100,000
25 Plaza Tenants Corp. $3,500,000 $0 $0 $500,000 Y $4,000,000
2156 Cruger Avenue Apartment $3,500,000 $0 $0 $0 Y $3,500,000 Corp. F/K/A C.Q. Realty, Inc.
3616 Henry Hudson Pkway $3,500,000 $0 $0 $500,000 Y $4,000,000 Owners Corp.
December 2019 13 Presale Report | BANK 2019-BNK24
SUBORDINATE DEBT
Mezz/ Unsecured Future Mezz/ Pari Passu B-Note Debt Unsecured Debt Total Debt Loan Name Trust Balance Balance Balance Balance (Y/N) Balance
245-55 Bronx River Owners, Inc. $3,250,000 $0 $0 $500,000 Y $3,750,000
1080 Warburton Corp. $3,150,000 $0 $0 $200,000 Y $3,350,000
Thwaites Terrace House Owners $2,750,000 $0 $0 $0 Y $2,750,000 Corp.
4315 Webster Owners, Inc. $2,750,000 $0 $0 $500,000 Y $3,250,000
71-36 Owners Corp. $2,700,000 $0 $0 $500,000 Y $3,200,000
110-150 Draper Owners Corp. $2,650,000 $0 $0 $250,000 Y $2,900,000
The Colonial House Tenant Corp. $2,500,000 $0 $0 $0 Y $2,500,000
Pelham Manor Owners Inc. $2,500,000 $0 $0 $300,000 Y $2,800,000
East Rock Tenants Corp. $2,350,000 $0 $0 $250,000 Y $2,600,000
66-92 Tenants Ltd. $2,300,000 $0 $0 $200,000 Y $2,500,000
300 West 17th Street Housing $2,150,000 $0 $0 $0 Y $2,150,000 Development Fund Corporation
Hastings House Tenants Corp. $1,800,000 $0 $0 $0 Y $1,800,000
10015 Owners Corp. $1,600,000 $0 $0 $200,000 Y $1,800,000
128 Willow Apartments Corp. $1,400,000 $0 $0 $500,000 Y $1,900,000
130 Centre Avenue Apartments, $1,350,000 $0 $0 $0 Y $1,350,000 Inc.
8 West 13th Street Tenants Corp. $1,300,000 $0 $0 $500,000 Y $1,800,000
184 Columbia Heights, $1,100,000 $0 $0 $100,000 Y $1,200,000 Incorporated
Shuttleworth Artists, Ltd. $1,000,000 $0 $0 $0 Y $1,000,000
Linden Heights Association, Inc. $1,000,000 $0 $0 $150,000 Y $1,150,000
429 Clinton Avenue, Inc. $1,000,000 $0 $0 $0 Y $1,000,000
Interest Only DBRS Morningstar Expected Amoritization
# of % of # of % of Loans Pool Loans Pool Full IO 30 75.2% 0.0% 30 75.2% Partial IO 7 11.2% 0.0%-5.0% 0 0.0% Amortizing 34 13.7% 5.0%-10.0% 3 8.1% 10.0%-15.0% 11 5.0% 15.0%-20.0% 3 1.7% 20.0%-25.0% 21 8.9% >25.0% 3 1.1% Note: For certain ARD loans, expected amortization may include amortization expected to occur after the ARD but prior to single/major tenant expiry.
December 2019 14 Presale Report | BANK 2019-BNK24
Leasehold: Two loans, One Palm Apartments and Edgebrook Co-operative Inc., representing 2.2% of the pool balance, are fully secured by the borrower’s leasehold interest. One Palm Apartments has a ground lease with an initial expiration date of September 2118. Edgebrook Cooperative, Inc. has a ground lease with an initial expiration date of May 2052 and a 99-year renewal option.
RESERVE REQUIREMENT BORROWER STRUCTURE
Type Loans % of Pool Type Loans % of Pool
Tax Ongoing 43 63.6% SPE with Independent Director 16 72.8% and Non-Consolidation Opinion
Insurance Ongoing 13 22.7% SPE with Independent Director 1 0.6% Only
CapEx Ongoing 32 60.9% SPE with Non-Consolidation 0 0.0% Opinion Only
Leasing Costs Ongoing1 10 33.1% SPE Only 22 17.7%
1. Percent of office, retail, industrial and mixed use assets based on DBRS Morn- ingstar property types.
Sponsor Strength: DBRS Morningstar considers the DBRS Morningstar Sponsor Strength sponsorship of three of the top ten loans, representing # of % of 20.4% of the pool, to be Strong because of the sponsors’ Loans Pool extensive experience in the commercial real estate sector Strong 3 20.4% and significant financial wherewithal. Only four loans, Average 64 70.5% representing 9.1% of the pool, were considered Weak or Weak 2 3.2% Bad (Litigious) by DBRS Morningstar. Bad/Litigious 2 5.9%
Property Release: Seven loans, representing 32.9% of the pool, allow for the release or defeasance of one or more properties or a portion of the mortgaged property, subject to release prices in an amount generally equal to 110.0% of the allocated loan amounts of the respective properties and/or certain leverage tests prescribed in the individual loan agreements.
Property Substitution: No loans in the pool allow for the substitution of properties.
Terrorism Insurance: Terrorism insurance is required and in place for all loans.
December 2019 15 Presale Report | BANK 2019-BNK24
55 Hudson Yards New York, NY
Loan Snapshot Seller WFB/MSMCH Ownership Interest Fee Simple Trust Balance ($ Millions) $100.0 Loan psf/Unit $660 Percentage of the Pool 8.2% Loan Maturity/ARD December 2029 Amortization COLLATERAL SUMMARY Interest Only DBRS Morningstar Property Type Office Year Built/Renovated 2018 DBRS Morningstar Issuance DSCR City, State New York, NY Physical Occupancy 97.3% 3.53x SF 1,431,212 Physical Occupancy Date November 2019 DBRS Morningstar Issuance LTV 39.4% This loan is secured by the borrower’s fee simple interest in 55 Hudson Yards, a 51-story, DBRS Morningstar 1.4 million sf Class A office building built in 2018 in the Hudson Yards development Balloon LTV on Eleventh Avenue between West 34th and West 35th streets. It is 97.3% occupied 39.4% as of the November 19, 2019, rent roll. The sponsor used loan proceeds of $1.25 billion DBRS Morningstar Property Type ($870 psf ) to recapture $1.14 billion in equity, fund $61.2 million of upfront reserves, Office and pay approximately $46.8 million in closing costs. In addition to the $100.0 million DBRS Moringstar that will be securitized in this transaction, there are $845.0 million of senior pari passu Property Quality certificates and $300.0 million of subordinate companion notes. The 10-year, fixed-rate Above Average loan is IO for the entire term and represents a 39.4% LTV based on the appraised value Debt Stack ($ Millions) of $2.4 billion and the A note balance. Trust Balance $100.0 The collateral’s location in the Hudson Yards development, which will feature more Pari Passu than 18 million sf of commercial and residential space, attracts quality tenants. Demand $845.0 drivers in the area include The Shops + Restaurants at Hudson Yards, luxury apartment B-Note buildings including 15 Hudson Yards, and numerous upcoming projects like an Equinox $300.0 Mezz Hotel, a 750-seat public school, 14 acres of open space, and an entertainment venue $0.0 known as The Shed. Total Debt $1,245.0 The property also benefits from its proximity to numerous subway and bus transportation Loan Purpose services in the area. In 2015, the MTA completed a 7,000-foot extension of the 7 subway Refinance line to include an additional stop at the corner of 34th Street and Eleventh avenue. The 7 Equity Contribution/ subway line runs east and west through Manhattan and provides access to Queens. The (Distribution) ($ Millions) property is also approximately 0.6 miles from Penn Station, which provides rail access ($1,137.0) to New Jersey and Long Island, and is approximately 1 mile from the Port Authority, which provides bus service to the area.
December 2019 16 Presale Report | BANK 2019-BNK24
55 HUDSON YARDS – NEW YORK, NY
The Hudson Yards development includes several similar Class A office buildings, which has helped establish the area as one of the premiere office markets in New York City. While specific vacancy rates and market rents are hard to determine because of the constant influx of new space and the idiosyncratic demand of such a small area, the appraisal noted that it is normal for tenants to pay upwards of $100 psf for the most desirable space in the new buildings.
TENANT SUMMARY
DBRS % of Total Investment % of Morningstar DBRS Morningstar Lease Grade? Tenant SF Total NRA Base Rent PSF Base Rent Expiry (Y/N)
Point72 332,283 23.2% $88.37 21.9% 4/30/2034 N
Milbank, Tweed, Hadley & McCloy 287,333 20.1% $83.67 18.0% 3/31/2034 N
Cooley 146,227 10.2% $103.00 11.2% 9/30/2039 N
Boies, Schiller & Flexner 110,732 7.7% $82.50 6.8% 6/30/2035 N
Third Point 89,043 6.2% $130.00 8.6% 7/31/2029 N
Subtotal/Wtd. Avg. 965,618 67.5% $92.35 66.6% Various n/a
Other Tenants 423824 29.6% $105.74 33.4% Various n/a
Vacant Space 41770 2.9% n/a n/a n/a n/a
Total/Wtd. Avg. 1,431,212 100.0% $96.44 100.0% Various n/a
The property’s tenancy is somewhat granular and is concentrated primarily in the legal and finance industries. Although DBRS Morningstar does not rate the majority of tenants, DBRS Morningstar considers the property to have very high- quality tenants. Many of the tenants are law firms that are listed in the top 100 law firms in the country according to American Lawyer, and the financial firms include Point72 and Third Point, which are both hedge funds with several billion dollars of assets under management. Excluding the top three tenants, which occupy 53.5% of the NRA and represent 51.1% of the DBRS Morningstar base rent, no other tenant occupies more than 7.7% of NRA or represents more than 6.8% of base rent.
As of the November 2019 rent roll, the property’s overall in-place base rent including rent steps was $96.36. This is in line with the appraiser’s market rent, which ranged from $95-$130 depending on the location in the building. Many tenants pay below-market rent because many leases were signed several years ago to ensure stable occupancy when the building was completed.
The loan benefits from long-term leases signed by the tenants. Only 18.0% of the NRA expires during the loan term with the largest percentage expiring in 2029. DBRS Morningstar notes that the sponsor funded an upfront reserve of approximately $34 million to fund tenant specific TI/LCs and approximately $11.4 million to fund free rent and gap rent outstanding.
SPONSORSHIP The loan sponsors are Mitsui Fudosan America Inc., The Related Companies L.P., and OP Olympic Capital Corp (US) Inc. Mitsui Fudosan America Inc. is the U.S. subsidiary of Japan’s largest real estate company, Mitsui Fudosan Co. Ltd. Its U.S. portfolio includes eight office buildings totaling 5.6 million sf, 1,300 residential apartment units, and 753 hotel rooms.
The Related Companies L.P. is a privately-owned real estate company founded by Stephen M. Ross in 1972. It manages a portfolio of assets in Boston, Chicago, Los Angeles, San Francisco, South Florida, Washington D.C., and London.
OP Olympic Capital Corp is an affiliated real estate investment arm of OMERS (DBRS Morningstar: AAA), the defined benefit pension plan for Ontario’s municipal employees and one of Canada’s largest pension plans.
December 2019 17 Presale Report | BANK 2019-BNK24
55 HUDSON YARDS – NEW YORK, NY
DBRS MORNINGSTAR ANALYSIS SITE INSPECTION SUMMARY DBRS Morningstar toured the exterior of 55 Hudson Yards and several interior office units on October 10, 2019. Based on the site inspection, DBRS Morningstar found the property quality to be Excellent.
The property is just outside the main Hudson Yards Development area but is still steps from the 34th Street-Hudson Yards station with access to the 7-subway line. The building is also a half mile west of Penn station, which provides access to NJ Transit, Long Island Railroad, and six subway lines. The subject also has easy access to the Lincoln Tunnel for connection to New Jersey.
The proximity to the Hudson Yards development means there are numerous demand drivers near the property like The Shops + Restaurants at Hudson Yards, a seven-story 676,229 sf high-end mall, 15 Hudson Yards, a 288 unit apartment/ condominium building, and the upcoming 35 Hudson Yards, a mixed-use building with high-end condominiums, a 217- room Equinox hotel, and a 60,000 Equinox fitness center. There are also several high-end office buildings at various stages of completion in the development.
The lobby of the building is impressive and modern and features a striking art piece on loan from one of the buildings tenants. There are several tenants that have dedicated elevator access and fingerprint access. DBRS Morningstar toured the office space of Point72, Millbank, Tweed, Hadley, & McCloy, and Cooley. None of the tenants allowed us to take pictures because of the confidential nature of their businesses.
The office build-outs are high end and feature attractive amenities. The Point72 space had a large balcony with views of the Hudson Yards Development including the Vessel, a 16-story honeycomb-like structure with 2,500 steps for visitors to climb, and of the Hudson Railyard. All the units we saw had a coffee bar and either a full cafeteria or a grab-and-go market. The spaces all had impressive art collections, especially Point72, which was founded by Steve Cohen, a well-known art collector. Many tenants invested significant money in addition to the tenant improvement packages offered by the sponsor. Point72 invested $72.5 million ($218 psf ), Third Point invested $8.0 million ($90 psf ), and Millbank $24.4 million ($85 psf ), among others.
The sponsor’s representative pointed out that many of the tenants are signed to below-market rents and were offered free rent concessions. He noted that this was because many tenants signed well before the building was complete and the free rent was to account for the fact that the tenants would not be taking occupancy until construction was complete. He also
December 2019 18 Presale Report | BANK 2019-BNK24
55 HUDSON YARDS – NEW YORK, NY
said the sponsor was willing to take below-market rents to guarantee occupancy when the building opened and because many of the tenants signed long-term leases.
DBRS MORNINGSTAR NCF SUMMARY NCF ANALYSIS
Budget Issuer NCF DBRS Morningstar NCF NCF Variance
GPR $139,406,486 $141,555,536 $138,089,304 -2.4%
Recoveries $0 $0 $0 0.0%
Other Income $8,091,587 $12,664,212 $11,340,089 -10.5%
Vacancy -$14,589,112 -$5,108,740 -$7,060,399 38.2%
EGI $132,908,961 $149,111,008 $142,368,993 -4.5%
Expenses $43,553,629 $45,210,677 $46,346,212 2.5%
NOI $89,355,332 $103,900,331 $96,022,781 -7.6%
Capex $0 $286,242 $357,803 25.0%
TI/LC $0 $3,578,030 $10,659,567 197.9%
NCF $89,355,332 $100,036,059 $85,005,411 -15.0%
The DBRS Morningstar NCF is based on the DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS Morningstar NCF was $85,005,411 representing a -15.0% variance to the Issuer’s NCF of $100,036,059. The primary drivers of the variance include TI/LC, vacancy, and management fee. DBRS Morningstar assumed a vacancy of 5.0% which is below the typical DBRS Morningstar minimum vacancy of 10.0% because of the high quality of the rent roll and the length of the leases at the property. Management fee was set to 1.5%, which is in line with how management fees in excess of $1.0 million are treated by DBRS Morningstar. TIs were assumed to be $100 psf for new tenants and $50 psf for renewing tenants, normalized based on a 15-year loan term. This is generally in line with appraisal data and recent leasing at the property. Leasing commissions were analyzed at 5.0% for new and 2.5% for renewing tenants.
DBRS MORNINGSTAR VIEWPOINT The 55 Hudson Yards building offers Class A finishes and superior amenities including dispatch elevators, fingerprint access, floor-to ceiling glass windows, column-free floor plans, and private terraces throughout the office space. The building is leased to a strong roster of tenants concentrated in the finance and legal industries. The largest financial tenants are Point72, a hedge fund founded by Steven A. Cohen with approximately $14.6 billion in assets under management, and Third Point, a hedge fund founded by Daniel S. Loeb in 1995 with approximately $15 billion under management. The law firms at the property are some of the largest law firms on the country that are regularly listed on the top grossing law firms in the country by American Lawyer including Milbank, Tweed, Hadley & McCloy, and Cooley. Other notable tenants include Facebook and Mt. Sinai. The leases signed at the property are on average about $10 psf below the submarket average according to the appraisal and the average remaining lease term is 14.06 years. Additionally, many of the tenants have invested significant money to build out their spaces, which indicates commitment to the property.
The loan has favorable metrics including low leverage and high debt service coverage. The LTV of the debt in this transaction is 39.4% and the debt service coverage based on the DBRS Morningstar NCF is 2.96x. Based on the favorable leverage metrics, strong property quality and excellent tenant roster, DBRS Morningstar considers the credit quality associated with the senior loan to be BBB. In addition to the debt securitized in this transaction, there is an additional $300.0 million in Trust Junior Notes that is subordinate to the portion in BNK24. When considering this additional debt, the metrics are still favorable at 51.9% LTV and 2.25x DSCR.
December 2019 19 Presale Report | BANK 2019-BNK24
55 HUDSON YARDS – NEW YORK, NY
DBRS Morningstar believes that the property’s location and superior build-out and the continued evolution of Hudson Yards as a live/work/play mixed-used development will provide the building with stable levels of demand through various phases of the real estate cycle. Additionally, the rent roll, which is made up of strong tenants signed to long leases and below-market rents, indicates stability over the loan term.
DOWNSIDE RISKS –– The transaction represents a cash out of $1.14 billion for the sponsor. –– The loan is recourse to the borrower only, and there is no sperate recourse carve-out guarantor. –– There are several planned office developments near the property, which will add a significant amount of supply over the next six years.
STABILIZING FACTORS –– The sponsor’s cost basis of $1.3 billion leaves $355.0 million of cash equity behind the senior loan amount of $945.0 million. –– Leverage on the senior loan is quite low and sponsorship is considered strong. –– The property is new construction and has a superior finishes and amenities. –– The property is leased to a strong and diverse roster of tenants that are paying, on average, below market rents with an average remaining lease term of approximately 14 years. Many tenants spent significant money above the tenant improvement packages offered by the landlord to build out their space. In addition, the trust exposure is very low at $660 psf and is well below replacement cost, insulating the loan from the potential negative impact on market fundamentals brought by substantial levels of new supply. Further, the property’s location in the Hudson Yards Development brings several demand drivers including new luxury apartment buildings, and the Shops + Restaurants at Hudson Yards that should attract many new employers to the area to fill the new supply.
December 2019 20 Presale Report | BANK 2019-BNK24
Jackson Park Long Island City, NY
Loan Snapshot Seller BANA/WFB Ownership Interest Fee Simple Trust Balance ($ Millions) $100.0 Loan psf/Unit $293,960 Percentage of the Pool 8.2% Loan Maturity/ARD October 2029 Amortization COLLATERAL SUMMARY Interest Only DBRS Morningstar Property Type Multifamily Year Built/Renovated 2018 DBRS Morningstar Issuance DSCR City, State Long Island City, NY Physical Occupancy 96.1% 3.92x Units 1,871 Physical Occupancy Date August 2019 DBRS Morningstar Issuance LTV 34.4% The Jackson Park property is a four building, 1,871-unit luxury multifamily complex DBRS Morningstar in Long Island City in Queens, New York. The ten-year $1.0 billion whole loan is Balloon LTV structured as IO through the entire loan term. Proceeds are being used to refinance 34.4% existing construction debt of approximately $641.0 million, return approximately DBRS Morningstar Property Type $327.0 million in equity to the sponsor, and cover closing costs. Approximately $275.0 Multifamily million in senior companion notes were held back from the JAX 2019-LIC trust, $100.0 DBRS Moringstar million of which are being securitized in this transaction. Property Quality Above Average The property consists of one amenity building and three residential buildings: 1 Jackson Debt Stack ($ Millions) Park (42 stories, 550 units), 2 Jackson Park (53 stories, 650 units), and 3 Jackson Park Trust Balance (44 stories, 671 units). The residential towers share a five-story, approximately 50,000 sf $100.0 amenity building called the Club where residents have access to a fitness center, full Pari Passu size basketball court and squash courts, and two pools, among other features. The $450.0 property features two 24-hour attended lobbies, dry cleaning, laundry, package receipt, B-Note $450.0 housekeeping, 24/7 valet parking, bike storage, and buildingwide Wi-Fi. The apartment Mezz units feature top-of-the-line finishes and include an in-unit washer/dryer, white desert $0.0 oak flooring, solar shades, LED lighting, and a key fob entry system. Total Debt $1,000.0 The property is at the intersection of Queens Boulevard and Jackson Avenue in the fast- Loan Purpose growing submarket of Long Island City. The property benefits from convenient access Refinance to multiple subway lines and is near the Queens Plaza station (E, M, and R trains) and Equity Contribution/ Queensboro Plaza station (7, N, and W trains). (Distribution) ($ Millions) ($342.6)
December 2019 21 Presale Report | BANK 2019-BNK24
JACKSON PARK – LONG ISLAND CITY, NY
COMPETITIVE SET
Property Location Units Year Built/Renovated Occupancy
28-10 & 28-34 Jackson Long Island City, NY 1,734,126 1970 100.0%
13-11 Jackson Avenue Long Island City, NY 60,484 2015 100.0%
22-22 Jackson Avenue Long Island City, NY 167,943 2015 1000.0%
29-11 Queens Plaza North Long Island City, NY 0 2001 100.0%
1-55 Borden Avenue Long Island City, NY 294,821 2016 100.0%
26-20 Jackson Avenue Long Island City, NY 10,822 2016 100.0%
Total/Wtd. Avg. Comp. Set Various 2,268,196 Various 100.0%
Jackson Park Long Island City, NY 1,871 2018 96.1%
Source: Appraisal.
SPONSORSHIP The property’s sponsor, Tishman Speyer, specializes in the ownership, development, and operation of real estate and in the management of premier investment property portfolios. Tishman Speyer was founded in 1978 and has acquired, developed, and operated 406 assets totaling over 176 million square feet. Its properties are in major metropolitan markets of the United States, Europe, Latin America, and Asia.
Its global portfolio is composed of 112 assets and has a gross asset value of approximately $50.0 billion. In New York, Tishman Speyer is actively developing several marquee residential and office properties. Tishman Speyer is also developing 11 Hoyt, a 481-unit luxury condominium project and a 622,000 sf office project in downtown Brooklyn named the Wheeler, as well as a 2.8 million sf office skyscraper in Hudson Yards.
DBRS MORNINGSTAR ANALYSIS SITE INSPECTION SUMMARY DBRS Morningstar toured the property on the afternoon of September 10, 2019, and found the property quality to be Above Average.
The development is on the corner of Queens Boulevard and Jackson Avenue, directly east of Midtown Manhattan in Long Island City. It is directly adjacent to the Queens Plaza subway station, with convenient mass transit access via the E, M, and
December 2019 22 Presale Report | BANK 2019-BNK24
JACKSON PARK – LONG ISLAND CITY, NY
R trains. The 7, N, and W trains are also a couple of blocks away. The E and 7 subway lines make for an easy commute for those residents who work in Midtown or further west in Hudson Yards.
The Jackson Park project consists of three residential towers, a separate amenity building, ground floor retail, and a 1.6-acre residents-only courtyard style private park.
Each of the three buildings contains a mixture of studio, one-, two-, and three-bedroom units. The complex includes two attended main lobbies, both of which are luxurious and modern. The units themselves are bright with large windows, but the bedrooms and living areas were not as spacious as expected. The kitchen and bathroom finishes were also modern but not particularly high-end for a new development. For example, there were no backsplashes, undercabinet lighting, or high-end countertops in the two-bedroom unit DBRS Morningstar toured. All units feature stainless steel appliance packages. Overall, the units were clean and modern but are nothing particularly special in comparison with other new rental buildings in the submarket.
The complex has a separate 50,000 sf amenity building that is adjacent to 3 Jackson Park. It includes a high-end, Equinox- style fitness center with weights, an indoor lap pool, locker rooms, a sauna, massage therapy rooms, a golf simulator, a full-size basketball court, and group fitness studios. The amenity building also includes ample common area seating and lounge space for residents to relax. The rooftop of the amenity building features a large outdoor pool and a patio with poolside cabanas, which are available for an additional fee. Access to the amenity building is billed to the residents as a separate monthly amenity fee. On-site underground parking is also available for a monthly fee of $450.
In addition to the amenity complex, the three residential buildings are situated in a “U” shape such that they form a 1.6-acre private interior park. The private park was well-manicured and featured barbeque areas, sitting and lounge areas, and a bocce court. However, because of the development’s proximity to the MTA train yard and the elevated subway tracks, the noise level can be quite high. According to the sponsor, the elevated subway tracks that run parallel to the 1 Jackson Park building required additional soundproofing measures such as interior central air conditioning (rather than individual HVAC boxes for each unit).
December 2019 23 Presale Report | BANK 2019-BNK24
JACKSON PARK – LONG ISLAND CITY, NY
DBRS MORNINGSTAR NCF SUMMARY NCF ANALYSIS
DBRS Morningstar Budget Appraisal Issuer NCF NCF NCF Variance
GPR $90,806,961 $88,211,025 $88,062,437 $88,062,437 0.0%
Other Income $5,302,326 $5,481,753 $5,315,440 $5,350,713 0.7%
Vacancy & Concessions -$2,855,841 -$3,119,070 -$4,403,122 -$5,724,058 30.0%
EGI $93,253,446 $90,573,708 $88,974,756 $87,689,092 -1.4%
Expenses $17,686,352 $36,943,419 $17,579,385 $20,060,209 14.1%
NOI $75,567,094 $53,630,289 $71,395,371 $67,628,883 -5.3%
Capex $374,200 $1,259,628 $394,276 $498,004 26.3%
NCF $75,192,894 $52,370,661 $71,001,095 $67,130,879 -5.5%
The DBRS Morningstar NCF is based on the DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS Morningstar NCF for the subject was $67,130,879, representing a -5.5% variance from the issuer’s underwritten figure of $70,001,095. The primary drivers of the variance were vacancy and concessions. DBRS Morningstar conducted a tax abatement analysis in order to estimate the impact of the development’s 421-a tax abatement on the property’s value. The DBRS Morningstar NCF assuming unabated taxes was $46,459,112, and the concluded value of the 421-a exemption over the life of the abatement was $229,108,573. The final concluded DBRS Morningstar value, inclusive of the tax abatement, was $1,003,427,104 or approximately $536,000 per unit. DBRS Morningstar concluded a capitalization rate of 6.0% for the asset.
DBRS MORNINGSTAR VIEWPOINT Jackson Park offers luxury rental units at a competitive price point relative to buildings of similar quality in Manhattan and offers a more convenient commute to midtown and Hudson Yards. The development is one of the larger new construction projects in Long Island City, and the high-end amenity package is a selling point despite the additional cost associated with the monthly membership. The private outdoor park is also a rare luxury, even for a development in an outer borough like Long Island City.
Long Island City continues to experience tremendous growth and expansion as it transforms itself from an industrial and warehouse district into a viable live-work-play destination. The submarket has seen thousands of new units delivered over recent years, most of which is similar rental product to what Jackson Park offers its residents. The new supply has generally been well-absorbed as people continue to search for affordable, convenient alternatives to living in Manhattan and Jackson Park has certainly done well capitalizing on the trend.
The Long Island City submarket, along with downtown Brooklyn, offers some of the heftiest concession rates as compared with other neighborhoods in New York City. Jackson Park, despite opening over a year ago, was still offering rental concessions at the time DBRS Morningstar toured the property in the form of broker fee concessions. The Durst Organization’s Queen Plaza Park is scheduled to open in early 2021 and deliver almost a thousand new rental units, and Jerry Wolkoff’s 5Pointz development is nearing completion and will deliver an additional 1,100 units. DBRS Morningstar believes the continued new supply poses challenges for Jackson Park and will likely require the property to offer some form of ongoing concessions in order to prevent residents from availing themselves of the concession packages that will undoubtedly be offered by new buildings as they come to market.
December 2019 24 Presale Report | BANK 2019-BNK24
JACKSON PARK – LONG ISLAND CITY, NY
DBRS Morningstar also views the student concentration, and the less favorable leasing dynamics associated with these tenants, as a challenge for the property. The sponsor could not provide exact figures, but the concentration was significant enough to cause an unexpected drop in the renewal rate at the property during the month of August, when students tend to move out. Furthermore, the overall YTD renewal rate was only 58.0%, which DBRS Morningstar views as relatively weak for a new development.
DOWNSIDE RISKS –– New Supply - There are 13,000 new units under construction and an additional 17,000 units being proposed in the Long Island City submarket, according to the appraisal. The property will need to compete with the new luxury rental units scheduled to be delivered into the Long Island City submarket over the next few years. This likely means offering some form of ongoing concessions in order to retain residents. –– Limited Operating History – The property is newly developed and began leasing in late 2017. Therefore, limited operating history is available for the subject, which just recently reached stabilization. –– Student Concentration – The student concentration at the property is a point of concern and is contributing to the less- than-desirable renewal rates. –– Noise – The property is directly adjacent to the massive Sunnyside Yards rail facility that operates around the clock and generates substantial noise, despite the sponsor’s best efforts to mitigate the impact. The elevated subway line that runs along Queens Boulevard is also extremely noisy. –– Legal and Structural Considerations – There is no third-party recourse carve-out guarantor or third-party environmental indemnitor required under the mortgage loan. The loan is also structured to permit the release of individual buildings subject to a release price of 110% of the allocated loan amount, which DBRS Morningstar views as less favorable. –– Rent Stabilization Restrictions – The sponsor elected to take advantage of substantial tax benefits under New York City’s 421-a tax abatement program and the property’s 1,871 units are therefore considered rent stabilized. Even though all the units are considered market-rate, annual rent increases at the property will be limited by the restrictions set forth by the New York Rent Guidelines Board. –– Future Mezzanine Debt – The loan documents also permit the borrower to incur up to $200.0 million in future mezzanine financing, which would substantially increase the all-in DBRS Morningstar LTV.
STABILIZING FACTORS –– Location - The property is well-located next to the Queens Plaza subway station and offers a convenient commute into Midtown and Hudson Yards. –– Attractive Amenity Package – The amenity building and luxury fitness complex is a high-end offering and, despite the additional fee, offers residents a compelling on-site alternative to an Equinox-style fitness club membership. –– Redevelopment Upside – The area around Jackson Park is quickly re-developing and increasingly becoming a more diverse destination. For example, the sponsor is developing 1.2 million sf of office space in a complex called the JACX directly across the street from the subject, nearly 800,000 sf of which has been pre-leased to Macy’s. –– Experienced Sponsorship – The property was developed by Tishman Speyer, a well-known private real estate investment and development firm. Tishman has acquired, developed, and operated 406 assets totaling over 176 million square feet since it was founded in 1978.
December 2019 25 Presale Report | BANK 2019-BNK24
1412 Broadway New York, NY
Loan Snapshot Seller MSMCH Ownership Interest Fee Simple Trust Balance ($ Millions) $100.0 Loan psf/Unit $498 Percentage of the Pool 8.2% Loan Maturity/ARD December 2029 Amortization COLLATERAL SUMMARY Interest Only DBRS Morningstar Property Type Office Year Built/Renovated 1927/2007 DBRS Morningstar Issuance DSCR City, State New York, NY Physical Occupancy 97.7% 1.92x SF 421,396 Physical Occupancy Date August 2019 DBRS Morningstar Issuance LTV 58.3% This loan is secured by the borrower’s fee simple interest in 1412 Broadway, a 24-story, DBRS Morningstar 421,396 sf Class B office building built in 1927 and located in the Penn Station submarket, Balloon LTV bordering the Times Square South submarket. The collateral property is on the corner 58.3% of Broadway and West 39th Street in the historic Fashion District and is currently 97.7% DBRS Morningstar Property Type occupied by 56 tenants. The sponsor used loan proceeds of $210.0 million ($481 psf ) to Office retire existing debt of $145.3 million, recapture $53.7 million in equity, fund $2.0 million DBRS Moringstar of future TI/LCs and $2.2 million of other escrows, and cover $6.8 million in closing Property Quality costs. The 10-year, fixed-rate loan is IO for the entire term and represents a LTV of 58.3% Average + based on the appraised value of $360.0 million ($858 psf ). Of the $210.0 million loan, Debt Stack ($ Millions) $100.0 million will be securitized in this transaction and the remaining $110.0 million Trust Balance will be securitized in a future transaction. $100.0 Pari Passu The collateral’s location within the Fashion District attracts quality tenants to the $110.0 property. The district’s boundaries are between Fifth Avenue and Ninth Avenue from B-Note $0.0 34th Street to 42nd Street covering approximately 1 square mile. Many major fashion Mezz designers are domiciled in the surrounding office buildings in the Fashion District, $0.0 using their spaces as offices and showrooms. Several office tenants in the district are Total Debt dedicated to all aspects of the fashion process from design and production to wholesale $210.0 selling. The dense, urban Fashion District also benefits the property’s ground-floor Loan Purpose retail tenants with heavy foot traffic along Broadway, a major thoroughfare in New Refinance York City, and office employees in the surrounding office properties. Equity Contribution/ (Distribution) ($ Millions) The subject also benefits from its proximity to numerous subway and bus transportation ($53.7) services in the area. The property is walking distance from Penn Station on 34th Street, which serves New Jersey Transit, Amtrak, and Long Island Rail Road with transportation to the New York City suburbs and several transit lines providing service
December 2019 26 Presale Report | BANK 2019-BNK24
1412 BROADWAY – NEW YORK, NY
to the outer boroughs. The property is also less than 0.5 miles from Grand Central Terminal, which houses the Metro-North Commuter Railroad and several New York City subway stations, including shuttle service to Times Square-42nd Street and the Port Authority Bus Terminal, which provides train and bus service to commuters to the northern suburbs, New Jersey, and throughout New York City.
The property’s primary demand drivers are its central location in the Fashion District and excellent access to transportation, which have stimulated rental growth in the submarket and lowered the historical vacancy. Reis places the property in the Penn Station submarket, which has low current vacancy of 3.9% and five-year vacancy of 5.4%; this exemplifies the strength and demand for the submarket’s office market space. Reis data also shows that the submarket’s average rent is $56.61 psf, which places several leases at the subject property below market. However, DBRS Morningstar noticed that several tenants have rents above $65.00 psf; generally, DBRS Morningstar marked these leases down to market.
TENANT SUMMARY
DBRS Morningstar % of Total DBRS Base Morningstar Investment Tenant SF % of Total NRA Rent PSF Base Rent Lease Expiry Grade? (Y/N)
Kasper Group 77,413 18.4% $58.35 16.0% 8/2025 N
One Step Up 52,805 12.5% $46.67 11.3% 12/2024 N
Outerstuff Ltd. 51,001 12.1% $47.90 11.2% 4/2022 N
Workville 28,374 6.7% $60.56 7.9% 1/2026 N
Kahn Lucas Lan- 17,665 4.2% $45.95 3.7% 9/2020 N caster
Subtotal/Wtd. 227,258 53.9% $52.12 50.1% Various n/a Avg.
Other Tenants 184,438 43.8% $57.49 49.9% Various n/a
Vacant Space 9,700 2.3% n/a n/a n/a n/a
Total/Wtd. Avg. 421,396 100.0% $52.01 100.0% Various n/a
The property’s tenancy displays granular characteristics after accounting for the top three tenants at the building — The Kasper Group LLC (Kasper), One Step Up Ltd. (One Step Up), and Outerstuff — which are all engaged in the fashion industry and have been long-term tenants. These tenants occupy 39.0% of NRA and represent 38.5% of the building’s total base rent. No other tenant occupies more than 6.8% of NRA or represents 7.9% of the property’s total in-place base rent.
As of the August 31, 2019, rent roll, the property’s overall in-place office rent was $51.47 psf, which is slightly below the appraiser’s WA market rent of $55.45 psf. The appraiser provided a market rent determination by floor at $54.00 psf for floors two to nine, $56.00 psf for floors 10 to 19, and $58.00 psf for floors 20 to 24.
There is significant lease rollover during the loan term with leases representing nearly 76% of NRA expiring within the first five years of the loan term. The largest rollover periods are in 2022, 2020, and 2025 when 27.5%, 19.2%, and 17.2% of NRA expires, respectively. Outside of 2024 when 12.7% of NRA expires, no other year has more than 7.4% of NRA expiring. DBRS Morningstar notes that the sponsor funded an upfront $2.0 million reserve to address future TI/LCs for expiring space at loan closing.
December 2019 27 Presale Report | BANK 2019-BNK24
1412 BROADWAY – NEW YORK, NY
SPONSORSHIP The loan sponsors are Isaac Chetrit, Eli Chetrit, Jacob Aini, and Raizada Shubindu Vaid organized under a tenants-in- common structure. The sponsors each average over 25 years of experience in commercial real estate.
Eli Chetrit and Issac Chetrit are members of the Chetrit family, which has significant real estate assets in the New York area under AB & Sons Group, LLC. The Chetrit family also owns a large apparel manufacturing and import business. The Chetrit brothers operate the real estate division for father, Abraham Chetrit, and other family members. The brothers began investing in real estate in 1982 with their $1.2 million acquisition of 546 Broadway. Their current real estate portfolio consists of more than 25 properties totaling 1 million sf of Manhattan office space and 300,000 sf of retail and commercial space in Brooklyn and Queens with an estimated valued of over $2.0 billion.
Aini has been in the real estate business for over 25 years. He has owned seven retail locations in New York and has over 40 assets with partners and individually. Aini also operates a cosmetics company, Makari De Suisse.
Vaid is a global businessman and the Chief Executive Officer of Fantasia World Inc., a renowned costume jewelry business. Vaid began his career in the wholesale jewelry business and, in 2004, expanded to include retail stores and real estate. Vaid owns and manages eight properties.
The property is managed by a sponsor affiliate.
DBRS MORNINGSTAR ANALYSIS SITE INSPECTION SUMMARY DBRS Morningstar toured the interior and exterior of the property on November 19, 2019, at 10:00 am. Based on the site inspection and management tour, DBRS Morningstar found the property quality to be Average.
DBRS Morningstar considered the property’s overall condition to be good and noted no evidence of deferred maintenance. The building manager indicated that the majority of the most recent renovations were completed between 2007 and 2012 and cost approximately $14 million. The renovations included a lobby renovation, curtain wall installation at the base of building, elevator modernization, electrical and plumbing upgrades, and facade repairs in accordance with New York City’s Local Law 10 and 11. The building manager added that management is in the process of installing split-air heating and cooling systems that will enable the local utility company to bill tenants directly in an effort to reduce building expenses.
December 2019 28 Presale Report | BANK 2019-BNK24
1412 BROADWAY – NEW YORK, NY
The exterior of the property has two curtain walls. The first four floors have a glass and metal curtain wall, giving the property a modern appeal. The building’s remaining facade is brick. Two curtain walls are unusual, but the design shows the sponsor’s investment in the property. The design gives the subject a modern appeal to stay competitive in the submarket as newly constructed buildings in the area have predominantly glass and concrete exteriors and floor-to-ceiling windows.
The property’s main entrance is on Broadway. The lobby entrance is finished with porcelain flooring and grey and white painted walls with modern art, giving the lobby a modern look. The lobby has a security desk across four elevators that provides ample service to the 24-story building.
DBRS Morningstar toured several tenant spaces, including the largest tenants in the building, Kasper and One Step Up. DBRS Morningstar was able to take pictures of select spaces but, given that many of the tenant spaces include showrooms, was prohibited from taking pictures of clothing showrooms that displayed designers’ new clothing lines. The building has average floorplates of 17,500 sf and many layouts were identical multitenant spaces except Kasper, which had a spiral staircase that connected the multifloor tenant since it is the largest tenant in the building. Kasper also subleases approximately 17,750 sf in the building from Escada.
Overall, tenant spaces showed well and fit and finishes are on par with a Class B property. Many of the tenant spaces had cubicle layouts with offices on the periphery of the floor and several had open showroom spaces. Flooring was either hardwood, ceramic, or carpeting. Walls were either painted drywall or textured walls and ceilings were either acoustically treated drop or exposed ceilings. Each floor had outside restrooms and elevator banks for tenant use. There was also a separate fireproof stairwell that allows tenants to exit in the event of fire or other emergency.
The property’s retail spaces are located on the ground floor on Broadway and wrap around on West 39th Street. The retail tenants on the side street are service-oriented retailers, including a nail shop, bar and restaurant, barber shop and shoe repair shop. The retail shops were relatively small with spaces ranging from 100 sf to 1,000 sf, but they were busy and benefited from heavy foot traffic in the area. There are three retail spaces on Broadway and retail space at the corner of Broadway and W. 39th Street. StubHub occupies the corner space, which has excellent visibility. Two of the three retail spaces on Broadway vacated in the past year. The building manager indicated that management would prefer to combine the two spaces for a total of approximately 5,100 sf with excellent visibility along Broadway. Cook Eatery occupies the remaining retail space. Cook Eatery is a multistationed fast-food restaurant, including an expansive open food bar and grill stations serving various food for breakfast and lunch. Cook Eatery was busy, well lit, and attractively designed and its customers primarily included office workers in the area.
December 2019 29 Presale Report | BANK 2019-BNK24
1412 BROADWAY – NEW YORK, NY
DBRS MORNINGSTAR NCF SUMMARY NCF ANALYSIS
T-12 September DBRS Morningstar 2019 Budget Issuer NCF NCF NCF Variance
GPR $21,904,363 $23,214,281 $24,753,232 $24,282,231 -1.9%
Recoveries $2,586,311 $2,747,396 $2,870,065 $2,800,917 -2.4%
Other Income $29,605 $35,719 $35,719 $29,605 -17.1%
Vacancy $0 $0 -$2,977,354 -$3,169,358 6.4%
EGI $24,520,279 $25,997,396 $24,681,662 $23,943,395 -3.0%
Expenses $8,033,642 $8,315,032 $8,886,630 $9,385,590 5.6%
NOI $16,486,637 $17,682,364 $15,795,032 $14,557,805 -7.8%
Capex $0 $0 $84,279 $109,221 29.6%
TI/LC $0 $0 $946,027 $1,884,302 99.2%
NCF $16,486,637 $17,682,364 $14,764,726 $12,564,282 -14.9%
The DBRS Morningstar NCF is based on the DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS Morningstar NCF was $12,564,282, a variance of -14.9% from the Issuer’s NCF of $14,764,726. The main drivers of the variance were TIs and management fee.
DBRS Morningstar used a 4.0% management fee and TIs of $60.00 psf for new leases and $30.00 psf for renewals for the office space and $20.00 psf for new retail leases and $10 psf for retail renewals. The resulting operating expense of $21.48 psf and expense ratio of 39.2% are broadly in line with other similar Class B office buildings that DBRS Morningstar analyzed.
DBRS MORNINGSTAR VIEWPOINT The property’s occupancy is 97.7%, which outperforms the submarket occupancy. The subject is also excellently located four blocks south of Times Square in the Penn Station submarket, which affords ready access to major subway, commuter rail and express bus service throughout New York City and the surrounding metropolitan area less than 1 mile away. The property also benefits from its location in New York City’s historic Fashion District as many of its major tenants participate in the industry. Recent tenants have begun to diversify the rent roll as Workville, Securitas AB and Centana Growth Partners are engaged in financial and service-oriented businesses. Lastly, the property benefits from experienced sponsors from a large real estate family in New York City with over $2.0 billion in real estate assets in the metropolitan area. The loan also benefits from potential upside associated with the lease-up of the vacant ground-floor retail spaces. The appraiser’s market rent determination was $375 psf for retail space on Broadway, which results in $2.0 million in potential upside. Given the strong Broadway location, excellent visibility for retailers, and heavy foot traffic, DBRS Morningstar believes that there should be good demand for the space.
DOWNSIDE RISKS –– The loan suffers from elevated rollover risk as approximately 75.0% of existing leases expire within the first five years of the loan term. –– The property is an older building that requires ongoing intensive capital upgrades.
December 2019 30 Presale Report | BANK 2019-BNK24
1412 BROADWAY – NEW YORK, NY
STABILIZING FACTORS –– Overall, the appraiser indicated that rents at the property are below market and the sponsors have funded TIs to maintain occupancy. According to Reis, the submarket’s average vacancy rate is currently 3.9% and the five-year average vacancy rate is 5.4%, which should result in minimal rollover risk since many of the building’s tenants wish to be near the Fashion District and use specialized showroom space that could be cost prohibitive to relocate. Additionally, the sponsor funded a $2.0 million upfront reserve for future TIs and LCs. –– The sponsor has invested over $14 million into the property since 2007 and, in 2014, used the majority of the funds to modernize the property.
December 2019 31 Presale Report | BANK 2019-BNK24
Bronx Multifamily Portfolio II Bronx, NY
Loan Snapshot Seller MSMCH Ownership Interest Fee Simple Trust Balance ($ Millions) 77.0 Loan psf/Unit ($) 146,388 Percentage of the Pool 6.3 Loan Maturity/ARD December 2029 Amortization COLLATERAL SUMMARY Interest Only DBRS Morningstar Property Type Multifamily Year Built/Renovated Various DBRS Morningstar Issuance DSCR (x) City, State Bronx, NY Physical Occupancy (%) 99.8 1.85 Units 526 Physical Occupancy Date November 2019 DBRS Morningstar Issuance LTV (%) 67.7 This loan is secured by the borrower’s fee-simple interest in a multifamily portfolio DBRS Morningstar comprised of nine rent stabilized properties located in various neighborhoods in Balloon LTV (%) the borough of the Bronx, Bronx County, New York. The portfolio includes a total of 67.7 526 residential units and 17 ground-floor commercial units. The collateral properties DBRS Morningstar Property Type are largely Class B, five-story walk-up and six-story elevator buildings built between Multifamily 1915 and 1941. Overall, the portfolio’s occupancy is 99.8% and has historically operated DBRS Moringstar at or near 100% occupancy. The loan proceeds of $77.0 million($146,388 per unit) were Property Quality used by the sponsor to refinance the existing debt of $76.3 million encumbering the Average property, $1.9 million of closing cost and $243,696 for upfront reserve. The 10-year, Debt Stack ($ Millions) fixed rate loan is IO for the entire loan term and represents a 67.6% LTV based on Trust Balance the combined appraised value of $113.8 million ($216,350 per unit). The loan is also 77.0 structured with release provisions. Generally, the lender will allow releases at 100.0% Pari Passu of the allocated loan amount subject to the remaining collateral post-release having a 0.0 minimum 55.0% LTV or lower and an 8.50% debt yield or greater; otherwise the release B Note 0.0 will be equal to 110.0% of the allocated loan amount of the property as determined by Mezz the lender. 0.0 Total Debt The collateral is well located with approximately five of the nine properties located 77.0 either directly on or within one to two blocks from the Grand Concourse (a major Loan Purpose thoroughfare in the Bronx) with the remaining properties scattered in the Bedford, Refinance Fordham, and Kingsbridge Heights neighborhoods of the Central Bronx. The Grand Equity Contribution/ Concourse area in the Central Bronx is approximately 10 miles from midtown Manhattan. (Distribution) ($ Millions) The two northern most properties, 2773 Briggs Avenue, and 2735 Marion Ave are 1.4 both approximately 15 miles from midtown. The properties all have very good access to subway transportation provided by NYC Transit’s Metropolitan Transportation
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BRONX MULTIFAMILY PORTFOLIO II – BRONX, NY
Authority (MTA) and some properties have access to the Metro North commuter train system. The MTA’s D train line runs directly on the Grand Concourse, providing express subway service to Manhattan.
In addition to the properties’ central location, many of the properties in the portfolio have received major capital improvements, allowing them to qualify for New York City (NYC) J-51 tax benefits. Furthermore, the portfolio benefits from the majority of the units in the Bronx Multifamily Portfolio II subject to rent stabilization, which keeps units relatively affordable and the occupancy at high levels.
The J-51 tax incentive program is an NYC program that reduces landlord real estate taxes and freezes property assessments for building owners completing major capital repairs and upgrades to their residential properties. Rent stabilization laws limit the percentage the landlord can raise rents for one-year and two-year rent-stabilized leases. Annual rent increases are established by the Rent Stabilization Board (RSB), which votes annually on rent increases. The units in the portfolio tend to maintain a level of affordability; as a result many tenants remain in place, which helps the portfolio maintain high occupancy levels. The RSB recently implemented 0% rent increases for one-year leases for 2019, which can hamper landlord’s ability to meet rising building expenses.
PORTFOLIO SUMMARY
Cutoff Date Loan Amount % of Loan Property No of % of Year Built/ Occupancy Property ($) Amount City, State Type Units NCF Renovated (%)
1210 Sherman Avenue 9,150,000 11.9 Bronx, NY Multifamily 48 12.7 1938 100.0
1230 Teller Avenue 11,800,000 15.3 Bronx, NY Multifamily 79 14.6 1941 98.7
176 East 176th Street 9,900,000 12.9 Bronx, NY Multifamily 60 12.8 1936 100.0
1916 Grand Concourse 8,400,000 10.9 Bronx, NY Multifamily 48 10.8 1922 100.0
2121 Grand Concourse 7,400,000 9.6 Bronx, NY Multifamily 43 10.2 1936 100.0
2735 Marion Avenue 6,800,000 8.8 Bronx, NY Multifamily 54 8.7 1923 100.0
2773 Briggs Avenue 6,000,000 7.8 Bronx, NY Multifamily 41 7.8 1915 100.0
2781 Grand Concourse 12,200,000 15.8 Bronx, NY Multifamily 106 15.5 1921 100.0
2805 University Avenue 5,350,000 6.9 Bronx, NY Multifamily 47 7.0 1926 100.0
Total/Wtd. Avg. 77,000,000 100.0 Bronx, NY Multifamily 526 100.0 Various 99.8
The Bronx Multifamily Portfolio II is composed of nine properties operating near 100.0% occupancy. Portfolio income is well diversified across the properties with the largest property generating 15.5% of the underwritten NCF and the smallest property generating 7.0% of the underwritten NCF. The years of construction of the properties ranges from 1915 to 1941, with an average property age of 90 years old.
The appraiser indicated rents at several properties are below market. However, Reis data indicated an average rent of $1,401 per unit for the submarket, while DBRS Morningstar’s in-place gross potential rent for the overall portfolio was $1,377 per unit per month. Nevertheless, demand from affordable housing far exceeds supply, as evidenced by Reis’s current submarket vacancy rate of 3.8% and five-year vacancy rate of 5.4% for the submarket. Historically, it has been difficult to track and discern market rents in the Bronx given its large proportion of government-subsidized housing that is subject to some form of rent regulation (either rent control, rent stabilization, or Section 8). However, this has changed over the past couple of years as developers are starting to develop large market-rate housing in the Bronx.
December 2019 33 Presale Report | BANK 2019-BNK24
BRONX MULTIFAMILY PORTFOLIO II – BRONX, NY
SPONSORSHIP The sponsor of the loan is The Morgan Group Inc. (the Morgan Group), a family-owned and operated company based in Greenwich, Connecticut. Ryan Morgan, a principal of the Morgan Group, is the guarantor for the non-recourse carve-outs. The Morgan Group has owned the nine properties included in the Bronx Multifamily Portfolio II for an average of 16 years. The Morgan Group currently owns and manages a multifamily portfolio of over 4,500 units in 56 buildings located in the Bronx, Manhattan, Queens, Brooklyn, and Westchester County. The property is managed by an affiliate of the sponsor.
DBRS MORNINGSTAR ANALYSIS SITE INSPECTION SUMMARY DBRS Morningstar toured the interior and exterior of all nine of the properties in the portfolio on November 19, 2019, at 9:30 a.m. Based on the site inspection and management tour, DBRS Morningstar found the overall quality of the properties in the portfolio to be Average.
DBRS Morningstar observed several buildings in the portfolio and the condition of the properties appeared to mirror the desirability of the surrounding areas (the portfolio is scattered among several neighborhoods in the Bronx). While there was no evidence of deferred maintenance at the properties, some of units’ interiors were worn and appliances needed to be updated. The superintendent indicated that many of the units are upgraded upon turnover; however, given that the portfolio maintains high occupancy levels, it is difficult to fully update or renovate an occupied unit. DBRS Morningstar did visit one vacant unit in the portfolio, which showed well. Management had refinished the hardwood floors and was in the process of installing upgraded appliances.
Given the age of the properties, the portfolio can be classified as being of pre- and postwar vintage. Upon entrance to each building, the bulk of the properties had a small, secured entrance, some with intercom systems. The majority of the lobbies areas were typical of pre- and postwar buildings with large open spaces, marble walls, high ceilings, and some with steps to the mailboxes. The properties that were six-story buildings were served by one elevator, which appeared worn but functional. Hallways were all finished in concrete with the original floor designs still intact. Most of the hallways were clean and well lit. There was some evidence of cracks in hallway floors and on the stair treads steps in the walk-up buildings.
The interior layouts of the units were noteworthy. Most of the units had sunken living rooms with wrought-iron handrails leading down to the living rooms. All the units had hardwood flooring throughout, except for in the kitchens and bathrooms, which were typically finished with vinyl tile. Not as notable was the condition of the many of bathroom fixtures, which appeared dated, although there was evidence that in several building the sinks and toilets had been replaced. Balancing the
December 2019 34 Presale Report | BANK 2019-BNK24
BRONX MULTIFAMILY PORTFOLIO II – BRONX, NY
appearance of the units were the unit sizes, which were above average in comparison to new construction with high ceiling heights at least nine to 10 feet in several properties, giving units a spacious appearance.
DBRS Morningstar toured the exterior of the buildings in the portfolio and found all the buildings in good condition. The building facades were all made of brick and concrete masonry. Some of the buildings had been repointed, with only one building, 1230 Teller that appeared in immediate need for repointing. The buildings that had courtyards and interior walkways were generally well-maintained. DBRS Morningstar also viewed the commercial spaces, the majority of which were located on the ground-floor level with excellent frontage on the Grand Concourse or near the Grand Concourse.
DBRS MORNINGSTAR NCF SUMMARY NCF ANALYSIS
Issuer NCF ($) DBRS Morningstar NCF ($) NCF Variance (%)
GPR 8,697,108 8,697,108 0.0
Other Income 848,157 845,673 -0.3
Vacancy & Concessions -215,018 -554,211 157.8
EGI 9,330,247 8,988,570 -3.7
Expenses 3,723,461 3,960,958 6.4
NOI 5,606,786 5,027,612 -10.3
Capex 142,408 179,286 25.9
NCF 5,464,378 4,848,325 -11.3
The DBRS Morningstar NCF is based on the DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS Morningstar NCF was $4,848,325, a variance of -11.3% from the Issuer’s NCF of $5,464,378. The main drivers of the variance were vacancy, real estate taxes and management fees.
DBRS MORNINGSTAR VIEWPOINT DBRS Morningstar has a favorable view of the Bronx Multifamily Portfolio II, which secures the loan. The portfolio is outperforming the submarket in relation to occupancy at 99.8%. The property benefits from being centrally located in a dense, urban area with very good access to subway and bus transportation and from being located only 10 to 15 miles from midtown Manhattan. Additionally, the multifamily units are desirable given the spacious layouts and pre-war details; the majority of these units are subject to rent stabilization, which maintains a level of affordability as the demand for affordable housing in NYC for far exceeds the supply. Lastly, the sponsor, the Morgan Group, has consistently invested in the properties over its 16-year ownership of the portfolio, evidenced by the NYC J-51 benefits many of the buildings qualify for (although ongoing upgrades of the interiors of the unit will be needed).
DOWNSIDE RISKS: –– The portfolio has an average age of approximately 90 years. The older buildings will require continued intensive capital investments and lack the amenities of newer buildings. –– The loan has increased refinance risk as it is IO for the full term of the loan; therefore, there is no amortization of principal during the 10-year loan term.
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BRONX MULTIFAMILY PORTFOLIO II – BRONX, NY
STABILIZING FACTORS –– The sponsor has exhibited the proven ability to invest capital into the property. The sponsor reportedly invested over $45.0 million in capital repairs over its 16-year ownership of the portfolio of properties. The lack of amenities does not have a large impact on the portfolio; the major of Class B properties in the submarket provide the same level of amenities. Furthermore, the sponsor will retain imputed equity of approximately $36.8 million remaining in the portfolio. –– The exit LTV is moderate at 67.7% without any appreciation for rent growth. Rent is largely based on rent-stabilized units with low annual rent growth but high occupancy rates. Furthermore, Real Capital Analytics reported 51 sales within the last 12 months, with an average sales price of approximately $185,000 per unit, well above the loan amount of $146,388 per unit.
December 2019 36 Presale Report | BANK 2019-BNK24
DoubleTree New Orleans New Orleans, LA
Loan Snapshot Seller WFB Ownership Interest Fee Simple Trust Balance ($ Millions) 74.0 Loan psf/Unit ($) 201,635 Percentage of the Pool 6.0 Loan Maturity/ARD December 2029 Amortization COLLATERAL SUMMARY Interest Only DBRS Morningstar Property Type Full Service Hotel Year Built/Renovated 1977/2017 DBRS Morningstar Issuance DSCR (x) City, State New Orleans, LA T-12 RevPAR ($) 147.56 3.08 Keys 367 T-12 RevPAR Date September 2019 DBRS Morningstar Issuance LTV (%) 60.7 The loan is secured by the borrower’s fee simple interest in the DoubleTree New DBRS Morningstar Orleans, a 367-key full-service hotel in New Orleans, Louisiana. The sponsor also has Balloon LTV (%) the leased fee interest in a 136-space surface parking lot; ground leases that expire 60.7 on December 31, 2031; and the ground under a stand-alone retail space, subleased DBRS Morningstar Property Type to Pinkberry through May 2028, that has a fully extended ground lease expiration Full-Service Hotel of December 31, 2039. The 10-year fixed-rate acquisition loan is IO. Loan proceeds DBRS Moringstar of $74.0 million along with $47.8 million will be used to purchase the collateral for Property Quality $118.0 million, fund a $2.7 million PIP and cover $500,000 of closing costs. Average +
Debt Stack ($ Millions) The subject hotel is a DoubleTree-flagged hotel under the Hilton Hotels brand. The Trust Balance property has a 23-year franchise agreement with Hilton Hotels that expires in 2042, 74.0 which is 13 years beyond the loan’s maturity. The 367-key hotel was developed in Pari Passu 1977 and renovated by the seller from March 2016 to February 2017 for a total cost 0.0 of $15.5 million ($42,234/key). Of the total $15.5 million investment, approximately B Note 0.0 $10.5 million ($28,610/key) was allocated to upgrading guest rooms with new case Mezz and soft goods and completing tub-to-shower conversions in 150 rooms. The capital 0.0 injection included $2.0 million of common-area renovations to the hotel’s lobby, second- Total Debt floor meeting rooms, public areas, and back-of-house spaces. The sponsor will invest 74.0 an additional $2.7 million ($7,259/key) into a PIP, including guest-room, amenity, and Loan Purpose mechanical space renovations, that is estimated to completed in 18 months. The guest- Acquisition room breakdown consists of 127 single king rooms, 224 double-queen room, 15 suites, Equity Contribution/ and a penthouse. Property amenities include an outdoor pool, fitness center, business (Distribution) ($ Millions) center, room service, concierge, gift shop, on-site yogurt shop, valet parking, and 16,803 47.8 sf of ballroom and meeting space. Demand segmentation at the subject is split between Leisure (50%), Commercial (40%), and Group (10%) because of the hotel’s location in the New Orleans CBD and close proximity to the French Quarter.
December 2019 37 Presale Report | BANK 2019-BNK24
DOUBLETREE NEW ORLEANS – NEW ORLEANS, LA
The appraisal identified eight properties in the local market that compete with the subject property. For more information, please refer to the table below.
COMPETITIVE SET
2019 Year Built/ Distance Occupancy 2019 2019 Property Keys Renovated From Subject (%) ADR ($) RevPAR ($)
Wyndham New Orleans French Quarter 374 1969 0.3 miles 75–80 160–170 125–130
Westin Canal Place 437 1984 0.1 miles 70–75 160–170 120 –125
Embassy Suites - New Orleans 280 1985 0.4 miles 75–80 160–170 125–130
Hilton Garden Inn Convention Center 286 2000 0.6 miles 75–80 160–170 120–125
Renaissance Pere Marquette 272 2001 0.4 miles 70–75 165–175 120–125
Hilton St. Charles 252 1926 0.3 miles 70–75 170–180 130–135
Loews New Orleans 285 2003 0.2 miles 70–75 190–200 140–145
Marriott New Orleans at the Convention Center 331 2005 0.5 miles 70–75 175–185 130–135
Total/Wtd. Avg. Comp Set 2,517 Various Various 72.0 174.49 125.63
DoubleTree New Orleans (Subject) 367 1977 n/a 84.2 175.35 147.56
Source: Appraisal. Subject figures based on September 2019 T-12 adjusted to include lost room revenue caused by Hurricane Barry in July 2019.
SPONSORSHIP The loan’s joint sponsors are Allan V. Rose and AVR Realty Company (AVR Realty), a national real estate investment and development firm based in Yonkers, New York. AVR Realty has been in operations for more than 45 years with a diverse portfolio of commercial, hotel, and residential properties. AVR Realty has a real estate portfolio of 23 hotels across nine states and 12 unique flags. The guarantor for the transaction is Allan V. Rose, the founder of AVR Realty, who has a net worth of $2.0 billion and liquidity of $419.0 million. The property is managed by Dimension Development Group, Inc. (DDC) for a contractual management fee of 2.0% of the EGI. DDC manages nearly all of the sponsor’s hotel assets and has its own portfolio of approximately 60 hotels under management.
DBRS MORNINGSTAR ANALYSIS SITE INSPECTION SUMMARY DBRS Morningstar toured the interior and exterior of the property on Wednesday, November 13, 2019, at 11:00 a.m. Based on the site inspection, DBRS Morningstar found the property quality to be Average (+).
December 2019 38 Presale Report | BANK 2019-BNK24
DOUBLETREE NEW ORLEANS – NEW ORLEANS, LA
The collateral is a 367-key, full-service hotel in New Orleans on the northeastern edge of the city’s CBD. The property is approximately 1.0 miles south the French Quarter and 0.3 miles west of the Mississippi River. The hotel is in a densely infilled area at the intersection of Canal Street, Peters Street, and Tchoupitoulas Street. Canal Street a main thoroughfare in New Orleans and is lined with retail and restaurant establishments. The subject is across the street from Harrah’s New Orleans, a hotel and casino resort. Despite its proximity to Harrah’s New Orleans, the subject does not have a contract with the casino because the resort has its own hotel with more affordable guest-room options to attract customers to the casino. The subject hotel is only 0.6 miles north of the Ernest N. Morial Convention Center, which is a major driver of business travelers to the hotel.
Originally constructed in 1977, the 17-story building has a bland aesthetic with an exterior that is composed of tan and grey concrete. The hotel’s main entrance is on the north end of the property and features a covered driveway with valet parking. The lobby is spacious and airy, featuring a business center and gift shop. The lobby has white tile flooring and ample seating spaces for guests to enjoy. The guest-room mix is composed of 127 single king rooms, 224 double-queen room, 15 suites, and a penthouse room. The sponsor is planning to convert the Presidential Suite into three separate guest rooms. DBRS Morningstar toured single king and double-queen guest rooms during its inspection of the property. Guest rooms have modern and attractive finishes featuring dark brown carpeted floors and beige walls. Hard case goods include TVs, nightstands, chairs with ottomans, desks, mini-refrigerators, and closets. The bathrooms are small, but contain sleek and attractive finishes. The vanities feature white granite countertops and bright lighting surrounding the perimeter of the bathrooms’ mirrors. As part of the sponsor’s PIP, the remaining 217 bathrooms that still have tubs will be converted to walk-in showers.
Property amenities include an outdoor pool, restaurant, coffee shop, fitness center, business center, room service, concierge, gift shop, on-site yogurt shop, valet parking, and 16,803 sf of ballroom and meeting space. The subject’s pool is on the fourth floor and offers scenic cityscape views. The fitness center was recently renovated with new exercise equipment and flooring as part of the 2016–17 renovation; however, the fitness center is small relative to the hotel’s size and has no windows, making the space feel dark and cramped. There are three large ballroom and meeting rooms on the 16th floor that offer picturesque views of the city and Mississippi River. The sponsor will renovate these 16th-floor meeting and ballroom spaces as part of the upcoming PIP. Smaller breakout meeting rooms on the property’s second floor; management noted that these rooms are frequently used to host business conferences as the hotel has an active events calendar. Wow Café, the hotel’s on-site restaurant, has an open layout with two dining areas and a bar equipped with TVs; the restaurant has a separate entrance along Peters Street with strong visibility to passing pedestrian and car traffic. The restaurant serves breakfast, lunch, and dinner and is directly across the lobby from the hotel’s front desk. Wow Café’s current layout is inefficient with its two dining areas separated by a hotel corridor that interrupts the restaurant’s atmosphere. The sponsor plans to renovate the restaurant and bar to increase its space utilization and layout. PJ’s Coffee, a popular local coffee chain, is adjacent to Wow Café and also has frontage along Peters Street. The coffee shop offers a menu of sandwiches and snacks in addition to its drink menu. The hotel has a ground lease on a parking lot that features 136 spaces that are accessible only via the valet parking service. Overall, the collateral showed well with stylish guest-room finishes and minimal deferred maintenance.
December 2019 39 Presale Report | BANK 2019-BNK24
DOUBLETREE NEW ORLEANS – NEW ORLEANS, LA
DBRS MORNINGSTAR NCF SUMMARY NCF ANALYSIS
T-12 DBRS NCF September Morningstar Variance 2017 2018 2019 Appraisal Issuer NCF NCF ($) (%)
Occupancy (%) 78.0 83.7 82.9 82.0 84.2 80.0 -4.9
ADR ($) 164.45 169.63 175.50 185.72 175.35 175.35 0.0
RevPAR ($) 128.21 142.04 147.56 152.29 147.56 140.28 -4.9
Total Departmental 20,513,757 22,726,079 23,570,428 24,629,531 23,866,433 22,689,292 -4.9 Revenue($)
Total Deparmental Expense ($) 4,081,569 4,376,527 4,589,601 4,723,131 4,508,001 4,428,725 -1.8
Total Departmental Profit 16,432,188 18,349,552 18,980,827 19,906,400 19,358,432 18,260,567 -5.7 ($)
Total Undistributed Expense 6,740,949 7,381,316 7,527,522 7,750,589 7,736,638 7,607,572 -1.7 ($)
Total Fixed Expense ($) 1,120,394 1,111,686 1,186,639 1,909,184 1,790,748 1,752,473 -2.1
NOI ($) 8,570,845 9,856,550 10,266,666 10,246,627 9,831,046 8,900,523 -9.5
FF&E ($) 0 0 0 738,886 954,657 917,500 -3.9
NCF ($) 8,570,845 9,856,550 10,266,666 9,507,741 8,876,389 7,983,023 -10.1
The DBRS Morningstar NCF is based on the DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS Morningstar NCF was $7,983,023, a variance of -10.1% from the Issuer’s NCF. The main driver of the variance is the rooms revenue. DBRS Morningstar accepted the ADR from the T-12 period ended September 2019 and capped occupancy at 80.0%.
DBRS MORNINGSTAR VIEWPOINT The collateral is strategically located in an area of New Orleans that attracts both business and leisure travelers alike. The property’s location in the city’s CBD allows for the hotel to effectively attract corporate travelers on weekdays. The subject is also approximately 1.0 miles from the heart of the French Quarter, making it a suitable option for tourists on weekends. The hotel’s location enables it to maintain a diverse guest mix that appeals to both the transient and group demand segments.
Following the recent renovations, the previous owner successfully increased the property’s RevPAR by 17.7% from 2017 to the T-12 period ended in September 2019, reflecting $15.5 million in renovations. The hotel simultaneously increased its occupancy by approximately 6.0% and raised the ADR by nearly $11.00. Following the seller’s renovations, the subject has outperformed its competitive set in the STR report with a RevPAR penetration of 116.7% as of the T-12 period ending September 2019. The sponsor’s PIP should further boost the collateral’s performance and ensure its place toward the top of its competitive set. The guest rooms currently have modern aesthetics, so renovations following the sponsor’s acquisition will help to further modernize finishes and case goods. The planned improvements to the 16th-floor meeting spaces will provide a noteworthy refresh, which the sponsor hopes will drive up banquet and catering revenue and, consequently, rooms revenue. In addition, updates to the ground-floor restaurant and bar should increase F&B going forward to increase space utilization. The subject’s ADR is already toward the higher end of its competitive set, so there may be limited upside to drive up guest-room rates following the sponsor’s renovations. Also, as the two ground lease terms are short in nature, DBRS Morningstar did not include any revenue associated with the stand-alone Pinkberry retail store. Although the lease parking spaces adjacent to the subject are a great amenity to the subject, the majority of the valet income is not dependent on this lot and current zoning does not require parking at the hotel; therefore, if the ground lease is not renewed in the future, the subject will still be legally conforming and should not experience a negatively cash flow impact from the loss of
December 2019 40 Presale Report | BANK 2019-BNK24
DOUBLETREE NEW ORLEANS – NEW ORLEANS, LA
the ground lease.. Although the transaction is IO over the entire term, the loan is lower leverage with an LTV of 60.7% using the appraised value of approximately $122.0 million. DOWNSIDE RISKS –– The appraiser has identified nine new hotels in the area that are scheduled to open over the next three years.
STABILIZING FACTORS –– All the hotels currently under development are not expected to be directly competitive with the subject hotel. These nine properties are either luxury hotels with higher nightly rates or different product types; therefore, the appraiser would not include any of these new hotels as part of the subject’s competitive set. Because of its recent and upcoming renovations, DBRS Morningstar believes that the Hilton-affiliated hotel will continue to attract guests.
December 2019 41 Presale Report | BANK 2019-BNK24
The Parklawn Building Rockville, MD
Loan Snapshot Seller BANA Ownership Interest Fee Simple Trust Balance ($ Millions) $65.4 Loan psf/Unit $204 Percentage of the Pool 5.3% Loan Maturity/ARD November 2029 Amortization COLLATERAL SUMMARY Interest Only DBRS Morningstar Property Type Office Year Built/Renovated 1970/2015 DBRS Morningstar Issuance DSCR City, State Rockville, MD Physical Occupancy 72.9% 2.68x SF 1,283,646 Physical Occupancy Date July 2019 DBRS Morningstar Issuance LTV 60.0% This loan is secured by the borrower’s fee simple interest in the Parklawn Building, DBRS Morningstar a 1,283,646 sf Class A office building. The 18-story office property was built in 1970, Balloon LTV and in 2015, approximately 73.0% of the building was renovated to Class A quality, 60.0% while the remaining space is vacant Class C quality. The property is on Parklawn Drive DBRS Morningstar Property Type in Rockville, Maryland. Whole-loan proceeds of $261.6 million and $183.6 million of Office sponsor equity financed the $436.0 million purchase price, covered $8.0 million of DBRS Moringstar closing costs associated with the transaction, and funded $1.2 million of other escrows. Property Quality The 10-year loan is full-term IO and represents an issuance LTV of 60.0% based on the Average + September 2019 appraised value of $436.0 million. Debt Stack ($ Millions) Trust Balance This single-tenant office building is 72.9% leased to the U.S. Department of Health $65.4 and Human Services (HHS). The property serves as the headquarters for four HHS Pari Passu agencies: the Health Resources and Services Administration, the Agency for Healthcare $196.2 Research and Quality, the Indian Health Service, and the Substance Abuse and Mental B-Note $0.0 Health Services Administration. The renovation of the 935,386 sf for the HHS cost Mezz $300 million ($320 psf ). $0.0 Total Debt $261.6 Loan Purpose Acquisition Equity Contribution/ (Distribution) ($ Millions) $183.6
December 2019 42 Presale Report | BANK 2019-BNK24
THE PARKLAWN BUILDING – ROCKVILLE, MD
TENANT SUMMARY
DBRS % of Total Morningstar DBRS % of Total Base Rent Morningstar Investment Tenant SF NRA PSF Base Rent Lease Expiry Grade? (Y/N)
United States General Services Administration 935,386 72.9% $31.66 100.0% 7/31/2030 Y
Subtotal/Wtd. Avg. 935,386 72.9% $31.66 100.0% 7/31/2030 Y
Vacant Space 348,260 27.1% n/a n/a n/a n/a
Total/Wtd. Avg. 1,283,646 100.0% $31.66 100.0% n/a n/a
HHS’s lease has no termination options and is structured with a cash flow sweep in conjunction with the tenant’s notice period, which is 36 months before lease expiration (2.4 years, or 29 months, before loan maturity). The cash flow sweep equates to approximately $36.6 million ($39 psf for towers A and B). The loan is also structured with a release provision for tower C (348,216 sf ), subject to certain conditions including the full repayment of the $2.4 million allocated loan balance and any prepayment penalty.
SPONSORSHIP The sponsor for the transaction is a joint venture between Boyd Watterson Asset Management, LLC (Boyd), and Union Bancaire Privee (UBP). Boyd holds a 0.5% equity interest and 100.0% voting interest, while UBP holds a 99.5% equity interest and 0.0% voting interest. Boyd specializes in fixed income, real estate and equities. The company is headquartered in Cleveland and managed $8.8 billion of assets as of March 2019. Formed in 2009, the real estate group manages $3.2 billion of gross real estate assets nationally. While the firm manages a variety of property types, it currently has three separate funds focused on acquiring and managing properties leased to federal and state government agencies. UBP is a Geneva- based financial services and wealth management firm with CHF 134.4 billion in assets under management as of June 2019. There is no warm-body non-recourse carveout guarantor for this loan.
The property manager is JBG Commercial, a third party, for a contractual rate of 3.0% of the EGI but is capped at $1.0 million per the agreement.
DBRS MORNINGSTAR ANALYSIS SITE INSPECTION SUMMARY DBRS Morningstar toured the interior and exterior of the property on Friday, November 15, 2019, at approximately 10:30 a.m. Based on the site inspection, DBRS Morningstar found the property quality to be Average (+).
December 2019 43 Presale Report | BANK 2019-BNK24
THE PARKLAWN BUILDING – ROCKVILLE, MD
The collateral comprises a 1,283,646 sf single-tenant Class A office building in Rockville, approximately 13 miles north of Washington, D.C. The property is situated along Parklawn Drive and benefits from its proximity to roads serving as primary arteries to the surrounding area, including I-270, I-495, Hwy. 355, and Hwy. 586. The property’s surrounding area is suburban, near the Rockville Pike retail corridor, and consists of chain restaurants, office buildings, multifamily developments and single-family homes. It is adjacent to other single-tenant government buildings, which house the Food and Drug Administration and the National Institute of Allergy and Infectious Diseases. The property has strong access to both parking and public transit; the Twinbrook Metro stop is less than 1.0 mile away, and the building offers 1,022 covered parking spaces with an additional 762 surface spots.
Management identified several competitive office properties near the property but described the collateral as having a competitive advantage because of its recent renovation, LEED Platinum rating, abundant parking, room for expansion and more than 40-year history with the HHS. The department has occupied the property since it was built in 1970 and remained operational throughout the renovation. Management noted that the property has many features specific to the government tenant, such as a blast-resistant facade, carbon fiber reinforcement and anti-vehicular bollards. The layout of the building resembles the letter E; the building has an east/west running facade with three north/south running towers. In 2015, towers A and B were fully renovated and are now fully occupied by HHS (72.9% of the NRA). The General Services Administration (GSA), on behalf of the HHS, invested more than $165.0 million ($175 psf or 55.0% of the total renovation costs) for specific upgrades. These upgrades include both the structural enhancement and a data center with backup generators. In between towers A and B, there is a 14-story glass atrium, which enables an open-air feel, a large employee cafe, and multiple modular meeting spaces. Tower C will remain in its legacy state until the current department wants to expand or additional GSA tenants move into the building.
The collateral stands 18 stories tall and features an all-glass exterior facade accentuated by polished metal details at the street level and around the main entrance. The modern exterior stands in contrast to the facade of the non-renovated tower C. The property’s main entrance is sleek, well lit, and has a stately reception/security desk. Tenant amenities in the building include a large cafe, kitchen areas on each floor, a large gym, and a beautiful atrium with seating. HHS is utilizing all the space in towers A and B, but there were some desks available for future expansion. At the time of the tour, management estimated there to be approximately 4,500 employees working in the building. All floors generally featured well-finished, modern-looking decor, including glass-partitioned cubicles and meeting rooms. Overall, the property appeared very well maintained and exhibited favorable interior and exterior appeal at the time of DBRS Morningstar’s inspection.
December 2019 44 Presale Report | BANK 2019-BNK24
THE PARKLAWN BUILDING – ROCKVILLE, MD
DBRS MORNINGSTAR NCF SUMMARY NCF ANALYSIS
DBRS T-12 October Morningstar 2018 2019 Appraisal Budget Issuer NCF NCF NCF Variance
GPR $29,307,147 $29,307,147 $29,333,705 $29,333,705 $40,142,952 $40,142,952 0.0%
Recoveries -$71,488 -$779,982 $379,972 $352,896 $276,172 $380,650 37.8%
Other Income $3,547,672 $3,689,058 $90,000 $7,801,278 $5,311,560 $4,228,227 -20.4%
Vacancy $0 $0 $0 $0 -$10,447,800 -$10,552,278 1.0%
EGI $32,783,331 $32,216,222 $29,803,677 $37,487,879 $35,282,884 $34,199,550 -3.1%
Expenses $8,889,858 $6,778,412 $9,843,416 $10,288,526 $10,656,482 $10,674,665 0.2%
NOI $23,893,473 $25,437,810 $19,960,261 $27,199,353 $24,626,402 $23,524,885 -4.5%
Capex $0 $0 $0 $280,616 $319,897 $320,912 0.3%
TI/LC $0 $0 $0 $0 $147,245 $876,213 495.1%
NCF $23,893,473 $25,437,810 $19,960,261 $26,918,737 $24,159,260 $22,327,761 -7.6%
The DBRS Morningstar NCF is based on the DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS Morningstar NCF was $22,327,761, down -7.6% from the Issuer’s NCF of $24,159,260. The primary drivers of the variance include acceptance of other income and TI/LCs. Other income comprises an economic development grant from Montgomery County based on multiple criteria, including occupancy of a governmental agency. DBRS Morningstar gave partial credit to the grant payment because of its contingency on the government tenant remaining in occupancy. DBRS Morningstar estimated TIs and LCs based on comparable recently securitized office properties found on Viewpoint. The combined DBRS Morningstar TI/LCs were $2.67 psf compared with the Issuer’s TI/LCs of $1.61 psf.
DBRS MORNINGSTAR VIEWPOINT The collateral benefits from its transit-serviced location, its proximity to Washington, D.C., and other government facilities and its neighborhood setting surrounded by inferior office products. With its large base of possible government tenants through the GSA’s lease and its specialized infrastructure, the property should be able to maintain a stable occupancy. It also benefits from the 7 million sf (including the property) of GSA tenants in the county. There are 23 leases that vary in size between 50,000 sf and 125,000 sf that will all expire before the HHS’s renewal in 2030. The property could feasibly compete for all government tenants in the area that fall under the HHS’s umbrella and could utilize tower C, creating additional future upside. Furthermore, Rockville is a sought-after submarket for institutional investors looking for long-term government tenants because of their low risk and high cash flow stability. The HHS is an investment-grade single tenant with a lease that expires in July 2030, eight months after the loan matures in November 2029, and there are no termination options. The close timing of the lease expiration and loan maturity gives the loan an elevated level of refinance risk. The transaction has a moderately low issuance LTV of 60.0%. Higher-leveraged loans tend to exhibit higher default frequencies historically.
DOWNSIDE RISKS –– The property exhibits risk from a single tenant with a lease expiring within a year of the maturity date. This elevates the risk of maturity default. In addition, loans secured by single-tenant properties have been found to have higher loss severities in the event of a default. –– The 10-year loan is full-term IO.
December 2019 45 Presale Report | BANK 2019-BNK24
THE PARKLAWN BUILDING – ROCKVILLE, MD
STABILIZING FACTORS –– The government tenant has low risk of default before the maturity date. It has been at the property for more than 40 years and invested $165 million, or 55% of the total renovation costs, for the recent renovation, which is a significant commitment to the property and may signal its desire for long-term tenancy. The loan is structured with a cash flow sweep 29 months before loan maturity (36 months from lease expiration) or if the tenant vacates or fails to renew the lease. The amount of cash flow swept will accumulate to approximately $36.6 million, which results in approximately $39 psf for towers A and B. If the trend of offering a relatively low level of TI allowances for second-generation space continues in the market, the cash flow sweep should be adequate to lease up the property. –– As of loan closing, the borrower contributed $183.6 million of equity in the transaction (41.2% of the total cost). Additionally, the loan has moderately low leverage, as evidenced by a relatively low LTC of 58.8% and loan-to-dark value of 72.1% based on the sponsor’s total cost basis of $445.2 million and dark value of $363.0 million, respectively.
December 2019 46 Presale Report | BANK 2019-BNK24
Austin Marriott Portfolio Austin, TX
Loan Snapshot Seller BANA Ownership Interest Fee Simple Trust Balance ($ Millions) 62.3 Loan psf/Unit ($) 103,488 Percentage of the Pool 5.1 Loan Maturity/ARD December 2029 Amortization COLLATERAL SUMMARY 30 Years DBRS Morningstar Property Type Limited-Service Hotel Year Built/Renovated Various DBRS Morningstar Issuance DSCR (x) City, State Austin, Texas T-12 RevPAR ($) 104.61 2.27 Keys 602 T-12 RevPAR Date August 2019 DBRS Morningstar Issuance LTV (%) 59.7 This loan is secured by the borrower’s fee simple interest in the Austin Marriott DBRS Morningstar Portfolio, which comprises two limited-service, one select-service, one extended- Balloon LTV (%) stay, and one full-service hotel properties totaling 602 keys: Marriott Austin South 53.9 (211 keys), SpringHill Suites Austin South (152 keys), Courtyard by Marriott Austin DBRS Morningstar Property Type South (110 keys), Residence Inn by Marriott Austin South (66 keys), and Fairfield Inn Limited-Service Hotel & Suites Austin South (63 keys). The five properties are adjacent to one another along DBRS Moringstar U.S. I-35 Frontage Road within the South Austin/Airport submarket of Austin, Texas. Property Quality Loan proceeds of $62.3 million and nearly $27.7 million of borrower equity financed Average the borrower’s $65.0 million acquisition of the secured portfolio, funded a $24.0 Debt Stack ($ Millions) million PIP reserve fund, and covered $550,000 of closing costs associated with the Trust Balance transaction. As part of the acquisition, all hotels within the portfolio will be subject 62.3 to new 15-year franchise agreements with their respective Marriott franchises and Pari Passu will undergo a brand-mandated capital infusion of approximately $39,867 per key 0.0 across the portfolio, which is reserved upfront as part of the transaction’s funding. B Note 0.0 The 10-year loan is structured with an initial five-year IO period and amortizes on a Mezz 30-year schedule thereafter. Whole-loan proceeds represent a relatively high loan-to- 0.0 purchase-price value of 95.9%, but represent a lower LTV ratio of 59.7% based on the Total Debt appraiser’s as-stabilized (post-PIP renovation) value estimate of $104.3 million. The 62.3 transaction permits individual property releases subject to certain criteria set forth in Loan Purpose the loan agreement, although the Marriott Austin South and SpringHill Suites Austin Acquisition South assets are not individually releasable as they are located on the same tax parcel. Equity Contribution/ (Distribution) ($ Millions) 27.7
December 2019 47 Presale Report | BANK 2019-BNK24
AUSTIN MARRIOTT PORTFOLIO – AUSTIN, TX
PORTFOLIO SUMMARY
Cutoff Date % of Cut-Off T-12 Year Built/ Loan Amount Date Loan Occupancy RevPAR Property City, State Keys Renovated ($) Amount (%) ($)
Marriott Austin South Austin, TX 211 2001/2016 27,354,642 43.9 74.5 116.25
SpringHill Suites Austin South Austin, TX 152 2000 12,762,842 20.5 77.2 97.09
Courtyard by Marriott Austin South Austin, TX 110 1996 11,816,457 19.0 69.4 96.63
Residence Inn by Marriott Austin South Austin, TX 66 1996 6,820,266 10.9 84.6 115.19
Fairfield Inn & Suites Austin South Austin, TX 63 1995/2015 3,545,793 5.7 76.0 91.09
Total/Wtd. Avg. Austin, TX 602 Various 62,300,000 100.0 75.5 105.08
All five properties within the portfolio are Marriott flagged with newly executed 15-year franchise agreements extending through November 2034. The hotels in the portfolio were constructed between 1995 and 2001 and two of the five assets (Marriott Austin South and Fairfield Inn & Suites Austin South) benefited from subsequent renovations in 2015 and 2016. As part of the sponsor’s acquisition and execution of new franchise agreements across the portfolio, Marriott is requiring a PIP for each hotel with a total budgeted cost of $24.0 million ($39,867 per key). The plan must be completed within 24 to 30 months of loan closing with an extensive project list across each asset including guest-room and bathroom renovations; first-floor lobby/restaurant and bar upgrades; common-space upgrades; landscape; parking lot and building facade rehabilitation; guest corridor and elevator modifications; and various back-of-house upgrades. All required PIP renovation costs are reserved upfront as part of the transaction financing.
PIP RENOVATION SUMMARY
Purchase Purchase Price Upcoming PIP Upcoming PIP Upcoming PIP Property Price ($) per Key ($) Costs ($) Cost/Key ($) Timeline
Marriott Austin South 27,000,000 127,962 13,563,172 64,280 24-30 Months
SpringHill Suites Austin South 16,500,000 108,553 2,328,381 15,318 24-30 Months
Courtyard by Marriott Austin South 12,000,000 109,091 3,985,870 36,235 24-30 Months
Residence Inn by Marriott Austin South 6,000,000 90,909 2,032,830 30,800 24-30 Months
Fairfield Inn & Suites Austin South 3,500,000 55,556 2,089,747 33,171 24-30 Months
Total/Avg. 65,000,000 107,973 24,000,000 39,867 24-30 Months
As of the T-12 period ended September 2019, all five assets in the portfolio exhibited RevPAR penetration rates above the market, which indicates that the assets are generally competitive despite lacking significant capital investment since construction. The portfolio has exhibited consecutive years of declining revenues since 2015 with the annual portfolio RevPAR falling to $101.85 in 2018 from $117.62 in 2015. An influx of new supply to the Austin market, including nine new hotels constructed in the submarket since 2016 and four additional properties under construction as of loan closing, have driven declining revenues. At the time of DBRS Morningstar’s inspection, management indicated that new supply deliveries continued to outpace demand growth for hospitality accommodations throughout Austin; however, management was confident in the subject portfolio’s ability to enhance its ADR potential and continue to outperform the hotels’ respective competitive sets through significant property enhancements under the sponsor’s planned PIP renovations after closing.
December 2019 48 Presale Report | BANK 2019-BNK24
AUSTIN MARRIOTT PORTFOLIO – AUSTIN, TX
STR REPORT SUMMARY
Subject Competitive Set Index
Occupancy ADR RevPAR Occupancy ADR RevPAR Occupancy ADR RevPAR
Marriott Austin South 74.5% 155.95 116.25 76.7% 142.63 109.41 97.2% 109.3% 106.2%
SpringHill Suites Austin South 77.2% 125.80 97.09 73.8% 107.86 79.64 104.5% 116.6% 121.9%
Courtyard by Marriott Austin South 69.4% 139.19 96.63 75.4% 110.48 83.27 92.1% 126.0% 116.1%
Residence Inn by Marriott Austin South 84.6% 136.22 115.19 76.9% 117.08 89.98 110.0% 116.3% 128.0%
Fairfield Inn & Suites Austin South 76.0% 119.93 91.09 71.0% 94.90 67.39 107.0% 126.4% 135.2%
SPONSORSHIP The sponsor for this transaction is JRK Property Holdings Inc. (JRK), a west-coast-based real estate investment firm specializing in the ownership, management, leasing, and redevelopment of value-added opportunities throughout the U.S. As of loan closing, JRK maintained approximately $6.0 billion of investment capital with a portfolio of 78 multifamily properties totaling more than 32,000 units and three luxury hotels (Oceana in Santa Monica, California; the Sheraton Nashville Downtown Hotel in Nashville; and The Roger New York). JRK Property Hospitality Fund I, L.P. is the transaction guarantor, which is a $350.0 million discretionary fund with a 14-year life span and two two-year extension options and is JRK’s seventh fund issuance since inception in 1991. As of loan closing, the guarantor had a reported net worth and liquidity of $350.0 million and $332.5 million, respectively, with required minimums of $50.0 million and $10.0 million, respectively, throughout the loan term.
Property management across the portfolio is provided by Interstate Hotels & Resorts (a third-party management company) for a contractual base rate equal to 3.5% of EGI. Interstate Hotels & Resorts manages more than 1,400 hospitality properties in 20 countries with approximately 50 years of management experience. All properties in the portfolio are also subject to individual 15-year franchise agreements with fees generally ranging from 8.0% to 8.5% of total room revenue.
DBRS MORNINGSTAR ANALYSIS SITE INSPECTION SUMMARY DBRS Morningstar toured two of the five portfolio properties on November 15, 2019. The two properties, Marriott Austin South and SpringHill Suites Austin South, collectively represent approximately 62.9% of the portfolio’s as-is appraised value. Based on the site inspections, DBRS Morningstar found the property quality of the portfolio to be Average.
December 2019 49 Presale Report | BANK 2019-BNK24
AUSTIN MARRIOTT PORTFOLIO – AUSTIN, TX
MARRIOTT AUSTIN SOUTH The Marriott Austin South property is a 211-key full-service hotel approximately 7.0 miles west of the Austin-Bergstrom International Airport and roughly 6.0 miles south of the Austin CBD. The property is situated along the U.S. I-35 Frontage Road and benefits from favorable visibility along the bypassing U.S. I-35, which provides transit to downtown Austin. The collateral also benefits from proximity to East Ben White Boulevard, which connects to the Austin-Bergstrom International Airport. The subject’s immediate surrounding area is predominantly commercial in nature and includes several alternative hospitality properties, which generally exhibited similar curb appeal to the subject collateral. Most neighboring hospitality properties appeared to be limited or select service and management identified the Marriott Austin South property’s primary competitors to be the Sheraton Austin Hotel at the Capital in Downtown Austin and the Hilton Austin Airport beside the Austin-Bergstrom International Airport. Per management, the collateral’s location is not as favorable as competitors because they are farther from the airport and lack walkability compared with downtown facilities.
The five-story property features a multitone beige exterior facade. The lobby is accessible through a covered drive-up and showed well, but appeared to be somewhat dated at the time of DBRS Morningstar’s inspection. The lobby featured tile flooring and stone-veneer wall detailing, accentuated by dark wood trim and furnishings. The lobby also featured a guest services desk and market pantry, and provided access to the collateral’s ground-floor meeting space and ground-floor bar/ restaurant. Additional property amenities included an indoor pool area and a small, windowless fitness center with limited fitness equipment. DBRS Morningstar toured two guest rooms at the time of inspection, both of which appeared to be clean but somewhat dated with worn wood furnishings, older-model TV sets and lighting fixtures, and outdated bathroom countertops/fixtures. Management indicated that the collateral generally maintained the same finishes since construction in 2001 and indicated that a much-needed, PIP-mandated gut renovation of the property’s guest rooms and common spaces would likely begin in summer 2020. Parking was available in a surface lot surrounding the property, and the property featured limited, but well-kept landscaping. Overall, the property appeared to be relatively well maintained, but with an outdated interior and exterior.
SPRINGHILL SUITES AUSTIN SOUTH The SpringHill Suites Austin South property is a 152-key limited service hotel approximately 7.0 miles west of the Austin- Bergstrom International Airport and roughly 6.0 miles south of downtown Austin. The property is situated along the U.S. I-35 Frontage Road and benefits from favorable visibility along the bypassing U.S. I-35, which provides transit to downtown Austin. The collateral also benefits from proximity to East Ben White Boulevard, which connects to the Austin-Bergstrom International Airport. The subject’s immediate surrounding area is predominantly commercial in nature and includes several alternative hospitality properties, which generally exhibited similar curb appeal to the subject collateral. Most neighboring hospitality properties appeared to be limited or select service, and management identified the SpringHill Suites Austin South’s primary competitors to be the Courtyard by Marriott Austin Airport, the adjacent Courtyard by Marriott Austin South and the Hampton Inn & Suites Downtown because of its competitive rate. Management indicated that the collateral’s location was poor for leisure travelers and was prone to highway noise, but also stated that the property supported leisure demand over the weekends and supported corporate demand during the week.
The six-story property features a beige-stucco exterior facade accentuated by red-brick veneering around the primary entrance. A covered veranda highlights the drive-up entry point, through which sliding doors open to a more recently renovated lobby with vinyl-wood flooring, unique lighting fixtures and colorful furnishings. The lobby features a guest services desk, a sundry shop and small coffee bar area and shares the ground floor with an open dining area and small business center, which included one computer station. Additional common amenities throughout the property include an indoor swimming pool with outdoor seating and a mirror-lined fitness center. At the time of inspection, DBRS Morningstar toured two guest rooms, which generally featured carpeted flooring, wood furniture, white linens, either beige or light green paint, and white bathroom fixtures. Per management, the subject property was recently renovated in 2015 and would not require significant additional investment as part of the upcoming PIP plan. Parking was available in a surface lot
December 2019 50 Presale Report | BANK 2019-BNK24
AUSTIN MARRIOTT PORTFOLIO – AUSTIN, TX
surrounding the property, which showed minimal signs of wear at the time. Overall, the property appeared to be generally well maintained at the time of DBRS Morningstar’s inspection.
DBRS MORNINGSTAR NCF SUMMARY NCF ANALYSIS
T-12 DBRS NCF September Morningstar Variance 2018 2019 Budget Appraisal Issuer NCF NCF (%)
Occupancy (%) 75.0 76.3 76.2 69.4 76.3 72.5 -5.0
ADR ($) 135.75 137.66 139.65 141.71 137.65 138.76 0.8
RevPAR ($) 101.85 105.08 106.39 98.34 105.08 100.60 -4.3
Total Departmental Revenue 26,272,472 26,930,242 27,308,055 25,453,374 26,930,242 25,865,970 -4.0 ($)
Total Deparmental Expense 7,476,293 7,433,400 7,338,556 6,864,376 7,433,400 7,162,575 -3.6 ($)
Total Departmental Profit ($) 18,796,179 19,496,842 19,969,499 18,588,998 19,496,842 18,703,395 -4.1
Total Undistributed Expense 8,544,880 8,867,746 8,919,079 8,445,755 8,918,742 8,589,591 -3.7 ($)
Total Fixed Expense ($) 1,922,785 1,780,736 1,769,478 1,926,471 1,844,325 1,943,386 5.4
NOI ($) 8,328,514 8,848,360 9,280,942 8,216,772 8,733,775 8,170,418 -6.5
FF&E ($) 1,313,622 1,346,513 546,161 1,018,135 1,077,210 1,083,600 0.6
NCF ($) 7,014,892 7,501,847 8,734,781 7,198,637 7,656,565 7,086,818 -7.4
The DBRS Morningstar NCF is based on the DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS NCF was $7,086,818, representing a -7.4% variance from the Issuer’s NCF of $7,656,565. The primary drivers of the variance included occupancy and real estate taxes. DBRS Morningstar generally estimated portfolio occupancy of 72.5% compared with the Issuer’s occupancy estimate of 76.3%. The DBRS Morningstar occupancy estimate accounts for the portfolio’s continued annual decline in revenues since 2015 and the influx of new supply that will continue to be delivered to the Austin market through 2020. DBRS Morningstar also estimated real estate taxes to be in line with the appraisal, resulting in an approximately $100,000 variance from the Issuer’s real estate tax estimate.
DBRS MORNINGSTAR VIEWPOINT The portfolio’s location is relatively challenging at approximately 6.0 miles to 7.0 miles outside both Austin-Bergstrom International Airport and the downtown Austin area with limited walkability. The greater Austin market has also experienced a significant influx of new hospitality supply in recent years with nine new hotels constructed in the submarket since 2016 and portfolio revenues falling by an average of 2.0% annually over the same period. The largest property in the portfolio, Marriott Austin South, appeared to be relatively dated at the time of DBRS Morningstar’s inspection and management indicated that most of the portfolio, excluding SpringHill Suites Austin South, had not benefited from a PIP since construction in the mid- to late-1990s. Despite the portfolio’s location challenges, the influx of new hospitality supply to the Austin market, and the lack of capital investment across the portfolio, all properties exhibited a RevPAR penetration rate above 100.0% over the T-12 period ended September 2019, which indicates that they are generally competitive in the market. Additionally, the sponsor will be completing a significant PIP with $24.0 million ($39,867 per key) reserved as part of this transaction to complete all work within 24 months to 30 months of loan closing. Per management, the renovations are long overdue, but should enhance the portfolio’s competitiveness within the market and potentially reverse the downward revenue trend as the transaction sponsor and the portfolio’s new, highly qualified management team work to achieve the assets’ full ADR potential after the renovation. The transaction’s loan proceeds, including the upfront PIP reserve, represent
December 2019 51 Presale Report | BANK 2019-BNK24
AUSTIN MARRIOTT PORTFOLIO – AUSTIN, TX
a moderately high loan-to-cost-basis ratio of 70.0%, but the transaction is scheduled to amortize down to a slightly more favorable maturity LTV of 63.1%. DOWNSIDE RISKS –– The loan is structured with an initial five-year IO period. Transactions with partial-IO periods are generally associated with above-average default frequencies. –– The portfolio exhibited annual revenue declines from 2015 through 2018, largely because of a significant influx of new supply to the collateral’s submarket.
STABILIZING FACTORS –– The transaction features a relatively high DBRS Morningstar Issuance DSCR of 3.25x, which is generally indicative of low term default risk. Additionally, all else constant, the DBRS Morningstar NCF still represents a high amortizing DSCR of 2.15x after the initial five-year IO period. –– All properties in the portfolio exhibited RevPAR penetration rates above 100.0% over the T-12 period ended September 2019. The transaction is also structured with a $24.0 million reserve for the sponsor’s planned PIP, which must be completed within 24 months to 30 months of loan closing. Per management, the renovations should further enhance the collateral’s competitiveness as the transaction sponsor and new management team work to achieve the portfolio’s fully realizable revenue potential after the renovations.
December 2019 52 Presale Report | BANK 2019-BNK24
Galleria 57 New York, NY
Loan Snapshot Seller WFB Ownership Interest Fee Simple Trust Balance ($ Millions) 52.0 Loan psf/Unit ($) 290 Percentage of the Pool 4.2 Loan Maturity/ARD November 2029 Amortization COLLATERAL SUMMARY Interest Only DBRS Morningstar Property Type Office Year Built/Renovated 1975 DBRS Morningstar Issuance DSCR (x) City, State New York, NY Physical Occupancy (%) 85.0 2.44 SF 179,562 Physical Occupancy Date October 2019 DBRS Morningstar Issuance LTV (%) 43.7 This loan is secured by the borrower’s fee simple interest in Galleria 57, a 179,562 sf, DBRS Morningstar Class A multiuse condominium unit in New York City. Built in 1975, the collateral Balloon LTV (%) consists of floors one through 16 (as well as three levels of sub-terranean parking) of a 43.7 57-story mixed-use tower and was 85.0% occupied as of October 2019. Loan proceeds DBRS Morningstar Property Type of $52.0 million were used to refinance an existing $45.9 million mortgage. The Office remaining proceeds were used to fund a $1.7 million TI/LC reserve, cover $1.6 million DBRS Moringstar in outstanding TI obligations, $1.6 million in rent abatement reserves and closing costs Property Quality as well as return $282,100 of equity to the sponsor. The sponsor has owned the property Average since 2003 and its cost basis is $44.0 million. The 10-year loan is IO throughout the term. Debt Stack ($ Millions) Trust Balance 52.0 Pari Passu 0.0 B Note 0.0 Mezz 0.0 Total Debt 52.0 Loan Purpose Refinance Equity Contribution/ (Distribution) ($ Millions) (0.3)
December 2019 53 Presale Report | BANK 2019-BNK24
GALLERIA 57 – NEW YORK, NY
TENANT SUMMARY
DBRS Morningstar % of Total DBRS % of Total Base Rent PSF Morningstar Investment Tenant SF NRA ($) Base Rent Lease Expiry Grade
Spa Castle Premier 57 40,275 22.4 55.89 23.4 10/31/2034 N
Central Parking System of NY 22,467 12.5 40.53 10.8 3/31/2022 N
Generation Next Fertility 12,500 7.0 68.27 9.1 4/30/2030 N
Gary Ostrow, D.O. P.C. 9,656 5.4 62.94 6.8 10/14/2028 N
Dasha Wellness Chiropractic 6,684 3.7 46.48 3.1 9/30/2029 N
Subtotal/Wtd. Avg. 91,582 51.0 52.89 53.2 Various N
Other Tenants 61,008 34.0 74.76 46.8 Various N
Vacant Space 26,972 15.0 n/a n/a n/a n/a
Total/Wtd. Avg. 179,562 100.0 54.30 100.0 Various N
The property is on the north side of East 57th Street between Park and Lexington avenues in the Plaza Office District of Midtown Manhattan. The non-collateral upper portion of the structure contains 253 residential units that typically sell for between $1 million and $3 million. The property is near many subway stations (including 59th Street and Lexington Avenue) and has access to a variety of subway train lines (E,M,N,R,W). The tenant makeup in the property includes a health spa, medical offices, and lab space. The three-story subterranean parking structure containing 94 spaces is master-leased to a parking operator.
SPONSORSHIP The sponsor is Joseph Moinian, the CEO of the Moinian Group, one of the largest privately held real estate firms in the country. Moinian Group was founded by Joseph Moinian in 1982. The Moinian Group owns, develops, and operates properties across every asset category: retail, office, hotel, residential condominiums, and rental apartments. It holds a portfolio in excess of 20 million sf across major cities including New York, Chicago, Dallas, and Los Angeles. As a result of prior loan defaults by the sponsor, DBRS Morningstar applied an increased probability of default to this loan in formulating its ratings.
DBRS MORNINGSTAR ANALYSIS SITE INSPECTION SUMMARY Based on a site visit and management tour of the property, DBRS Morningstar considers the property quality to be Average.
December 2019 54 Presale Report | BANK 2019-BNK24
GALLERIA 57 – NEW YORK, NY
DBRS Morningstar visited the property on August 26, 2018. The exterior of the building features a large stone entrance with a glass wall facing 57th Street that stands out from other, more conventional high rises. There is an entrance to the residential portion of the building, which is not part of the collateral, to the right and the commercial section downstairs and to the left. Inside, there is a large atrium with small retail tenants, an apparel shop, a small sushi restaurant, and a nail parlor. The atrium extends up several floors. There is also an entrance to the building facing 58th Street. The borrower representative reported that the owner is considering some capital work on the lobby going forward as the interior has a somewhat dated appearance. Because this building accommodates so many visitors, security at the property is less stringent than in conventional office buildings.
The property is on 57th Street between Park and Lexington avenues in the Plaza District office submarket of Midtown Manhattan. The neighborhood is heavily commercial with hotels, office buildings and apartments surrounding the property, and street-level retail throughout. Bloomberg Tower is one block north on Lexington and Bloomingdale’s flagship store is two blocks north. The area is primarily served by the 53rd Street/59th Street station on the New York subway providing access to the N, R, and W lines.
The largest tenant, Spa Castle Premier 57, is a high-end health spa that occupies three floors as well as the deck on the seventh floor where it maintains a pool. The interior features hydrotherapy, private massage rooms, saunas, and relaxation lounges. DBRS Morningstar visited immediately after opening when there were few clients at the facility; however, the borrower representative stated that the spa is extremely busy at various parts of the day.
Central Parking Systems of New York, the second-largest tenant, is an operating lease on the parking garage, which is a subterranean, valet facility. The garage does not include any spaces with tenants’ leases; however, a number of tenants do rent monthly spaces. The garage was relatively full at the time of the visit.
Most of the remaining space at the property is leased to medical offices or lab space. There is a concentration of residential in the area and it serves the needs of the community. Unlike many buildings in Manhattan, building security is lighter so that patients and clients can go to the office floors with minimal hassle. With an established base of medical tenants, such a setup is likely to attract additional tenants seeking a building with the capacity to address their specific needs. These tenants may also be more likely to remain in the space given the cost of build-out in another space that may not be as suited for medical tenants. One of the vacant spaces on the tenth floor may be filled by an existing tenant that is seeking to expand, which could reduce the vacancy going forward.
December 2019 55 Presale Report | BANK 2019-BNK24
GALLERIA 57 – NEW YORK, NY
DBRS MORNINGSTAR NCF SUMMARY NCF ANALYSIS
DBRS T-12 August Mornngstar NCF Variance 2017 2018 2019 Appraisal Issuer NCF NCF (%)
GPR ($) $9,298,426 $9,306,769 $8,289,242 $10,411,353 $10,415,429 $10,428,772 0.1
Recoveries ($) $1,211,105 $1,427,039 $1,232,133 $743,944 $1,203,863 $1,520,934 26.3
Other Income $77,564 $182,466 $25,971 $550,000 $25,971 $25,971 0.0 ($)
Vacancy $0 $0 $0 -$351,159 -$1,933,594 -$2,187,563 13.1
EGI ($) $10,587,095 $10,916,274 $9,547,345 $11,354,138 $9,711,669 $9,788,114 0.8
Expenses ($) $4,600,071 $4,808,559 $4,885,811 $4,822,151 $5,178,345 $5,621,506 8.6
NOI ($) $5,987,024 $6,107,715 $4,661,535 $6,531,987 $4,533,324 $4,166,608 -8.1
Capex ($) $0 $0 $0 $0 $37,708 $39,274 4.2
TI/LC ($) $0 $0 $0 $0 $32,000 $622,289 1,844.7
NCF ($) $5,987,024 $6,107,715 $4,661,535 $6,531,987 $4,463,616 $3,505,046 -21.5
The DBRS Morningstar NCF is based on the DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS Morningstar NCF was $3,505,046, representing a -21.5% variance from the Issuer’s NCF of $4,463,616. The primary drivers of variance were vacancy, real estate taxes, and TI/LC. DBRS Morningstar concluded to the in-place economic vacancy of 20.8%, which includes vacancy on grossed-up expense reimbursements and one space that has a pending lease that is considered vacant. The concluded real estate taxes were averaged over the loan term to account for a phase out of a transitional tax abatement from the city of New York; however, DBRS Morningstar grossed up the reimbursement to account for that increase. DBRS Morningstar’s TI/LC used the TIs from the appraisal of $70.00 psf for all office space and includes amortized credit for the $1.7 million upfront reserve. The Issuer concluded minimal TI/LC because of the reserve.
DBRS MORNINGSTAR VIEWPOINT With its large base of medical office tenants and the often-specialized build-out that they require, the property has been able to maintain generally stable occupancy. The current dip in the occupancy rate was the result of one tenant that vacated in December 2018, and the sponsor invested capital to demolish that space to attract new medical tenants. With the average market rent in this corridor at about $65.00 psf, well above the in-place rents of $55.09 psf, additional leasing should be accretive to the cash flow, which would reduce the risk of the loan. An added benefit is that the loan has an LTV of 38.0%, which reduces the loan’s exposure to losses. In fact, the loan balance is only $7 million above the appraised value of the underlying land.
Given the large number of residents and employees that visit this area every day, DBRS Morningstar expects the demand for medical office should be robust in the coming years and many landlords may be unable or unwilling to accommodate the specialized build-out. Many office landlords may not be willing to loosen security requirements to accommodate the large numbers of visitors that these offices would generate.
December 2019 56 Presale Report | BANK 2019-BNK24
GALLERIA 57 – NEW YORK, NY
DOWNSIDE RISKS –– The property has just Average quality compared with the Class A office product in the immediate area. –– The DBRS Morningstar concluded economic occupancy is 75.1%.
STABILIZING FACTORS –– The property’s quality is suitable for its use with many medical office tenants. Those tenants generate high traffic from the public that Class A landlords may not be able to accommodate because of security requirements. Further, the loan psf at just $290 is extremely attractive. –– The property has typically enjoyed occupancy of greater than 90% since 2005. The prior drop occurred in 2011 and 2012 at the end of the recession and the property backfilled the space by 2013.
December 2019 57 Presale Report | BANK 2019-BNK24
Park Tower at Transbay San Francisco, CA
Loan Snapshot Seller BANA Ownership Interest Fee Simple Trust Balance ($ Millions) $50.0 Loan psf/Unit $719 Percentage of the Pool 4.1% Loan Maturity/ARD August 2029 Amortization COLLATERAL SUMMARY Interest Only DBRS Morningstar Property Type Office Year Built/Renovated 2019 DBRS Morningstar Issuance DSCR City, State San Francisco, CA Physical Occupancy 98.9% 2.93x SF 764,659 Physical Occupancy Date October 2019 DBRS Morningstar Issuance LTV 49.1% The collateral is secured by the borrower’s fee-simple interest in Park Tower at DBRS Morningstar Transbay, a 764,659-sf office building in the Transbay district of San Francisco. Loan Balloon LTV proceeds of $550.0 million are being used to retire approximately $294.5 million of 49.1% debt, fund $145.2 million in reserves, return $108.5 million of borrower equity, and DBRS Morningstar Property Type cover $1.8 million of closing costs. The fixed-rate loan has a 10-year term and is fully IO. Office The loan has been structured with a five-year anticipated repayment date (ARD) after DBRS Moringstar the initial 10-year loan term during which the loan hyperamortizes. Pari passu pieces Property Quality of the loan have been securitized in four prior transactions: Both BANK 2019-BNK21 Excellent and BANK 2019-BNK22 had a $115.0 million pari passu piece, $120.0 million was Debt Stack ($ Millions) contributed to BANK 2019-BNK20, $100.0 million was contributed to BANK 2019- Trust Balance BNK23, and the remaining funds of $50.0 million are anticipated to be securitized in $50.0 future transactions. This report refers to the $50.0 million pari passu note included Pari Passu in the BANK 2019-BNK24 trust. DBRS Morningstar considers the credit quality $500.0 associated with the senior A note attributed to this transaction to be AAA. B-Note $0.0 Mezz The subject is a trophy office tower in San Francisco’s Transbay submarket, in the $0.0 southern part of the CBD along I-80. Currently under construction, the 43-story office Total Debt tower contains 755,914 sf of office space that is entirely preleased to Facebook, Inc. $550.0 (Facebook). The collateral contains an additional 8,745 sf of ground-floor retail space Loan Purpose across three separate suites. The subject is a state-of-the-art office tower that features Refinance large floor plates, floor-to-ceiling glass windows, exceptional on-site amenities, and a Equity Contribution/ three-story lobby. Facebook is occupying the space in three separate phases, occupying (Distribution) ($ Millions) 269,814 sf in the first phase, 238,962 sf in the second phase, and 247,138 sf in the final ($108.5) phase. All of the office space is expected to be occupied by October 2020, though the
December 2019 58 Presale Report | BANK 2019-BNK24
PARK TOWER AT TRANSBAY – SAN FRANCISCO, CA
lease agreements do not require Facebook to pay its full contractual rent until March 2021. Upfront rent reserves will cover rent shortfalls between closing and March 2021. Facebook is expected to invest $300 psf on its build-out for the office space in addition to the $110 psf of TI allowances from the borrower.
TENANT SUMMARY
DBRS % of Total DBRS Morningstar Morningstar Investment Tenant SF % of Total NRA Base Rent PSF Base Rent Lease Expiry Grade? (Y/N)
Facebook, Inc. 755,914 98.9% $75.46 100.0% Various Y
Subtotal/Wtd. Avg. 755,914 98.9% $75.46 100.0% Various Y
Vacant Space 8,745 1.1% n/a n/a n/a n/a
Total/Wtd. Avg. 764,659 100.0% $75.46 100.0% Various Y
The Transbay submarket is known for hosting many of the world’s largest technology firms, including Google LLC, Facebook, Amazon.com Inc., Salesforce.com Inc. (Salesforce), and eBay Inc. Facebook leases space at two other office towers in the submarket, 181 Fremont and 215 Fremont, in addition to the subject. Upon taking occupancy, Facebook will become the third-largest technology-based tenant in the city behind Salesforce and Uber Technologies Inc. The Transbay district, a submarket in the south portion of the city’s Financial District, is a desirable market for larger technology companies thanks to its central location in San Francisco and its excellent accessibility via nearby public transportation and I-80. A bus terminal, light rail stops, and metro stations are within four blocks of the collateral. Per Reis, the South Financial District contained approximately 14.1 million sf of Class A office space as of Q2 2019 and boasted an average asking rent that has increased for eight consecutive quarters with an average vacancy rate that is the seventh lowest in the nation.
COMPETITIVE SET
Property Location Distance from Subject SF Year Built/Renovated Avg. Rental Rate Per Unit
Park 181 San Francisco 0.1 mi 432,000 2018 $106.70
Salesforce Tower San Francisco 0.1 mi 1,420,000 2018 $60.56
535 Mission Street San Francisco 0.2 mi 307,000 2014 $81.17
546-550 Howard Street San Francisco 0.2 mi 1,100,000 2023 $80.00
88 Bluxome Street San Francisco 1.4 mi 1,000,000 TBD $78.00
Total/Wtd. Avg. Comp. Set Various Various 4,259,000 Various $75.84
Park Tower at Transbay San Francisco n/a 755,914 2019 $65.82
Source: REIS
The appraiser identified five properties in the local submarket that are competitive properties with the subject. However, the appraiser also noted that there are few quality comparable assets overall because of the vintage of the subject and lack of new office construction in 2019. There are two local properties in particular, 546-550 Howard Street and 88 Bluxome Street, that the appraisal identified that directly compete with the subject. However, these assets are under construction and will not be online for several years. Reis indicated there were three competitive properties within 0.2 miles of the subject, although none are of a similar size to the subject. The WA rental rate of the competitive set is $75.84 psf, which is approximately $10 psf less than Facebook’s in-place rent at the subject. Based upon the appraiser’s competitive set, Facebook is paying below-market rents when compared with the rest of the submarket. The tenant’s in-place rent is around
December 2019 59 Presale Report | BANK 2019-BNK24
PARK TOWER AT TRANSBAY – SAN FRANCISCO, CA
$65.82 psf, while the appraiser concluded to a market rent of approximately $79.85 psf. Although the in-place rents are lower than market, Facebook’s leases are structured with annual rent increases of 3.0% along with two eight-year renewal options at 100% of fair market value.
SPONSORSHIP The sponsor for this loan is MetLife Investment Management, a subsidiary of the global financial services firm MetLife, Inc., an investment-grade company. As of 2018, MetLife Investment Management had approximately $91.2 billion of commercial real estate assets under management across the world with $15.1 billion in new debt and equity transactions in 2018. MetLife will hold a majority interest in the property with a 51.0% stake, while Hines Interests Limited Partnership will acquire a 49.0% interest in the property as part of a recapitalization plan associated with the transaction.
DBRS MORNINGSTAR ANALYSIS SITE INSPECTION SUMMARY DBRS Morningstar toured the property on Thursday, August 29, 2019. Based on the site inspection, DBRS Morningstar found the property quality to be Excellent.
The subject is a 764,659-sf Class A office tower in the Financial District of San Francisco, at the corner of Howard Street and Beale Street. The surrounding area is filled with similar high-rise office buildings that are occupied by some of the world’s largest technology firms, including Oracle Corp. and SalesForce. Like the subject, many of these office towers have ground-floor retail tenants that cater to office workers. The collateral is a half block north of the Salesforce Transit Center and Salesforce Park, which serves as the primary bus terminal for the Bay Area. The subject also has strong linkages via the Muni Metro Embarcadero Station and several nearby light rail stops, all of which are less than half a mile away. Of note, the property is approximately 12 miles north of San Francisco International Airport.
The building’s exterior is composed entirely of reflective glass panels that are eye-catching to passing traffic and showed well. Construction of the property is expected to be completed in three phases. The first phase, focused on the ground-floor lobby and floors 11 to 25, was completed in September 2019. Facebook began moving its staff into those completed floors in October 2019. The nearly 4,000 total Facebook workers who will move into the property will work in the company’s recruiting and human resources divisions. The building lobby is three stories high and receives plenty of natural light. The next phase of construction is for floors one to 10 and is projected to wrap up by April 2020. The third and final phase is for the remaining floors, 26 to 43, with construction expected to be complete by October 2020. DBRS Morningstar toured floors five, 11, 12, 15, and 43 during its inspection of the property. Office floors contain exterior-facing sit-stand desks that were generally clustered in groups of four; the interior areas of the floor plates contained a mix of breakout rooms and meeting spaces. There are several breakout room types that can be flexibly used by Facebook for various meeting sizes and needs. This build-out is typical for a tech tenant as it allows for efficient collaboration between co-workers and allows for many employees to receive natural light at their desks.
The tower features 14 sky decks, two landscaped terraces, and a ground-level park. The various sky decks and terraces will allow Facebook to host different company events and allow employees to comfortably dine and relax outside. The
December 2019 60 Presale Report | BANK 2019-BNK24
PARK TOWER AT TRANSBAY – SAN FRANCISCO, CA
landscaped terraces on the 12th floor offer ample outdoor space for employees to socialize and take in the fantastic views of downtown San Francisco. These terraces on the 12th floor wrap completely around the building’s exterior and will contain lush shrubbery, trees, and flowerbeds to incorporate green spaces into the heart of the city’s Financial District. The 43rd floor is solely amenity space featuring event rooms and an outdoor deck with spectacular views. Floors 11, 12, and 28 are also exclusively amenity space and will contain cafes with coffee, tea, and small bites. In addition, the property will feature three ground-floor retail suites; Blue Bottle Coffee Inc. and Boxed Union have already signed leases for two of the suites. The third suite has yet to have a company commit to a signed lease and is being actively shown to prospective tenants. The property has a multilevel below-ground parking garage that is accessible via an entrance on Beale Street and will have controlled security access. Overall, the collateral is a best-in-class office space with outstanding amenity offerings and a superior location.
DBRS MORNINGSTAR NCF SUMMARY
NCF ANALYSIS
Budget Issuer NCF DBRS Morningstar NCF NCF Variance
GPR $51,574,059 $58,319,075 $57,501,160 -1.4%
Recoveries $29,328,101 $29,328,101 $28,992,691 -1.1%
Other Income $594,000 $594,000 $594,000 0.0%
Vacancy -$227,184 -$2,908,912 -$1,539,554 -47.1%
EGI $81,268,976 $85,332,264 $85,548,297 0.3%
Expenses $29,526,348 $28,981,596 $28,981,596 0.0%
NOI $51,742,628 $56,350,668 $56,566,701 0.4%
Capex $0 $72,995 $152,932 109.5%
TI/LC $0 $0 $0 0.0%
NCF $51,742,628 $56,277,673 $56,413,769 0.2%
The DBRS Morningstar Stabilized NCF is based on the DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS Morningstar Stabilized NCF was $56,413,769, representing a positive variance of 0.2% from the Issuer’s NCF.
DBRS MORNINGSTAR VIEWPOINT Facebook executed individual leases for each floor of the building with the leases for floors two to 12 expiring in 2033 and leases for floors 13 to 42 expiring in 2034. Although these leases all expire prior to the loan’s maturity date, they do indicate a long-term commitment to the property. Furthermore, DBRS Morningstar performed an internal assessment on Facebook and considers the company to have characteristics consistent with a high-investment-grade credit rating. The building has been 100% leased to Facebook since construction began, and, thus, the technology giant’s leases are the sole source for all the property’s revenue. Facebook has been the target of negative news headlines over the past 24 months surrounding the company’s privacy issues; therefore, the collateral could struggle over the long term if Facebook’s growth slows or its reputation is significantly damaged. Mitigating some of this risk is the fact that Facebook is the third-largest technology tenant in San Francisco with more than 6.0 million sf of leased office space across the Bay Area, indicating a strong commitment to the city and the greater Bay Area market. Given that all of the collateral’s income is generated by a tenant that DBRS Morningstar considers investment-grade quality with a long-term lease, DBRS Morningstar expects that cash flow stability will remain high.
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PARK TOWER AT TRANSBAY – SAN FRANCISCO, CA
There has been an abundance of new Class A office construction in the Financial District in recent years. According to Reis, more than 3.6 million sf of office space has come online in the South Financial District submarket in the past five years. Silicon Valley has flourished over the past two decades as the world’s premier technology hub, so real estate valuations in the Bay Area have rapidly surged. There is risk given that the value of real estate in San Francisco could suffer and increase the leverage of this transaction should the technology industry decelerate or contract. However, given the stellar quality of the Class A office product, superior amenity offerings, and location amid the talented Silicon Valley workforce, DBRS Morningstar believes that there would be high levels of demand for this asset through different real estate cycles, which will suppress future downside volatility.
DOWNSIDE RISKS –– The loan is full-term IO, providing no reduction to the loan basis over the initial loan term. –– The DBRS Morningstar NCF analysis is highly dependent upon the investment-grade treatment of Facebook. Any future reduction in the internal assessment of Facebook level may affect DBRS Morningstar’s analysis and ratings on this transaction.
STABILIZING FACTORS –– The transaction has low leverage with an initial LTV of 49.1% based upon the appraised value of approximately $1.1 billion. –– The loan has been structured with an ARD after 10 years and a final maturity date approximately five years beyond the ARD. This five-year tail allows for substantial principal repayment estimated by DBRS Morningstar at $245.7 million prior to when the Facebook leases expire in 2033.
December 2019 62 Presale Report | BANK 2019-BNK24
West LA Multifamily Portfolio Los Angeles, CA
Loan Snapshot Seller BANA Ownership Interest Fee Simple Trust Balance ($ Millions) $45.8 Loan psf/Unit $477,083 Percentage of the Pool 3.7% Loan Maturity/ARD November 2029 Amortization COLLATERAL SUMMARY Interest Only DBRS Morningstar Property Type Multifamily Year Built/Renovated Various DBRS Morningstar Issuance DSCR City, State Los Angeles, CA Physical Occupancy 100.0% 1.95x Units 96 Physical Occupancy Date September 2019 DBRS Morningstar Issuance LTV 61.2% This loan is secured by the borrower’s fee simple interest in the West Los Angeles DBRS Morningstar Multifamily Portfolio, a 96-unit multifamily portfolio with three properties located in Balloon LTV West Los Angeles. Built between 2008 and 2009, the three multifamily properties were 61.2% 100.0% physically occupied as of September 2019. The borrower used loan proceeds of DBRS Morningstar Property Type $45.0 million to refinance existing debt of $23.6 million, return $21.6 million of equity to Multifamily the sponsor and cover closing costs. The 10-year loan is fully IO through the loan term. DBRS Moringstar Property Quality The three multifamily properties in the portfolio are Edinburgh Courtyard Apartments, Average Armacost Colony Apartments, and Sherbourne Hall Apartments, all located in West Los Debt Stack ($ Millions) Angeles. Edinburgh Courtyard, the largest property, is a four-story, 57-unit apartment Trust Balance complex built in 2008 and located in West Hollywood. Armacost Colony is a four-story, $45.8 19-unit apartment complex built in 2009 and located in Brentwood. Sherbourne Hall is Pari Passu a four-story, 20-unit apartment complex built in 2008 and located in Pico-Robertson. $0.0 The sponsor built all properties, which are currently 100.0% occupied. B-Note $0.0 Mezz Since 2010, the portfolio has had an average occupancy rate of 98.4%. The majority $0.0 of units at the properties have two or three bedrooms while some have one bedroom Total Debt or four bedrooms. Over the past 18 months, the borrower invested approximately $45.8 $165,000 in capex across the portfolio, renovated 27 units (28% of the portfolio), and Loan Purpose installed electric vehicle charging stations at the Edinburgh Courtyard and Armacost Refinance Colony properties. Equity Contribution/ (Distribution) ($ Millions) All of the properties, Armacost Colony and Sherbourne Hall, were previously securitized ($21.6) in the FREMF 2010-K7 transaction. In 2019, Wells Fargo placed the loan on Armacost
December 2019 63 Presale Report | BANK 2019-BNK24
WEST LA MULTIFAMILY PORTFOLIO – LOS ANGELES, CA
Colony on the watchlist because the subservicer had not submitted financials since YE2017. The loan on Sherbourne Hall has performed as expected. Releases are not permitted for this portfolio.
The appraiser identified several properties of comparable quality and size in the nearby area to each of the subject properties. The appraiser selected these comparable properties because, in addition to their similarities, they compete directly for prospective tenants in the market. Based on the appraiser’s research, the subject property’s rental rates, including both contractual rates and quoted rates, are similar to those in the market. All competitive properties identified by the appraiser have strong occupancy figures with an average occupancy of 95.0%. Given the strong historical vacancy in the submarket, the appraiser concluded to a long-term stabilized vacancy factor of 5.0%. For more information, please refer to the tables below.
COMPETITIVE SET (EDINBURGH COURTYARD)
Distance Year Built/ Property Location from Subject Units Renovated Occupancy Rental Range
120 S Orlando Los Angeles, CA 1.4 37 2016 95.0% $4,000 - $4,7000
Kings on Third Los Angeles, CA 1.4 36 2018 100.0% $3,900 - $4,800
Hayworth Hyde Los Angeles, CA 0.6 34 2016 97.0% $4,270 - $5,200
Hudson Lux Los Angeles, CA 1.9 36 2017 94.0% $2,350 - $5,000
The Highland Hollywood, CA 2.1 76 2016 96.0% $3,285 - $8,800
Total/ Wtd. Avg. Various 1.6 219 Various 96.3% Various
Subject Los Angeles, CA n/a 57 2008 100.0% $922 - $5,345
Source: Appraisal.
COMPETITIVE SET (ARMACOST COLONY APARTMENTS)
Distance Year Built/ Property Location from Subject Units Renovated Occupancy Rental Range
San Remo Los Angeles, CA 1.2 34 2018 92.0% $5,895 - $6,500
Dorothy Village Los Angeles, CA 0.6 28 2016 100.0% $4,200 - $5,000
Kiowa Stone Los Angeles, CA 0.3 32 2019 91.0% $6,195 - $7,295
Colby at Ohio Los Angeles, CA 0.9 56 2018 96.0% $4,000 - $5,200
Montclair Brentwood, CA 1.0 49 2018 92.0% $5,500 - $6,495
The Westgate Collection Los Angeles, CA 0.4 28 2017 85.0% $3,500 - $5,550
Total/ Wtd. Avg. Various 0.8 227 Various 93.0% Various
Subject Los Angeles, CA n/a 19 2009 100.0% $2,600 - $5,320
Source: Appraisal.
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WEST LA MULTIFAMILY PORTFOLIO – LOS ANGELES, CA
COMPETITIVE SET (SHERBOURNE HALL)
Distance Year Built/ Property Location from Subject Units Renovated Occupancy Rental Range
120 S Orlando Los Angeles, CA 1.4 37 2016 95.0% $4,000 - $4,7000
Kings on Third Los Angeles, CA 1.4 36 2018 100.0% $3,900 - $4,800
Hayworth Hyde Los Angeles, CA 0.6 34 2016 97.0% $4,270 - $5,200
Pico Gateway Los Angeles, CA 0.2 39 2010 94.0% $3,300 - $3,800
Boulevard on Wilshire Los Angeles, CA 2.6 95 2005 93.0% $2,425 - $3,750
Total/ Wtd. Avg. Los Angeles, CA 1.6 241 Various 95.1% Various
Subject Los Angeles, CA n/a 20 2008 100.0% $3,345 - $3,780 Source: Appraisal.
SPONSORSHIP The sponsor for this transaction is Wiseman Residential, a multifamily developer, owner, and manager. Wiseman Residential originally developed the portfolio between 2008 and 2009. The sponsor currently manages a portfolio worth more than $1.0 billion with 855 multifamily and condominium units in development. The sponsor specializes in multifamily properties in the Los Angeles market. Isaac Wiseman, the Founder and President of Wiseman Residential, is the loan guarantor for this transaction and has a reported net worth of over $670.0 million. The Cohanzad Revocable Family Trust is also a guarantor on the loan. Wiseman Management LLC, a sponsor affiliate, manages the property.
The loan guarantors and the property management company are defendants in a pending class action lawsuit filed by former tenants who were evicted from properties owned by guarantor-controlled entities and managed by the collateral’s property manager. The lawsuit claims that the property manager and guarantor violated the rent stabilization ordinance in Los Angeles (The Ellis Act) by evicting the plaintiffs to develop new apartment buildings, not including those in the subject portfolio. The plaintiffs claim that they are entitled to compensatory damages, punitive damages, and restitution for unlawful eviction under The Ellis Act. The litigation does not relate to any of the subject collateral.
DBRS MORNINGSTAR ANALYSIS SITE INSPECTION SUMMARY DBRS Morningstar toured the interior and exterior of the Edinburgh Courtyard and Armacost Colony properties on November 18, 2019, at approximately 10:00 a.m. Based on the site inspection, DBRS Morningstar found the property quality of the portfolio to be Average.
December 2019 65 Presale Report | BANK 2019-BNK24
WEST LA MULTIFAMILY PORTFOLIO – LOS ANGELES, CA
EDINBURGH COURTYARD The property is in West Hollywood on the southwest corner of North Edinburgh Avenue and Willoughby Avenue approximately 8.0 miles northwest of the Los Angeles CBD. The property is close to the submarket’s local attractions, strong employment base, popular retail attractions, and the rest of the metro area. The neighborhood is primarily residential with retail and office uses located on major thoroughfares. The Beverly Center shopping mall is one of the area’s premier fashion outlets with more than 100 distinctive specialty retailers. Office uses in the neighborhood are located near North San Vicente Boulevard and Wilshire Boulevard. Major roadways in the area include State Roadway 2, Melrose Avenue, Beverly Boulevard, and Fairfax Avenue.
The subject was constructed in 2008 and consists of a single four-story building with a stucco facade. The property exhibits average curb appeal with minimal signage along North Edinburgh Avenue. DBRS Morningstar also found the property’s accessibility to be average. The subject has a parking garage which contains two lower-level parking lots with approximately 143 spaces in addition to street parking outside the building on North Edinburgh Avenue and Willoughby Avenue. Landscaping at the property was average with shrubs, flower plants, neatly trimmed bushes, and mature trees on site. DBRS Morningstar did not tour any units at the property. Overall, the property was in good condition and displayed no signs of deferred maintenance.
ARMACOST COLONY APARTMENTS The property is in Brentwood on the east side of Armacost Avenue approximately 15.0 miles west of the Los Angeles CBD. The neighborhood is primarily residential with retail and office uses located on major thoroughfares, such as Wilshire Boulevard, Santa Monica Boulevard, San Vicente Boulevard, and Olympic Boulevard. Retail uses in the neighborhood include One Westside Shopping Center and Westdale Plaza with tenants such as Marshalls, Rite Aid, Staples, and a number of popular fast and casual dining restaurants north of the property on San Vicente Boulevard.
The subject was constructed in 2009 and consists of a single four-story building with a stucco facade. The property exhibits average curb appeal with minimal signage along Armacost Avenue. DBRS Morningstar found the property’s accessibility to be average. The subject building has a parking garage which contains one lower-level parking lot with approximately 45 spaces in addition to street parking outside the building on Armacost Avenue. Landscaping at the property was average with shrubs, flower plants, neatly trimmed bushes, and mature trees on site. DBRS Morningstar did not tour any units at the property. Overall, the property was in good condition and displayed no signs of deferred maintenance.
December 2019 66 Presale Report | BANK 2019-BNK24
WEST LA MULTIFAMILY PORTFOLIO – LOS ANGELES, CA
DBRS MORNINGSTAR NCF SUMMARY NCF ANALYSIS
T-12 DBRS September Morningtar 2018 2019 Budget Appraisal Issuer NCF NCF NCF Variance
GPR $4,099,367 $4,151,796 $4,327,464 $4,428,144 $4,354,824 $4,354,824 0.0%
Other Income $36,710 $8,010 $32,400 $32,700 $32,400 $8,010 -75.3%
Vacancy & $0 $0 -$216,373 -$221,407 -$217,741 -$234,240 7.6% Concessions
EGI $4,136,077 $4,159,806 $4,143,491 $4,239,437 $4,169,483 $4,128,594 -1.0%
Expenses $782,215 $350,205 $767,196 $1,409,345 $947,121 $1,239,232 30.8%
NOI $3,353,862 $3,809,601 $3,376,295 $2,830,092 $3,222,362 $2,889,362 -10.3%
Capex $0 $0 $0 $19,200 $31,200 $36,789 17.9%
NCF $3,353,862 $3,809,601 $3,376,295 $2,810,892 $3,191,162 $2,852,573 -10.6%
The DBRS Morningstar NCF is based on the DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS Morningstar NCF was $2,852,573, representing a -10.6% variance from the Issuer’s NCF of $3,191,162. The primary driver of the variance is expenses. DBRS Morningstar used an expense plug to achieve an expense ratio of 30.0% based on Reis submarket data and the appraiser’s assumption. Per Reis, the Beverly Hills and West Los Angeles submarkets showed an expense ratio of 37.7% and 37.9%, respectively. Additionally, the appraiser’s underwriting equated to an expense ratio of 33.2%.
DBRS MORNINGSTAR VIEWPOINT The subject represents a well-located multifamily portfolio in the greater West Los Angeles area. The portfolio is well situated among local attractions with a strong employment base, popular retail attractions, and easy access to the greater Los Angeles market, which have provided relatively consistent demand to the area. The MSA is home to well-diversified industries including technology, health care, tourism, and entertainment, and to a number of renowned universities. The Southern California region’s economy is faring well and continues to grow as various industries strengthen in the city. Although built between 2008 and 2009, the properties were in good condition and displayed average curb appeal that is commensurate with other properties in the submarket. As of the September 2019 rent roll, the properties are operating at an occupancy rate of 100.0%, which reflects the portfolio’s strong submarket fundamentals and vacancy levels of 3.0% to 4.0%, according to Reis. The appraiser notes that, although nearby competitive properties may slightly hamper rent growth potential or somewhat delay absorption of vacant units, they do not pose a significant concern to the subject because of its relatively small size and current stabilized occupancy. The loan’s LTV of 60.7% displays favorable leverage accompanied by the portfolio’s strong location within the Los Angeles MSA.
DOWNSIDE RISKS –– The sponsor and property management company are defendants in a pending class action lawsuit by former tenants.
STABILIZING FACTORS –– The sponsor believes that the lawsuit is an attempt to extract concessions and that it will be dismissed with minimal financial exposure. The litigation does not relate to the subject portfolio; therefore, there will be no impact on the loan. The loan guarantors have a net worth and liquidity of $650.0 million and $20.0 million, respectively.
December 2019 67 Presale Report | BANK 2019-BNK24
Hampton Inn & Suites – John Wayne Airport Irvine, CA Loan Snapshot Seller BANA Ownership Interest Fee Simple Trust Balance ($ million) $33.3 Loan psf/Unit $202,744 Percentage of the Pool 2.7% Loan Maturity/ARD December 2029 Amortization 30 Years DBRS Morningstar COLLATERAL SUMMARY Issuance DSCR 1.97x DBRS Morningstar Property Type Limited Service Hotel Year Built/Renovated 2018 DBRS Morningstar City, State Irvine, CA T-12 RevPAR $138.61 Issuance LTV 71.0% Keys 164 T-12 RevPAR Date September 2019 DBRS Morningstar Balloon LTV The loan is secured by the borrower’s fee simple interest in Hampton Inn & Suites 55.6% – John Wayne Airport, a 164-room limited-service hotel in Irvine, California. The DBRS Morningstar Property Type ten-year fixed-rate refinance loan will fully amortize over a 30-year schedule. Loan Limited Service Hotel proceeds of $33.3 million will be used to refinance $23.3 million of existing debt, return DBRS Morningstar $9.8 million to the sponsor and cover closing costs of $200,000. Property Quality Average + The sponsor, S3 Hotel Group, bought the 1.6-acre land lot in late 2014 and subsequently Debt Stack ($ Millions) tore down the existing office building on the site. Following the entitlement process, the Trust Balance property was recently constructed in April 2018. The hotel consists of a single five-story $33.3 building near the John Wayne Airport in Irvine. The hotel is within walking distance of Pari Passu the airport, which provides direct service to 23 destinations across the nation and is the $0.0 only airport in Orange County. The property is located approximately 35.0 miles south B-Note of Los Angeles. Property-wide amenities offered at the hotel include a swimming pool, $0.0 Mezz fitness center, bar area, breakfast area and 1,539 sf in meeting space. The guest room $0.0 breakdown consists of 52 suites, 74 king rooms and 38 double queen rooms. Total Debt $33.3 The hotel is a Hampton Inn hotel, which falls under the Hilton Hotels brand. The Loan Purpose property has a 20-year franchise agreement with Hilton Hotels, which does not expire Refinance until 2036, seven years following loan maturity. Demand segmentation at the property Equity Contribution/ is split between Corporate (45%), Leisure (45%) and Group (10%). The hotel is well (Distribution) ($ Millions) located near a Class A and B office corridor that includes major tenants such as Google, ($5.5) Amazon, Wells Fargo, JPMorgan and Oracle. Top corporate accounts at the subject include Ingram Micro, DF Stauffer Biscuit and Glidewell Laboratories.
December 2019 68 Presale Report | BANK 2019-BNK24
HAMPTON INN & SUITES - JOHN WAYNE AIRPORT – IRVINE, CA
The appraisal identified seven properties in the local market that compete with the subject property. For more information, please refer to the table below.
COMPETITIVE SET
Year Built/ 2018 2018 2018 Property Keys Renovated Occupancy ADR RevPAR
AC Hotels by Marriott Irvine 176 2017 75% - 80% $165 - $170 $130 - $135
Hyatt House Irvine John Wayne Airport 149 2017 65% - 70% $155 - $160 $130 - $135
Wyndham Irvine Orange County Airport 335 1986 75% - 80% $115 - $120 $85 - $90
Embassy Suites by Hilton Irvine Orange County Airport 293 1986 80% - 85% $165 - $170 $135 - $140
Crowne Plaza Costa Mesa Orange County 224 1973 80% - 85% $125 - $130 $100 - $105
Hampton Inn Santa Ana/Orange County Airport 121 1992 80% - 85% $120 - $125 $90 - $95
DoubleTree Club Orange County Airport 167 1986 80% - 85% $130 - $135 $110 - $115
Total/Wtd. Avg. 1,465 Various 80.1% $140.67 $112.63
Hampton Inn & Suites - John Wayne Airport - Subject 164 2018 90.8% $138.61 $110.89
Source: Appraisal. Subject figures based on September 2019 T-12.
SPONSORSHIP The loan’s sponsor is S3 Hotel Group, an Orange County-based real estate investment firm that specializes in development and management of limited-service hotels in Southern California. The sponsor currently owns and manages a portfolio of five hotels in Orange County. The guarantors are Narendra and Shetal Patel. Based on financials dated October 2019, the guarantors have a net worth of $105.8 million and liquidity of $8.6 million. The guarantors must maintain a minimum net worth of $15.0 million and minimum liquidity of $1.8 million throughout the loan term. S3 Hotel Group manages the property for a contractual management fee of 3.0% of the EGI.
Narendra Patel is subject to an open litigation dispute with the general contractor that constructed the property. Per the contract, substantial completion of the project was to be achieved by February 2017. The contract allowed Mr. Patel to collect for liquidated damages. The total amount owed in liquidated damages is approximately $2.0 million. At completion, the balance remaining to be paid per contract is $1.9 million. California law gives Mr. Patel the right to withhold up to 150% of amounts for which there is a good faith dispute. The sponsor withheld the full remaining balance and the contractor filed a lien in the amount of $3.1 million followed by a lawsuit with Mr. Patel counterclaiming thereafter. Both parties appear close to settlement. At closing, the sponsor will post cash in the amount of $3.9 million as part of an indemnity agreement with the title company so that mortgage lender will receive a clean policy.
December 2019 69 Presale Report | BANK 2019-BNK24
HAMPTON INN & SUITES - JOHN WAYNE AIRPORT – IRVINE, CA
DBRS MORNINGSTAR ANALYSIS SITE INSPECTION SUMMARY DBRS Morningstar toured the interior and exterior of the property on November 18, 2019, around 2:00 p.m. Based on the site inspection, DBRS Morningstar found the property quality to be Average (+).
The subject is a 164-key hotel located in Irvine, California, near the John Wayne Airport. The subject hotel is conveniently within walking distance from the airport and well located near other local amenities, retail drivers and major thoroughfares. The hotel is located approximately 35.0 miles south of Los Angeles. The subject enjoys great access near major highways, including I-405 and Hwy. 55, which are a half mile north and one mile east of the property, respectively. I-405 is a major north/south interstate in Southern California. It runs from Irvine at its southernmost point through Los Angeles to the San Fernando Valley at its northernmost point. Access to the interstate is immediately north of the property. Hwy. 55 is a major thoroughfare that serves the greater Southern California area. Situated in the southwest part of Irvine and the central region of Orange County, the property benefits from its proximity to the airport, a strong office corridor in Irvine, entertainment attractions and the University of California, Irvine. The subject benefits from the city’s strong tourism industry and proximity to the coast.
The exterior of the property is constructed of masonry and stucco. The property’s appearance fits well with the surrounding area and appeared average of a newly built franchised hotel near an airport. The first floor contains the lobby area with the receptionist desk, administrative offices, business center and meeting spaces. The upper floors contain guest rooms and various hotel amenities. The subject hotel features a total of 164 guest rooms split between 52 suites, 74 king rooms and 38 double queen rooms.
The lobby of the hotel was found to be spacious and in good condition. The lobby opens to the atrium on the left and the receptionist desks to the right. The meeting space is also located on the first floor. The hotel contains 1,539 sf of meeting space, the Shore Ballroom and Foyer, that can be split into two rooms. At the time of inspection, the meeting rooms were booked with meetings. The atrium provides complimentary breakfast and evening receptions for guests. DBRS Morningstar did not inspect any rooms at the hotel. Parking is provided by a surface parking lot that is found in good condition. At the time of inspection, the parking lot was half full. Overall, the property was found in good condition with no deferred maintenance visible.
December 2019 70 Presale Report | BANK 2019-BNK24
HAMPTON INN & SUITES - JOHN WAYNE AIRPORT – IRVINE, CA
DBRS MORNINGSTAR NCF SUMMARY NCF ANALYSIS
DBRS T-12 September Morningstar NCF 2019 Budget Appraisal Issuer NCF NCF Variance
Occupancy 90.8% 90.5% 89.0% 90.8% 80.0% -11.9%
ADR $138.61 $145.30 $146.08 $138.61 $138.61 0.0%
RevPAR $125.84 $131.49 $130.01 $125.84 $110.89 -11.9%
Total Departmental Revenue $8,432,334 $8,801,598 $8,734,000 $8,432,334 $7,430,309 -11.9%
Total Deparmental Expense $2,032,221 $2,040,541 $2,040,000 $2,032,221 $1,790,730 -11.9%
Total Departmental Profit $6,400,113 $6,761,057 $6,694,000 $6,400,113 $5,639,580 -11.9%
Total Undistributed Expense $1,922,784 $2,112,212 $2,367,000 $2,077,445 $1,909,834 -8.1%
Total Fixed Expense $223,357 $220,423 $614,000 $441,747 $441,916 0.0%
NOI $4,253,971 $4,428,422 $3,713,000 $3,880,921 $3,287,830 -15.3%
FF&E $0 $352,064 $349,000 $337,293 $315,788 -6.4%
NCF $4,253,971 $4,076,358 $3,364,000 $3,543,628 $2,972,042 -16.1%
The DBRS Morningstar NCF is based on the DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS Morningstar NCF was $2,972,042, down -16.1% from the Issuer’s NCF. The main driver of the variance is room revenue. The lender applied occupancy and ADR figures of 90.8% and $138.61, respectively, which both reflect the T-12 ended September 2019 historical figures. DBRS Morningstar capped the occupancy at 80.0% and estimated ADR at the T-12 level of $138.61, which resulted in a RevPAR of $110.89. The occupancy cap took into consideration the limited operating history of the asset, its location near the airport and the recent build of the subject.
DBRS MORNINGSTAR VIEWPOINT The subject property is a newly built, limited-service hotel in Irvine that enjoys close proximity to the John Wayne Airport, local amenities, retail outlets and major thoroughfares. The property is also well situated near a strong office corridor in Irvine, which has fared well with the subject’s corporate demand which account for approximately 45.0% of the demand segmentation. The Irvine office corridor includes major tenants such as Google, Amazon, Wells Fargo, JPMorgan and Oracle. According to the appraiser, over 900,000 sf of new office space was delivered in 2019, with another 350,000 sf set to deliver in the next quarter at Spectrum Terrace, located approximately 7.0 miles east of the subject. Recently constructed in April 2018, the hotel has posted strong operating figures with a 90.8% occupancy rate as of the T-12 ended September 2019. The hotel shows modern finishes with nice exterior, interior, common areas and amenity improvements, which have ultimately made the asset attractive throughout. The STR report noted seven hotels that compete with the hotel; however, all of which were built prior the subject. The hotel benefits greatly with the Hampton Inn brand, Hilton Hotels reservation system and Hilton loyalty program, which help propel strong historical occupancy figures as well as strong RevPAR penetration figures that is in excess of 100.0%. With all things considered, the hotel exhibits high leverage, as evidenced by an Issuance LTV of 70.0%, and the subject loan is returning approximately $9.8 million back to the sponsor. Based on the sponsor’s total cost basis of $32.7 million, the sponsor will not have any cash equity remaining in the subject.
December 2019 71 Presale Report | BANK 2019-BNK24
HAMPTON INN & SUITES - JOHN WAYNE AIRPORT – IRVINE, CA
DOWNSIDE RISKS –– The appraiser has identified two new hotels in the area–the Staybridge Suites and an Element Hotel–that are set to open over the next year. The appraiser identified four additional hotels that are in the early planning stages but will eventually compete with the subject, including a 165-room TownePlace Suites.
STABILIZING FACTORS –– Although the two hotels are expected to open in the next year, they are not considered to be competitive to the subject hotel. Both hotels are extended-stay hotels, and only one of them will be in the subject’s primary market. The four additional hotels that are slated for entry into the market in the future are still in the early planning phases. Additionally, the subject hotel has posted strong historical occupancy figures since it opened in April 2018, including a 90.8% occupancy based on the T-12 ended September 2019 and occupancy and RevPAR penetrations of 110.0% and 107.0%, respectively.
December 2019 72 Presale Report | BANK 2019-BNK24
Giant Anchored Portfolio Various
Loan Snapshot Seller WFB Ownership Interest Fee Simple Trust Balance ($ Millions) $30.0 Loan psf/Unit $177 Percentage of the Pool 2.4% Loan Maturity/ARD December 2029 Amortization COLLATERAL SUMMARY 30 Years DBRS Morningstar Property Type Retail Year Built/Renovated Various DBRS Morningstar Issuance DSCR City, State Various Physical Occupancy 97.5% 1.52x September SF 548,482 Physical Occupancy Date DBRS Morningstar 2019 Issuance LTV 74.3% DBRS Morningstar This loan is secured by the borrower’s fee interest in a portfolio of seven supermarket- Balloon LTV anchored shopping centers totaling 548,482 sf located in central and southeastern 67.4% Pennsylvania. As of September 2019, the portfolio was 97.5% occupied with individual DBRS Morningstar occupancies ranging from 94.5% to 100.0%. Prior to this acquisition, the sponsor had Property Type Retail an ownership interest in six of the seven properties included in the portfolio through a DBRS Morningstar joint venture with PGIM, formerly known as Prudential Investment Management, that Property Quality had acquired the six properties in 2012 for $104.0 million. The acquisition was financed Average at the time with $72.0 million of CMBS debt which has since been paid off. As a result Debt Stack ($ Millions) of Prudential paying off all of the debt, the sponsor’s interest in the six properties was Trust Balance diluted to approximately 2.0% from 5.0%. The 10-year $97.0 million loan is pari passu $30.0 with pieces in the BANK 2019-BNK24, CGCMT 2019-C7, and future secutizations. The Pari Passu scope of this report covers a $30.0 million slice that will be IO for the first five years $67.0 and amortize on a 30-year schedule thereafter. Additional sponsor proceeds of $35.0 B-Note million will be used to finance the purchase price of $127.0 million and cover closing $0.0 costs of $1.2 million. Mezz $0.0 PROPERTY OVERVIEW Total Debt The properties were constructed between 1990 and 2005, have an average age of 18 $97.0 years and range in size from 55,000 sf to 111,028 sf. Each of the properties features a Loan Purpose Giant grocery anchor with very strong sales. For 2018, sales in five of the properties Acquisition approached or exceeded $700 psf, a very strong figure considering most of the locations Equity Contribution/ (Distribution) ($ Millions) are not in high cost-of-living areas, each representing the number one grocer in their $31.2 respective markets.
December 2019 73 Presale Report | BANK 2019-BNK24
GIANT ANCHORED PORTFOLIO – VARIOUS
The properties included in the portfolio have a combined 61 tenants occupying roughly 97.5% of the NRA. The portfolio has had steady occupancy at or close to 98.0% in recent years, with Giant representing about 74.7% of total NRA and 79.0% of total rent, and in-line and pad occupancy remaining solid. Occupancy and tenant retention have remained solid at all properties, indicating the drawing power and successful sales performances of these Giant stores. Including fuel sales, five of the seven stores exceeded $700 psf in 2018 and were on pace to do the same in 2019 through September. Giant is an affiliate of investment grade-rated Ahold Delhaize, and is considered the dominant grocer in the Mid-Atlantic market according to Food World/Food Trade News. In most of these areas, income demographics are favorable, especially considering that most of the properties are in secondary and tertiary markets in Pennsylvania. Remaining lease terms are short in many cases; 82.2% of in-place rents come from leases with expirations from 2022 through 2025. However, a large portion of that comes from Giant leases, where renewal is highly likely because of strong sales and low occupancy costs. Six of the seven Giant properties have a minimum of six, five-year renewal options, with the Stonehedge Square property in Carlisle having only two renewal options.
The seven properties in the portfolio are cross-collateralized and cross-defaulted and may be released subject to release prices equal to the greater of (1) 120% of the allocated loan amount of the individual property or (2) the net sales proceeds applicable to an individual property sale. After any release, the DSCR must be equal or greater than the same as closing and 1.5x, the debt yield must be equal to or greater than the same as of closing and 8.5%, and the LTV must not be less than the LTV prior to release and 75.0%.
Refer to the table below for a summary of the portfolio.
PORTFOLIO SUMMARY
Cut-Off % of Year Date Loan Loan % of Built/ Largest Property Amount Amount City, State Property Type SF NRA Renovated Occupancy Tenant
Parkway Plaza $18,500,000 19.1% Mechanicsburg, Anchored 111,028 20.2% 1998 98.9% Giant PA Retail Food Stores
Aston Center $16,000,000 16.5% Aston, Anchored 55,000 10.0% 2005 100.0% Giant PA Retail Food Stores
Spring Meadow $15,900,000 16.4% Reading, Anchored 77,050 14.0% 2004/2019 100.0% Giant PA Retail Food Stores
Scott Town Center $13,800,000 14.2% Bloomsburg, Anchored 67,923 12.4% 2004 97.6% Giant PA Retail Food Stores
Creekside Market Place $13,500,000 13.9% Hellertown, Anchored 90,804 16.6% 2001 94.6% Giant PA Retail Food Stores
Stonehedge Square $11,200,000 11.5% Carlisle, PA Anchored 88,677 16.2% 1990/2005 97.1% Giant Retail Food Stores
Ayr Town Center $8,100,000 8.4% McConnellsburg, Anchored 58,000 10.6% 2005 94.5% Giant PA Retail Food Stores
Total/Wtd. Avg. $48,500,000 100.0% Various Anchored 548,482 100.0% Various 97.5% Giant Retail Food Stores
December 2019 74 Presale Report | BANK 2019-BNK24
GIANT ANCHORED PORTFOLIO – VARIOUS
SPONSORSHIP The sponsor is a partnership between Leo S. Ullman and Robert F. Whalen Jr. Ullman and his companies have acquired or built more than 50 Giant and Stop & Shop supermarkets. Ullman and Whelan are repeat borrowers, as Citi previously securitized Dillsburg Shopping Center ($18 million; CGCMT 2018-C6) and Two Guys Commons ($9.8 million; Benchmark 2019-B13). Both sponsors have a clean borrower history. Ullman has participated in the development, leasing and management of more than 1 million sf of retail centers, office buildings, self-storage facilities and multi-family developments. Their net worth multiple of 0.18x is considered low relative to the loan amount of $97 million. DBRS Morningstar reports previously sampled loans from 2011 to 2016 data shows the median net worth multiple for Average-sponsor loans were 2.62x.
DBRS MORNINGSTAR ANALYSIS SITE INSPECTION SUMMARY DBRS Morningstar inspected three (Parkway Plaza, Spring Meadow, and Creekside Marketplace of the seven properties in the portfolio, representing 49.4% of the allocated loan amount. The tours included properties in Pennsylvania, near Harrisburg, Reading and Allentown-Bethlehem. Based on the inspections held on October 30, 2019, DBRS Morningstar found the portfolio’s property quality to be Average.
Six of the seven properties are well located along major thoroughfares and near important highway interchanges in tertiary and secondary suburban markets. The assets generally featured good visibility and benefited from strong exposure in their respective locations. The portfolio’s average year of construction is 2000 with only two properties built before 2000, one of which was redeveloped in 2005. All properties were found to be in average to slightly above-average condition with limited amounts of deferred maintenance at the time of DBRS Morningstar’s inspections. Below are descriptions of the three of the portfolio’s four largest properties that were toured by DBRS Morningstar in the portfolio by allocated loan amount.
PARKWAY PLAZA – MECHANICSBURG, PENNSYLVANIA – OCTOBER 30, 2019, AT 10:00 A.M. (19.1% OF ALLOCATED LOAN AMOUNT) The collateral is located in Mechanicsburg, Pennsylvania, about 10 miles west of Harrisburg. The subject is located on Cumberland Parkway, just a short distance from the Pennsylvania Turnpike’s interchange with State Route 15. The property is located within a suburban corridor with other primarily retail uses filling the immediate area. Income demographics are favorable here as the five-mile radius has an average household income of just less than $113,000.
The 111,028-sf anchored retail center was originally constructed in 1998. Aside from the 66,935-sf Giant supermarket and its branded gas station across the parking lot, the largest tenants are a Rite Aid pharmacy and a Kindercare Learning Center on outparcels. At the time of inspection, the subject was roughly 99% occupied, representing 1,200 sf of vacant space, a dry cleaner drop-off store that has a lease expiring at the end of 2019 but has already closed. The interior of the Giant store
December 2019 75 Presale Report | BANK 2019-BNK24
GIANT ANCHORED PORTFOLIO – VARIOUS
was very well stocked, clean and adequately lit. The property’s build is typical of the area with varying hues of red brick exteriors and pillars, and tan stucco facings creating a covered exterior walkway for esthetic appeal. Pad tenants Rite Aid and Wendy’s have their own signature appearances. The property appeared to be very well maintained, with a manicured appearance and minimal visible trash. The parking lots showed few signs of deferred maintenance, limited to a small number of surface cracks. Overall, the subject property was in line with or better than comparable properties in the area.
SPRING MEADOW – WYOMISSING, PENNSYLVANIA – OCTOBER 30, 2019, AT 11:45 A.M. (16.4% OF ALLOCATED LOAN AMOUNT) The shopping center sits off Van Reed Road in Wyomissing, a western suburb of Reading, about 60 miles northwest of Philadelphia. The location is easily accessible from either State Route 222 less than two miles to the north or State Route 422 about one mile to the south. Income demographics are favorable here as the one-mile radius has an average household income of more than $117,000. Wyomissing is among the wealthiest towns in the Reading area.
Originally constructed in 2004, the property is a 77,050-sf retail center comprising three buildings occupied by four tenants. The property was 100% occupied. The main building houses only the 65,000-sf Giant supermarket, and the Giant gasoline station is across the main parking lot. Mavis Discount Tire is in a newly built 6,700-sf freestanding store on a lease that began in August 2019 and extends into 2034. Fulton Bank is in its own 2,950-sf branch building, and recently renewed its lease for five years. The only other tenant is a recycling station. The physical characteristics of the main building are very similar to those of Parkway Plaza as described above. The interior of the Giant store was very well stocked, clean and well lit. The parking lot and grounds appeared to be clean and well maintained. Foot traffic was moderate at the time of inspection given the time of day. Overall, the property’s interior and exterior were well maintained and presented well compared with other retail centers in the surrounding area.
CREEKSIDE MARKETPLACE – HELLERTOWN, PENNSYLVANIA – OCTOBER 30, 2019, AT 1:30 P.M. (13.9% OF ALLOCATED LOAN AMOUNT) The collateral is located in Hellertown, Pennsylvania, a suburban area five miles south of Bethlehem, about 55 miles north of Philadelphia. The 90,804-sf retail center on Leithsville Road is occupied by 13 tenants. Leithsville Road is part of Route 412, which extends north to Hellertown and also eastward. The property is roughly two miles south of I-78 and four miles from Route 309, which together connect the Lehigh Valley area to the rest of Pennsylvania and to New Jersey to the east. This area south of Hellertown and Bethlehem is among the Lehigh Valley’s most affluent areas; the one-mile radius average household income is nearly $162,000, and the three-mile radius average is more than $126,000.
The property was originally constructed in 2002. At the time of inspection, the subject was anchored by a 57,428-sf Giant supermarket. The next largest tenant is an 8,000-sf Dollar Tree store, followed by a state-operated 3,200-sf Fine Wine and Good Spirits store and a 3,162-sf Pet Valu store. The smaller tenants include national retailers AT&T and Subway, as well as local restaurants and service providers. There are two in-line units currently vacant, each with 2,400 sf, bringing vacancy to 5.4%. The physical characteristics of the main building are very similar to those of Parkway Plaza and Spring Meadow as described above. The interior of the Giant store was very well stocked, clean and well lit. The parking lot and grounds appeared to be clean and well maintained. Foot traffic was moderate at the time of inspection given the time of day. Overall, the property’s interior and exterior were well maintained and presented well compared with other retail centers in the surrounding area. Only a few signs of minor deferred maintenance were visible.
December 2019 76 Presale Report | BANK 2019-BNK24
GIANT ANCHORED PORTFOLIO – VARIOUS
DBRS MORNINGSTAR NCF SUMMARY NCF ANALYSIS
T-12 DBRS September Morningstar 2018 2019 Appraisal Budget Issuer NCF NCF NCF Variance
GPR $9,244,186 $9,415,066 $9,522,330 $9,465,376 $9,931,944 $9,618,601 -3.2%
Recoveries $2,176,159 $2,173,819 $2,746,165 $2,224,288 $2,320,672 $2,320,672 0.0%
Other Income $10,943 $7,071 $26,600 $0 $0 $0 0.0%
Vacancy -$15,000 -$24,456 -$345,829 $0 -$607,064 -$728,610 20.0%
EGI $11,416,288 $11,571,500 $11,949,266 $11,689,664 $11,645,551 $11,210,664 -3.7%
Expenses $2,381,601 $2,476,558 $2,933,130 $2,641,956 $2,827,787 $3,025,060 7.0%
NOI $9,034,687 $9,094,942 $9,016,136 $9,047,708 $8,817,765 $8,185,604 -7.2%
Capex $0 $0 $0 $0 $153,800 $109,696 -28.7%
TI/LC $0 $0 $0 $0 $351,839 $536,015 52.3%
NCF $9,034,687 $9,094,942 $9,016,136 $9,047,708 $8,312,126 $7,539,893 -9.3%
The DBRS Morningstar NCF is based on the DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS Morningstar NCF was $7,539,893, a variance of -9.3% from the Issuer’s NCF figure of $8,312,126. The primary drivers of the variance are TI/LCs, rent markdowns, vacancy, fewer rent steps taken and higher management fees. DBRS Morningstar assumed the appraiser’s estimates for TI/LCs for a majority of space types, particularly for the Giant stores. DBRS Morningstar’s market rent was based on the appraiser’s estimates and recently signed leases. Operating expenses were based on the borrower’s budget as it was more conservative than the T-12. Finally, replacement reserves were set to $0.34 psf, the weighted average of the property condition assessments’ inflated 12-year total reserve analysis.
DBRS MORNINGSTAR VIEWPOINT The retail portfolio benefits from geographic and tenant diversity as well as its experienced sponsorship team. The portfolio is made up of six multi-tenant anchored retail properties and one single-tenant Giant store located in primarily small and medium-size markets in central and southeastern Pennsylvania. The larger properties are in the Harrisburg, Allentown- Bethlehem and Reading areas, with a few even farther west and north into Pennsylvania, and one property (Giant only) just outside Philadelphia. Giant itself represents roughly 73.0% of the total 548,488 sf, which has a Netherlands-based credit tenant parent. Giant also accounts for 79.5% of the DBRS Morningstar Base Rent. DBRS Morningstar does not consider Giant to qualify for LTCT status as all leases will expire well in advance of loan maturity in November 2029. Additionally, there is significant rollover risk with approximately 51% of gross rent from leases expiring by the end of 2023, and 99.0% of the current leases in place expiring prior to loan maturity. Also, 96.1% of the NRA contributing 99.0% of the rent are on leases with a term of less than 10 years. This presents an element of term default risk; however, the properties benefit from their location near local highways in well-trafficked areas, with affluent populations relative to the secondary and tertiary markets in which the properties are located, reflected in strong sales numbers for Giant, with annual sales in excess of $700 psf at five of the properties and occupancy cost at 5.2% or less at six of the properties. Also, the portfolio has maintained strong occupancy, averaging nearly 98% over the past few years. Each property inspected appeared to be in good physical condition and had numerous customers despite the time of day.
DOWNSIDE RISKS –– The loan is IO for the first five years of the 10-year term, which delays amortization and presents an elevated refinance risk at loan maturity. In addition, the payment increase associated with the commencement of amortization coincides with a substantial amount of tenant rollover and potential for depressed cash flows.
December 2019 77 Presale Report | BANK 2019-BNK24
GIANT ANCHORED PORTFOLIO – VARIOUS
STABILIZING FACTORS –– Renewal probability for Giant is considered high as performance of the Giant stores has been strong with five of the seven stores having annual sales at or close to $700 psf. The local areas of most of the stores have favorable income demographics for secondary and tertiary markets in Pennsylvania. Furthermore, the sponsors, Ullman and Whalen, will contribute $35 million of equity toward the purchase and have significant experience in commercial development and leasing. Finally, five of the seven stores have explicit guarantees from investment grade-rated Netherlands-based parent company Ahold Delhaize.
December 2019 78 Presale Report | BANK 2019-BNK24
Baytown Portfolio Baytown, TX
Loan Snapshot Seller BANA Ownership Interest Fee Simple Trust Balance ($ Millions) 29.5 Loan psf/Unit ($) 61,279 Percentage of the Pool 2.4 Loan Maturity/ARD December 2029 Amortization COLLATERAL SUMMARY Interest Only DBRS Morningstar Property Type Multifamily Year Built/Renovated Various DBRS Morningstar Issuance DSCR (x) City, State Baytown, TX Physical Occupancy (%) 95.0 2.28 Units 481 Physical Occupancy Date October 2019 DBRS Morningstar Issuance LTV (%) 69.8 This loan is secured by the borrower’s fee-simple interest in Baytown Portfolio, a DBRS Morningstar three-property multifamily portfolio in Baytown, Texas, containing 481 total units. Balloon LTV (%) Loan proceeds of approximately $29.5 million in addition to $12.5 million of borrower 69.8 cash equity were used to recapitalize the multifamily portfolio with the acquisition DBRS Morningstar Property Type of $39.3 million, hold back approximately $2.2 million for future capital expenditures, Multifamily allocate $72,910 toward immediate repairs, and pay closing costs. The 10-year loan is IO DBRS Morningstar through the entire loan term. Property Quality Average Debt Stack ($ Millions) Trust Balance 29.5 Pari Passu 0.0 B Note 0.0 Mezz 0.0 Total Debt 29.5 Loan Purpose Acquisition Equity Contribution/ (Distribution) ($ Millions) 12.5
December 2019 79 Presale Report | BANK 2019-BNK24
BAYTOWN PORTFOLIO – BAYTOWN, TX
PORTFOLIO SUMMARY
Cutoff Date Year Built/ Loan Amount % of Cut-Off Date Property City, State Units Renovated ($) Loan Amount Occupancy (%)
Providence at Baytown Baytown, TX 186 1970/2016 10,875,000 36.9 94.6
Bay Oaks Apartments, LLC Baytown, TX 146 1978/2017 9,600,000 32.6 96.6
Marina Club Baytown, TX 149 1970/2017 9,000,000 30.5 93.2
Total/Wtd. Avg. Baytown, TX 481 Various 29,475,000 100.0 94.8
The portfolio consists of three multifamily properties in Baytown, a suburban city 26 miles east of the Houston CBD. The portfolio occupancy has ranged from 86.0% to 96.8% over the past two years. Providence at Baytown comprises 186 total units, which include six studios, 87 one-bedroom units, 81 two-bedroom units, and 12 three-bedroom units spread across 16 buildings. Bay Oaks Apartments comprises 146 total residential units with 66 one-bedroom units, 52 two-bedrooms units, and 28 three-bedroom units spread across 13 buildings. Marina Club comprises four studios, 57 one-bedroom units, 74 two-bedroom units, and 14 three-bedroom units spread across 20 buildings. Propertywide amenities across the portfolio include outdoor pools, laundry facilities, and an on-site leasing office. To date, the sponsor has invested approximately $4.6 million ($9,563 per unit) toward unit renovations. Of the 481-unit portfolio, 316 are fully renovated, while 63 are partially renovated. Providence at Baytown features 159 renovated units, which contain black appliances, granite and ceramic countertops, and updated tile flooring. Bay Oaks Apartments features 35 fully renovated units and 63 partially renovated units. Partial upgrades include black appliances, while full renovations include black appliances, updated granite countertops, updated cabinet fixtures, and either vinyl wood or ceramic tile flooring. Marina Club includes 128 renovated units with black appliances, dishwashers, granite or ceramic countertops, and ceramic tile flooring or vinyl wood flooring, among other upgrades. The sponsor plans to invest approximately $2.2 million ($4,531 per unit) to complete the remaining unit renovations, which has been escrowed at closing.
SPONSORSHIP The sponsor for this transaction is Nitya Capital, a privately held REIT focused on the acquisition and management of Class B/C multifamily properties. The sponsor acquired the portfolio between December 2016 and January 2017. Nitya Capital has acquired more than 16,700 multifamily units and 400,000 sf of office space throughout Texas with approximately $2.0 billion in assets under management. The guarantor for this transaction is Swapnil Agarwal, the founder of Nitya Capital. Agarwal reported a net worth and liquidity of approximately $150.5 million and $23.4 million, respectively.
The loan will recapitalize the portfolio with the sponsor retaining 5.0% interest through managing the portfolio via the borrower-affiliated property management company, Karya Property Management, LLC, with a contractual rate of 3.0% of the EGI. The remaining 95.0% equity will be contributed from multiple new investors with no more than 10.0% ownership from foreign investors. Karya Property Management has approximately 16,000 units under management across Texas, Nevada, and Kansas.
December 2019 80 Presale Report | BANK 2019-BNK24
BAYTOWN PORTFOLIO – BAYTOWN, TX
DBRS MORNINGSTAR ANALYSIS SITE INSPECTION SUMMARY DBRS Morningstar inspected all three properties in the portfolio. Based on the inspections and management meetings held on November 11, 2019, DBRS Morningstar found the portfolio’s property quality to be Average.
The properties are well located along major thoroughfares within the Baytown submarket. Each property sits no more than six miles from one another, and they benefit from their proximity to Texas Highway 146, a main artery between the respective properties. Additionally, the Texas Highway 146-Texas Highway 330 junction is no more than approximately five miles from each property, connecting the collateral to downtown Houston. Baytown borders several oil refineries to the west of the collateral, such as Eco Services, ExxonMobil Chemical, SGS North America Inc., and the Baytown Refinery. According to on-site management, all three properties within the portfolio have a large concentration of refinery employees. The assets generally featured prominent signage and benefited from strong exposure along their respective local thoroughfares. Generally, other residential and small local and national retailers filled the immediate area surrounding each multifamily property. Despite the portfolio’s average vintage of 1973, all properties were in average condition with limited to moderate amounts of deferred maintenance at the time of DBRS Morningstar’s site inspections. Below are descriptions of the properties that DBRS Morningstar toured by allocated loan amount.
PROVIDENCE AT BAYTOWN – BAYTOWN, TEXAS – NOVEMBER 11, 2019, AT 12:00 P.M. (36.9% OF THE ALLOCATED LOAN AMOUNT) Originally constructed in 1970 and renovated in 2016, the collateral comprises 186 residential units spread across 16 residential buildings and one leasing office. The property’s amenities include two pools, a fitness center, a children’s playground, and two laundry facilities. At the time of inspection, the fitness center was undergoing renovations to update flooring and make a slight improvement to the equipment. The children’s playground showed major signs of deferred maintenance with several wood structural areas appearing to be broken and its surrounding fence torn down. Management expressed that the fence and a few maintenance items regarding the playground would be addressed in the near future. Overall, the property’s grounds were well maintained, including ample trees and small shrubs lining the base of the buildings as well as spread throughout the interior courtyard area. The leasing office, which was at the main entryway off James Bowie Drive, included a beige brick and light stucco accent exterior with large windows to allow for ample natural sunlight. The leasing office entryway included a navy awning with signage prominently displayed. The interior of the leasing office featured slightly dated furniture with light colored walls and vinyl wood flooring. Residents can enter the fitness center, outdoor pools, community kitchen area, and business center through the leasing center.
December 2019 81 Presale Report | BANK 2019-BNK24
BAYTOWN PORTFOLIO – BAYTOWN, TX
At the time of inspection, the property was approximately 90.0% occupied. Residential buildings included navy painted stairways that led to second floor units via the enclosed courtyard area. Through the courtyard, residents can use either of the two community laundry facilities, the pools, and the leasing center. According to on-site management, units with direct courtyard access come at a premium of $25 to $50 per unit per month. Of the 186 total units, 159 units have been renovated. Renovations include black appliances, a mixture of granite and ceramic tile countertops, and new ceramic tile flooring. Management expects to renovate the remaining 27 units; however, it is unclear as to when they will be complete because updates occur as leases roll. Management was not offering any rent concessions at the time of inspection; however, they were waiving security deposits. Residents have expressed complaints regarding recurring plumbing and air-conditioning issues throughout the property, according to on-site management. Overall, the property was well maintained with good curb appeal and limited major signs of deferred maintenance.
BAY OAKS APARTMENTS – BAYTOWN, TEXAS – NOVEMBER 11, 2019, AT 11:00 A.M. (32.6% OF THE ALLOCATED LOAN AMOUNT) Originally built in 1978 and renovated in 2017, the collateral comprises 146 residential units spread across 13 residential buildings and one leasing office. The property’s amenities include an outdoor pool, a fitness center, and two large community laundry facilities. Overall, the property’s grounds were well maintained, including ample trees and small shrubs lining the base of the buildings. The leasing office, which was at the main entryway off Bob Smith Road, included a red brick exterior and a large double-door entryway. The interior of the leasing office featured slightly dated furniture with light colored walls, tall ceiling heights, and ceramic tile flooring. Within the leasing center, there was a children’s area that included a bookshelf and comfortable seating. According to on-site management, this space is well used, as many residents have small children. Past the management offices within the leasing office was ample space for residents and prospective tenants to sit. Large windows facing the outdoor pool allowed for ample natural sunlight.
At the time of inspection, the property was approximately 92.0% occupied and 93.0% preleased. According to on-site management, most of the vacancy was one-bedroom units. Residential buildings featured red brick exteriors with black painted stairways leading to the second-floor units. All buildings included plenty of open green space with concrete sidewalks spread throughout to connect each building to one another. At the time of inspection, 63 units had been partially renovated, while only 35 units had been fully renovated. Fully renovated units include black appliances, updated granite countertops, updated cabinet fixtures, and either vinyl wood or ceramic tile flooring. Partially renovated units only include the black appliances. Management estimates that fully renovated units achieving premiums of $50 per unit. If desired, the tenant may request the installation of stainless-steel appliances for an additional premium of $20 to $25 per unit. Management expects to renovate the remaining units; however, it is unclear as to when they will be complete, as updates occur as leases roll. Management was offering 50.0% off the first month’s rent at the time of inspection, and it is not clear how long this promotion may stay in effect. Overall, the property was in good condition and demonstrated no major signs of deferred maintenance.
MARINA CLUB – BAYTOWN, TEXAS – NOVEMBER 11, 2019, AT 12:45 P.M. (30.5% OF THE ALLOCATED LOAN AMOUNT) Originally constructed in 1970 and renovated in 2017, the collateral comprises 148 residential units spread across 20 residential buildings and one leasing office. The property’s amenities include two outdoor pools and two community laundry facilities. Overall, the property’s grounds were well maintained, including ample trees and small shrubs lining the base of the buildings as well as throughout the enclosed courtyard area. The leasing office, which was at the main entryway off Missouri Street, included a red brick exterior with various hues of orange and yellow siding as accents. The leasing office entryway included a navy awning with signage prominently displayed. The interior of the leasing office featured slightly dated furniture with light colored walls and ceramic tile flooring. Past the management offices within the leasing office was limited space for residents and prospective tenants to sit.
December 2019 82 Presale Report | BANK 2019-BNK24
BAYTOWN PORTFOLIO – BAYTOWN, TX
At the time of inspection, the property was approximately 89.0% occupied and 91.0% preleased. Residential buildings featured red brick exteriors with black painted stairways leading to the second-floor units. All units contained shared balcony/patio areas. All buildings included plenty of open green space in the courtyard with sidewalks spread throughout to connect each building to one another. At the time of inspection, 128 units had been fully renovated to include black appliances, dishwashers, an upgraded vent hood over the electric stovetop, a mixture of granite and ceramic countertops, and ceramic tile flooring on first-floor units and vinyl wood flooring in second-floor units. Management expects to renovate the remaining units; however, it is unclear as to when they will be complete, as updates occur as leases roll. The outdoor pools will be resurfaced in 2020 with an estimated cost of $15,000 to $20,000. Management hopes to power wash the property’s exterior in the near future but was unsure whether it is part of the 2020 budget. The property includes a large area of vacant land that sits adjacent to the residential buildings. Beginning in January or February 2020, a playground and soccer field will be built on the vacant land for an estimated cost of $50,000 to $60,000. Overall, the property was in good condition with attractive curb appeal and prominently displayed signage.
DBRS MORNINGSTAR NCF SUMMARY NCF ANALYSIS
DBRS T-12 August Morningstar NCF Variance 2018 2019 Budget Appraisal Issuer NCF NCF (%)
GPR ($) 5,004,714 5,054,850 5,191,281 5,173,146 5,061,401 5,136,817 1.5
Other Income 472,512 648,596 541,220 511,000 648,596 648,596 0.0 ($)
Vacancy & Con- -529,143 -501,162 -565,068 -139,246 -507,713 -583,129 14.9 cessions ($)
EGI ($) 4,948,083 5,202,284 5,167,433 5,544,900 5,202,284 5,202,284 0.0
Expenses ($) 2,398,499 2,346,656 2,600,440 2,706,296 2,655,529 2,762,999 4.0
NOI ($) 2,549,584 2,855,628 2,566,993 2,838,604 2,546,755 2,439,285 -4.2
Capex ($) 0 0 132,000 96,000 120,000 168,965 40.8
NCF ($) 2,549,584 2,855,628 2,434,993 2,742,604 2,426,755 2,270,320 -6.4
The DBRS Morningstar NCF is based on the DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS Morningstar NCF was $2,270,320, a -6.4% variance from the Issuer’s NCF figure of $2,426,755. The primary drivers of the variance are operating expenses and replacement reserves. Operating expenses across all three properties were set to the T-12 ended August 2019 inflated by 3.0%. DBRS Morningstar estimated replacement reserves to the engineer’s inflated estimate for each property.
DBRS MORNINGSTAR VIEWPOINT The cross-collateralized multifamily portfolio benefits from its location within the Baytown submarket as well as its experienced sponsorship team. The properties’ location within the Baytown submarket and proximity to several oil refineries prove to be beneficial given the strong occupancy trend across the portfolio. As of October 2019, the portfolio had a weighted average occupancy of 95.0%. Since 2016, there have been three incidents of homicide that occurred at Providence at Baytown; however, these incidents are believed to be isolated and security measures have increased across the portfolio. The sponsor will invest approximately $2.2 million toward unit renovations, which will push rents slightly upward. From 2016 to 2017, the sponsor spent $4.6 million toward renovating 316 units and partially renovating 63 units. The portfolio has achieved premiums ranging from $26 to $155 per unit. As of the October 2019 rent roll, rents were well below market across the portfolio: Providence at Baytown, Bay Oaks Apartments and Marina Club had average in-place rents of $820 per unit, $862 per unit and $862 per unit, respectively, and market rents of $894 per unit, $950 per unit
December 2019 83 Presale Report | BANK 2019-BNK24
BAYTOWN PORTFOLIO – BAYTOWN, TX
and $950 per unit, respectively. Based on the in-place rental rates, the portfolio would need to achieve premiums ranging from $74 to $88 per unit to bring rents to market. These anticipated premiums are near the midpoint of premiums that the portfolio had already achieved from previous renovations, proving its feasibility. Based on the appraiser’s comparable properties, the average sale price is $86,296 per unit. This is slightly lower than the appraised value of $42.2 million ($87,734 per unit), alluding to an overvaluation in relation to comparable properties. On the contrary, the loan per unit is significantly lower at $61,279 per unit.
DOWNSIDE RISKS –– The loan is IO for the full term, which presents an elevated refinance risk at loan maturity. –– The portfolio’s proximity to several major oil refineries presents a risk for the surrounding market if the energy sector were to enter an economic downturn.
STABILIZING FACTORS –– This loan features moderate leverage at 68.9% LTV based on the appraised value of $42.2 million. –– The DBRS Morningstar DSCR of 2.13x indicates that the collateral has sufficient cash flows to cover debt service.
December 2019 84 Presale Report | BANK 2019-BNK24
Hualapai Commons Las Vegas, NV
Loan Snapshot Seller MSMCH Ownership Interest Fee Simple Trust Balance ($ Millions) $26.1 Loan psf/Unit $103 Percentage of the Pool 2.1% Loan Maturity/ARD December 2029 Amortization COLLATERAL SUMMARY Interest Only DBRS Morningstar Property Type Retail Year Built/Renovated 1999 DBRS Morningstar Issuance DSCR City, State Las Vegas, NV Physical Occupancy 97.5% 2.82x SF 252,947 Physical Occupancy Date August 2019 DBRS Morningstar Issuance LTV 60.3% This loan is secured by the borrower’s fee-simple interest in Hualapai Commons, DBRS Morningstar a 252,947 sf community shopping center in Las Vegas. Originally built in 1999, the Balloon LTV multibuilding retail center was 97.5% physically occupied by 21 tenants as of the August 60.3% 6, 2019, rent roll. Since 2016, the subject’s historical occupancy has ranged between DBRS Morningstar Property Type 97.1% and 98.0%. The retail property is anchored by two ground-leased tenants, The Retail Home Depot, Inc. (Home Depot) and Smith’s Food and Drug (Smith’s). The sponsor DBRS Morningstar acquired the subject property in November 2019 for $46.0 million ($182.00 psf ). The Property Quality sponsor used loan proceeds of $26.1 million ($103.00 psf ) along with $21.7 million of Average cash equity to facilitate the acquisition, fund $1.3 million in reserve, and cover closing Debt Stack ($ Millions) costs of $451,087. $1.1 million of the reserve is dedicated to the general future leasing Trust Balance costs. The 10-year loan is fully IO over the loan term. $26.1 Pari Passu $0.0 B-Note $0.0 Mezz $0.0 Total Debt $26.1 Loan Purpose Acquisition Equity Contribution/ (Distribution) ($ Millions) $21.7
December 2019 85 Presale Report | BANK 2019-BNK24
HUALAPAI COMMONS – LAS VEGAS, NV
TENANT SUMMARY
DBRS % of Total DBRS % of Total Morningstar Morningstar Investment Tenant SF NRA Base Rent PSF Base Rent Lease Expiry Grade? (Y/N)
Home Depot 107,856 42.6% $3.99 $0.17 3/31/2030 Y
Smith's Food and Drug Center 59,997 23.7% $6.47 $0.15 4/7/2024 Y
Petsmart 22,703 9.0% $15.95 $0.14 8/31/2025 N
Chevron 8,980 3.6% $13.39 $0.05 10/8/2020 N
Vacant / Pending 6,434 2.5% $24.00 $0.06 10/31/2029 N
A Simple Affair 5,335 2.1% $15.60 $0.03 3/31/2023 N
US Bank National Association 5,000 2.0% $28.10 $0.05 3/31/2021 N
Amy's Hallmark 3,946 1.6% $20.77 $0.03 2/28/2023 N
JP Morgan Chase Bank 3,946 1.6% $26.40 $0.04 4/30/2020 N
Starr Gaming LLC 3,888 1.5% $38.50 $0.06 10/31/2024 N
Subtotal/Wtd. Avg. 228,085 90.2% $8.83 77.7% Various Various
Other Tenants 16,306 6.4% $35.39 22.3% Various N
Vacant Space 8,556 3.4% n/a n/a n/a n/a
Total/Wtd. Avg. 252,947 100.0% $10.25 100.0% Various Various
Located 10 miles west of the Las Vegas CBD, the property has one vacant space totaling 6,434 sf and one space recently converted to a month-to-month lease comprising 2,122 sf. In its analysis, DBRS Morningstar considered both spaces, representing 8,556 sf of total NRA, to be vacant; however, there is a pending lease for the 6,434 sf in-line suite with a prospective restaurant tenant. Occupancy at the subject property has remained above 95.0% since 2016. Currently, four tenants are on ground leases, including the two largest tenants: Home Depot and Smith’s. The remaining two ground-leased tenants, Chevron and U.S. Bank, are on outparcels. Home Depot is the largest home improvement retailer in the U.S. and its lease at the property began in April 2000 and expires in March 2030. The Home Depot lease has one 10-year and two five-year extension options remaining. Reportedly, the subject’s Home Depot location generates annual sales of $353.00 psf, which is higher than the brand’s national average of $299.00 psf. Smith’s, a subsidiary of The Kroger Co., is a supermarket chain operating in 132 locations across the U.S. The Smith’s lease began in April 1998 and expires in April 2024 with eight five-year extension options remaining. This Smith’s location generates estimated annual sales of $813.00 psf, which is above the brand’s national average of $650.00 psf. The property’s 17 other tenants represent a variety of national, regional, and local retailers and restaurants. Rollover risk at the property is heavily focused on the first few years of the loan term with 80.4% of DBRS Morningstar gross rent expiring by the end of 2025.
SPONSORSHIP The sponsor for this transaction is J.A. Kennedy Real Estate Company (J.A. Kennedy), a regional real estate management and brokerage company. Founded in 2004 by Joseph Kennedy and headquartered in Las Vegas, J.A. Kennedy provides opportunities for sale and for lease across all asset types throughout the greater Las Vegas Valley. Kennedy has closed over $200 million in real estate transactions throughout his career. The sponsor is a repeat borrower who closed a successfully securitized a loan with Morgan Stanley Mortgage Capital in 2017 and 2011. The subject is self-managed by the sponsorship group.
December 2019 86 Presale Report | BANK 2019-BNK24
HUALAPAI COMMONS – LAS VEGAS, NV
DBRS MORNINGSTAR ANALYSIS SITE INSPECTION SUMMARY DBRS Morningstar toured the interior and exterior of the property on November 12, 2019, at approximately 10:00 a.m. Based on the site inspection and management meeting, DBRS Morningstar found the property quality to be Average.
The subject is at the southeast corner at the intersection of South Hualapai Way and West Charleston Boulevard, approximately 10 miles west of the Las Vegas CBD and 14 miles northwest of McCarran International Airport. The surrounding neighborhood consists of a mixture of commercial and residential development with some undeveloped desert land. Retail activity is quite strong in the subject’s market, including two competing power centers within walking distance: Center Pointe Plaza and Canyon Pointe. These centers offer a variety of complementary national retailers such as Best Buy, Marshalls, CVS, and Office Depot, among others. Overall, the collateral has excellent access and visibility, which are greatly enhanced by its frontage along Charleston Boulevard. Charleston Boulevard provides a direct link to I-15 to the east and to Bruce Woodbury Beltway to the west, connecting the local market to the rest of the Las Vegas MSA. The property benefits from several points of access and proper signage, making it easy to locate retailers in the shopping center.
The collateral was in good condition, although DBRS Morningstar noted some deferred maintenance on the exterior walls and certain areas in the parking lot. Featuring beige stucco facades, natural stone accents, and decorative crown molding throughout the building exteriors, the subject complements the Las Vegas landscape. DBRS Morningstar toured the shopping center with the property manager and leasing broker on a Tuesday morning. Although several stores and restaurants were not yet open at the time, traffic was favorable, particularly at the Smith’s, Home Depot, and PetSmart, all of which were busy. Ingress and egress points were more than adequate with the subject’s primary entrance located along Charleston Boulevard and secondary entrances on Hualapai Way. DBRS Morningstar toured several retailers and restaurants, including The Pint, PetSmart, Suite One Salon, The UPS Store, Smith’s, and A Simple Affair, which is an event space. Overall, the anchor, in-line, and outparcel spaces were clean and showed well. Each tenant had its own signage on the building’s exterior above its entrance. Stores have typical build-outs and most spaces have tile or stone flooring, wide aisles, and racks for goods sold. DBRS Morningstar also inspected the vacant suite (6,434 sf ). Although this space was fully built out with the previous tenant’s design and layout, it would require additional TIs to reconfigure the space for a future tenant’s use. According to the leasing broker, the property is currently negotiating a lease with a potential restaurant tenant that will include a $70.00 psf tenant allowance. Overall, the subject’s favorable curb appeal and strong location should allow it to maintain its competitiveness with surrounding shopping centers.
December 2019 87 Presale Report | BANK 2019-BNK24
HUALAPAI COMMONS – LAS VEGAS, NV
DBRS MORNINGSTAR NCF SUMMARY NCF ANALYSIS
T-12 DBRS September Morningstar 2018 2019 Budget Appraisal Issuer NCF NCF NCF Variance
GPR $2,761,570 $2,706,715 $2,858,731 $2,905,317 $2,998,893 $2,842,044 -5.2%
Reimbursements $591,259 $560,511 $903,175 $630,393 $856,589 $854,271 -0.3%
Other Income $0 $0 $0 $0 $0 $0 0.0%
Vacancy $0 $0 $0 -$185,668 -$323,438 -$249,906 -22.7%
EGI $3,352,829 $3,267,226 $3,761,906 $3,350,042 $3,532,044 $3,446,409 -2.4%
Expenses $921,679 $922,189 $903,175 $841,385 $856,589 $936,630 9.3%
NOI $2,431,150 $2,345,037 $2,858,731 $2,508,657 $2,675,455 $2,509,779 -6.2%
Capex $0 $0 $24,793 $10,667 $40,849 282.9%
TI/LC $0 $0 $0 $2,289,886 $64,769 $100,583 55.3%
NCF $2,431,150 $2,345,038 $2,858,731 $193,978 $2,600,019 $2,368,347 -8.9%
The DBRS Morningstar NCF is based on the DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS Morningstar NCF was $2,368,347, representing a variance of -8.9% from the Issuer’s NCF. The main drivers of the variance are mark-to-market adjustments, rent steps, leasing costs and replacement reserves. DBRS Morningstar applied a markdown to tenants paying rents over 110.0% of the appraiser’s market rent estimate for each space type, except for new and renewal leases that were executed in the past two years. The DBRS Morningstar mark- to-market adjustment totaled $133,928 across nine tenants. DBRS Morningstar accepted contractual rent steps through December 31, 2020, but did not straight-line rents steps for the Home Depot and Smith’s over the 10-year loan term. Although the Home Depot and Smith’s are investment-grade-rated entities, DBRS Morningstar does not consider them to be LTCTs because both ground leases expire within the loan term. DBRS Morningstar concluded LCs and TIs to a combined total of $3.24 psf, excluding the Home Depot, Smith’s, Chevron and U.S. Bank ground-leased space. DBRS Morningstar gave straight-line credit over the 10-year loan term to the $1.3 million upfront TI/LC reserve, which the sponsor will use for future leasing costs at the property. DBRS Morningstar generally relied on the appraiser’s TI estimates, including $20.00 psf for new and $10.00 psf for renewal in-line and restaurant space and $10.00 psf for new and $5.00 psf for renewal junior anchor and pad space. DBRS Morningstar did not apply TIs to the four ground-lease tenants. New and renewal LCs were set to 6.0% and 4.0%, respectively, consistent with the appraiser’s estimates. Replacement reserves were set to the engineer’s total inflated recommendation divided over the 12-year evaluation period, which equals nearly $41,000.
DBRS MORNINGSTAR VIEWPOINT The collateral is well located with above-average access and visibility along Charleston Boulevard, a major thoroughfare that connects with I-15 and Bruce Woodbury Beltway, facilitating access to the rest of the Las Vegas MSA. The shopping center’s location is highly conducive to retail and other commercial activity as much of the surrounding area includes residential development. Most residents in this market commute to and from the Las Vegas CBD on a daily basis, adding suburban characteristics to the neighborhood. Since the center’s development in 1999, it has successfully attracted national retailers and maintained favorable occupancy between 97.1% and 98.0% since 2016. The subject’s location within an upper-middle- class market, exemplified by the nearby Peccole Ranch and Summerlin master-planned communities, has largely driven this sustained success. Because of the local market’s layout and demographics, demand for shopping centers similar to the collateral is significant and will continue to play an important role in the subject’s performance. The sponsor acquiring the property has significant real estate experience in Las Vegas and is contributing equity of 49.3% of the purchase price to the
December 2019 88 Presale Report | BANK 2019-BNK24
HUALAPAI COMMONS – LAS VEGAS, NV
transaction. This equity investment, coupled with the sponsor’s experience both in the market and with retail properties, bodes well for the property’s continued performance for the duration of the loan term. Additionally, the loan exhibits a low DBRS Morningstar Balloon LTV of 56.4%, even without any amortization during the 10-year term.
DOWNSIDE RISKS –– The property has a large concentration of rollover during the first five years of the loan when 53.3% of total NRA rolls, including Smith’s in April 2024, which accounts for 23.7% of total NRA.
STABILIZING FACTORS –– The property has had stable historical occupancy with vacancy of 3.0% or less over the past three years, which reflects its desirability. In addition, 83.7% of NRA has been in occupancy since 2001 or before, including Smith’s (April 1998), the Home Depot (April 2000), PetSmart (August 2000), and Chevron (October 2000). –– The loan is structured with a $1.1 million upfront TI/LC reserve, which the sponsor will use for general future leasing costs.
December 2019 89 Presale Report | BANK 2019-BNK24
ILPT Industrial Portfolio Various
Loan Snapshot Seller BANA Ownership Interest Fee Simple Trust Balance ($ Millions) $25.1 Loan psf/Unit $26 Percentage of the Pool 2.0% Loan Maturity/ARD November 2029 Amortization COLLATERAL SUMMARY Interest Only DBRS Morningstar Property Type Industrial Year Built/Renovated 2001-2016 DBRS Morningstar Issuance DSCR City, State Various Physical Occupancy 100.0% 5.05x SF 8,209,036 Physical Occupancy Date July 2019 DBRS Morningstar Issuance LTV 39.2% This loan is secured by the borrower’s fee-simple interest in the Industrial Logistics DBRS Morningstar Properties Trust (ILPT) Industrial Portfolio, a 11-property portfolio that spans more than Balloon LTV 8.2 million sf of warehouse and distribution space in Indiana, Ohio, Virginia, Missouri, 39.2% Iowa, Maryland, Kentucky, and Pennsylvania. Whole-loan proceeds of $350.0 million DBRS Morningstar Property Type recapitalized $346.5 million to the sponsor and covered $3.5 million of closing costs Industrial associated with the transaction. The portfolio was previously unencumbered. The DBRS Morningstar whole-loan amount includes $214.4 million in A-note proceeds and a $135.6 million Property Quality B-note. Of the $214.4 million A-note, a $25.1 million pari passu piece will be securitized Average in this transaction and the remaining $189.3 million have previously been securitized. Debt Stack ($ Millions) The 10-year loan is full-term IO and represents a LTV of 39.2% based on the portfolio’s Trust Balance September 2019 appraised value of $547.0 million. DBRS Morningstar considers the $25.1 credit quality associated with the senior A-note in this transition to be AA (low) (sf ). Pari Passu $189.3 B-Note $135.6 Mezz $0.0 Total Debt $350.0 Loan Purpose Recapitalization Equity Contribution/ (Distribution) ($ Millions) ($341.3)
December 2019 90 Presale Report | BANK 2019-BNK24
ILPT INDUSTRIAL PORTFOLIO – VARIOUS
PORTFOLIO SUMMARY
% of Cut-Off Year Built/ Cut-Off Date Date Loan Property City, State SF Renovated Loan Amount Amount Occupancy Largest Tenant
1800 Union Airpark Boulevard Union, OH 1,791,246 2014 $60,466,179 17.28% 100.0% Procter & Gamble
4237-4255 Anson Boulevard Whitestown, IN 1,036,573 2006/2011 $46,709,324 13.35% 100.0% Amazon.com, Inc.
5000 Commerce Way Petersburg, VA 1,016,065 2012 $44,597,806 12.74% 100.0% Amazon.com, Inc.
5148 North Hanley Road St. Louis, MO 430,986 2015 $39,478,976 11.28% 100.0% SKF USA
945 Monument Drive Lebanon, IN 962,500 2014/2015 $32,760,512 9.36% 100.0% Subaru of America Distribution
2801 Airwest Boulevard Plainfield, IN 804,586 2001/2006 $27,513,711 7.86% 100.0% Whirlpool Corporation
20 Logistics Boulevard Walton, KY 603,586 2006 $26,297,989 7.51% 100.0% Cummins, Inc.
5500 SE Delaware Ave Ankeny, IA 644,104 2012/2019 $20,795,247 5.94% 100.0% The Toro Company
2150 Stanley Road Plainfield, IN 493,500 2007 $19,323,583 5.52% 100.0% Siemens Corporation
16101 Queens Court Upper Marlboro, MD 220,800 2016 $18,875,686 5.39% 100.0% La-Z-Boy Incorporated
5 Logistics Drive Carlisle, PA 205,090 2016 $13,180,987 3.77% 100.0% Transamerica Auto Parts
Total/Wtd. Avg. Various 8,209,036 Various $350,000,000 100.00% 100.0% Various
The portfolio is located across eight states and nine different markets and includes almost all single-tenant warehouse properties. The portfolio is 100.0% leased by 12 tenants with a combined WA remaining lease term of 7.5 years. The portfolio consists of nine warehouse and e-commerce distribution facilities, one partially refrigerated warehouse/distribution facility (Siemens Medical Solutions USA Inc. (Siemens)) and one research and development/assembly facility (SKF USA Inc.). The largest tenant in the portfolio is Amazon.com, Inc. (Amazon), which fully leases two buildings with a total area of approximately 2.05 million sf (25.0% of NRA).
December 2019 91 Presale Report | BANK 2019-BNK24
ILPT INDUSTRIAL PORTFOLIO – VARIOUS
TENANT SUMMARY
% of Total % of Total DBRS Morningstar DBRS Morningstar Lease Investment Tenant SF NRA Base Rent PSF Base Rent Expiry Grade? (Y/N)
Amazon.com, Inc. 2,052,638 25.0% $4.94 26.3% 9/2027 Y
Procter & Gamble 1,791,246 21.8% $5.05 23.4% 10/2024 Y
Subaru of America Distribution 962,500 11.7% $3.60 9.0% 5/2024 N
Whirlpool Corporation 804,586 9.8% $3.12 6.5% 1/2024 Y
Cummins, Inc. 603,586 7.4% $4.89 7.6% 10/2021 Y
The Toro Company 644,104 7.8% $2.59 4.3% 10/2034 Y
SKF USA 430,986 5.3% $8.02 9.0% 4/2039 Y
Siemens Corporation 320,070 3.9% $4.75 3.9% 9/2028 Y
La-Z-Boy Incorporated 220,800 2.7% $7.93 4.5% 1/2031 N
Transamerica Auto Parts ("TAP") 205,090 2.5% $6.21 3.3% 3/2025 N
Subtotal/Wtd. Avg. 8,035,606 97.9% $4.70 98.0% Various Various
Other Tenants 173,430 2.1% $4.55 2.0% Various Various
Total/Wtd. Avg. 8,209,036 100.0% $4.70 100.0% Various Various
SPONSORSHIP The sponsor for this transaction is ILPT, a real estate investment trust (REIT) specializing in owning and leasing industrial and logistics properties. As of June 2019, ILPT owned 298 properties (42.4 million sf ) which have a WA occupancy of 99.3%. The properties are leased to 265 unique tenants. ILPT is publicly traded and is included in the Russell 2000 Index. RMR Group LLC (RMR) manages the ILPT REIT. RMR is an alternative asset manager that primarily provides management services for publicly traded REITs. As of December 2018, RMR had approximately $29.7 billion in assets under management.
DBRS MORNINGSTAR ANALYSIS SITE INSPECTION SUMMARY DBRS Morningstar inspected five of the 11 properties in the portfolio, representing 53.4% of the total loan amount. The tours included properties in Ohio and Indiana. Based on the site inspections and management meetings held between November 5, 2019, and November 13, 2019, DBRS Morningstar found the portfolio’s property quality to be Average.
December 2019 92 Presale Report | BANK 2019-BNK24
ILPT INDUSTRIAL PORTFOLIO – VARIOUS
The properties are well located in industrial parks along major thoroughfares in tertiary and suburban markets. The portfolio’s average year of construction is 2011 with construction dates ranging from 2001 to 2016. DBRS Morningstar found all inspected properties to be in average condition with limited or no deferred maintenance at the time of inspection. DBRS Morningstar toured the following three portfolio properties, representing a combined 22.7% of the loan amount.
945 MONUMENT DRIVE – LEBANON, IN DBRS Morningstar toured the interior and exterior of the property on November 13, 2019, at 10:30 a.m. Based on the site inspection, DBRS Morningstar found the property quality to be Average.
The property is in a suburban location, approximately 26 miles northwest of Indianapolis near the intersection of I-65, Hwy. 52 and Hwy. 32. The property’s central location on major interstates is conducive to serving the larger Chicago, Columbus, St. Louis, Cincinnati, and Louisville metro areas. The property is located off exit 138 from I-65, east of interstate from the existing industrial park. The surrounding area is largely rural with plenty of available developable land. At the time of inspection, developers were just beginning to clear lots for future use.
The property is a rectangular, reinforced-concrete tilt-up warehouse/distribution facility. The main entrance has two driveways off Indianapolis Avenue with ample parking for employees on surface lots. The building is configured for cross- dock operation of inbound and outbound truck shipments. Access to the property is regulated and requires prior approval. The main reception area is at the southeast corner, and includes a small cubicle cluster, a few boardrooms, and a break room. The remainder of the building is used for distribution and was busy during DBRS Morningstar’s tour. The property serves as a regional distribution center for Subaru of America, Inc. (Subaru) and supports its only U.S. auto assembly plant located 35 miles northwest of the subject. The building was constructed in 2014 as one contiguous building totaling 962,500 sf (the fourth largest in the portfolio) with 34 ft. clear heights. Overall, the building was in good condition and appeared to be well maintained with no signs of deferred maintenance.
2801 AIRWEST BOULEVARD – PLAINFIELD, IN DBRS Morningstar toured the interior and exterior of the property on November 13, 2019, at 12:45 p.m. Based on the site inspection, DBRS Morningstar found the property quality to be Average.
The property is in a suburban location approximately 15 miles southwest of Indianapolis and less than five miles southwest of the Indianapolis International Airport. The property is in a well-established industrial park and was built in 2001 with 32 ft. to 36 ft. interior clear heights throughout the 804,586 sf structure. The area is largely industrial with plenty of available developable land. At the time of inspection, developers were just beginning to clear lots for future use.
The property is a rectangular, reinforced-concrete tilt-up warehouse/distribution facility. The property is accessible from Airwest Boulevard, Whitaker Road, and Reeves Road and offers ample parking for employees on surface lots. The building is configured for cross-dock operation of inbound and outbound truck shipments. Access to the property is regulated and requires prior approval. The subject serves as The Whirlpool Corporation’s primary distribution center for replacement parts and houses approximately $10.0 million worth of its sorting and conveyor systems. At the time of DBRS Morningstar’s tour, the warehouse was busy with heavy forklift traffic. Overall, the building was in good condition and appeared to be well maintained with no signs of deferred maintenance.
2150 STANLEY ROAD – PLAINFIELD, IN DBRS Morningstar toured the interior and exterior of the property on November 13, 2019, at 1:30 p.m. Based on the site inspection, DBRS Morningstar found the property quality to be Average.
The property is well located off Hwy. 267, which is a local northeast/southwest arterial roadway that links directly to I-70. The I-70 allows the property to connect with several additional arterial roadways, including I-465 and Hwy. 40. The
December 2019 93 Presale Report | BANK 2019-BNK24
ILPT INDUSTRIAL PORTFOLIO – VARIOUS
property is in a well-established industrial park, down the road from the 2801 Airwest Boulevard property. Despite its location in a mature business park, there is still plenty of available developable land nearby. At the time of inspection, developers had cleared lots and were beginning to build structures. The subject is a two-tenant, 493,500 sf, cross-dock warehouse facility and was built in 2007.
Siemens and MD Logistics, Inc. occupy the property with approximately 65.0% and 35.0% of the building’s, respectively. Siemens’ space includes 110,000 sf of freezer/cooler space and 25,000 sf of office space. In addition, the property serves as Siemens’ only North America distribution center and, given the importance of continued operation, the tenant has installed two emergency generators. Overall, the building was in good condition and appeared to be well maintained with no signs of deferred maintenance.
DBRS MORNINGSTAR NCF SUMMARY NCF ANALYSIS
DBRS Morningstar 2016 2017 2018 2019 Issuer NCF NCF NCF Variance
GPR $20,675,282 $33,305,985 $35,013,280 $39,240,073 $40,504,267 $42,270,088 4.4%
Recoveries $4,184,720 $6,235,383 $6,901,354 $7,400,766 $7,400,766 $9,532,064 28.8%
Other Income $162,138 $322,484 $322,484 $331,034 $331,034 $331,034 0.0%
Vacancy $0 $0 $0 $0 -$1,012,607 -$2,235,093 120.7%
EGI $20,837,420 $33,628,469 $42,237,118 $39,571,107 $39,822,695 $40,366,029 1.4%
Expenses $4,518,161 $6,368,613 $6,445,614 $8,366,322 $7,985,779 $10,285,550 28.8%
NOI $16,319,258 $27,259,856 $28,890,150 $31,204,785 $31,836,916 $30,080,479 -5.5%
Capex $584,669 $509,338 $0 $817,917 $656,723 $1,231,355 87.5%
TI/LC $0 $0 $0 $0 $2,038,736 $1,908,761 -6.4%
NCF $15,734,589 $26,750,518 $28,890,150 $30,386,868 $29,141,457 $26,940,362 -7.6%
The DBRS Morningstar NCF is based on the DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS Morningstar NCF was $26,940,362, representing a -7.6% variance from the Issuer’s NCF of $29,141,457. The primary drivers of the variance are vacancy, replacement reserves, and rent steps. DBRS Morningstar applied a blended vacancy of 5.3% compared with the Issuer’s vacancy rate of 2.5%. DBRS Morningstar derived the blended vacancy rate of 5.3% from the average submarket vacancies for each respective property and lower vacancy rates for LTCT qualifying tenants. Additionally, DBRS Morningstar concluded $0.15 psf for replacement reserves. Finally, DBRS Morningstar accepted rent steps through November 2020 and gave straight-line rent credit only to LTCTs.
DBRS MORNINGSTAR VIEWPOINT All 11 properties are generally within proximity to regional arterial road systems that enhance connectivity throughout their respective locations. The portfolio’s geographical distribution across nine different markets provides moderate market diversity to the transaction, but the single-tenant distribution exposure could mitigate this benefit. The collateral also benefits from the sponsor’s and property management’s national scale and their respective relationships. No properties have release provisions. The portfolio’s tenancy is relatively concentrated with three properties accounting for more than 58.5% of total NRA, all of which are 100.0% occupied by three single tenants.
However, the overall portfolio tenancy is generally well dispersed across multiple industries and most tenants are investment grade rated. DBRS Morningstar considers two tenants (SKF USA Inc. and The Toro Company), representing 15.8% of the
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ILPT INDUSTRIAL PORTFOLIO – VARIOUS
total DBRS Morningstar base rent, to be LTCTs as their leases extend at least three years beyond the loan term. However, other investment-grade tenants, including Amazon, the Procter & Gamble Company and Subaru fail to qualify for LTCT treatment because their leases expire prior to loan maturity. Amazon’s lease expires two years before the scheduled loan maturity date and poses a potential refinance risk for the transaction, although Amazon maintains four five-year lease renewal options that are exercisable immediately following lease expiration.
DOWNSIDE RISKS –– The 10-year loan is full-term IO and returned approximately $346.5 million of equity to the borrower at closing.
STABILIZING FACTORS –– As of loan closing, the borrower maintained an implied $197.0 million of equity in the transaction. Additionally, the loan has moderately low leverage with a relatively low issuance A-note LTV of 39.2% and whole-loan LTV of 64.0% based on the subject’s September 2019 appraised value of $547.0 million.
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Transaction Structural Features
Credit Risk Retention: The risk-retention interest (RR Interest) represents the eligible vertical interest to meet the risk- retention requirements of Section 15G of the Securities Exchange Act of 1934. Bank of America, N.A. (rated AA (low) with a Stable trend by DBRS Morningstar) is acting as the retaining sponsor under the credit risk-retention rules. Bank of America, N.A. will be permitted to offset the amount of its required risk retention by the portions of the RR Interest acquired by each of Wells Fargo Bank, N.A. (rated AA with a Stable trend by DBRS Morningstar) and Morgan Stanley Bank, N.A. (rated A (high) with a Stable trend by DBRS Morningstar) as originators of one or more of the securitized assets.
Operating Advisor: This transaction has an operating advisor that will have consultation rights with the special servicer on major decisions during the period when a control termination event has occurred and is continuing (see definitions below in the Directing Certificateholder/Controlling Class Rights section). In addition, the operating advisor will be required to review certain operational activities related to specially serviced loans in general and on a platform-level basis. Furthermore, during these periods, the operating advisor will be required to complete an annual report assessing the special servicer’s performance. The report is to be delivered to the rating agencies, the trustee, and the certificate administrator, which will be required to make the report available through its website. After the occurrence and continuance of a consultation termination event (see definitions below in the Directing Certificateholder/Controlling Class Rights section), if the operating advisor determines that the special servicer is not performing its duties as required under the pooling and servicing agreement (PSA) or is otherwise not acting in accordance with the servicing standard, the operating advisor may recommend the replacement of the special servicer. The operating advisor is entitled to an upfront fee of $5,000 on the closing date. The operating advisor is entitled to a fee of 0.00098% per annum (p.a.) with respect to each mortgage loan and any successor REO loan. The operating advisor is also entitled to a $10,000 fee with respect to each major decision on which it is required to consult, but it is payable only to the extent that it is paid by the related borrower. Other expenses incurred by the operating advisor will be payable from funds on deposit in the collection account out of amounts otherwise available to make distributions on the certificates.
Appraisal Reduction/Realized Loss: Any interest that is not advanced on as part of the appraisal-reduction mechanism will not be recovered as part of the loan waterfall upon realization of the collateral. Interest not advanced on because of an appraisal reduction will likely have permanent interest impairment if the net proceeds of the loan in question do not exceed the outstanding principal (plus fees) at the time of liquidation. The special servicer shall attempt to obtain the appraisal to be used for appraisal-reduction purposes within 60 days of an appraisal-reduction event. The time frame for an appraisal to be used for appraisal-reduction purposes is no fewer than 12 months.
Pari Passu Loan Combinations: The 1412 Broadway whole loan will be serviced pursuant to the PSA for this transaction. The 55 Hudson Yards whole loan, the Jackson Park whole loan, the Parklawn Building whole loan, the Park Tower at Transbay whole loan, the Giant Anchored Portfolio whole loan, and the ILPT Industrial Portfolio whole loan combinations will be serviced according to the PSAs for the Hudson Yards 2019-55HY, JAX 2019-LIC, MSC 2019-L3, Bank 2019-BNK21, CGCMT 2019-C7, and MSC 2019-L3 transactions, respectively.
Directing Certificateholder/Controlling Class Rights: The transaction’s most subordinate bonds are controlled by the most subordinate bondholders. The controlling class certificateholder (or its representative) will be the controlling class certificateholder selected by more than a specified percentage of the controlling class certificateholders (by certificate balance, as certified by the certificate registrar from time to time as provided for in the PSA). The controlling class is the most subordinate of the Class F, G and H certificates (the Control Eligible Certificates) then outstanding, which has a principal amount (net of appraisal-reduction amounts) that is at least 25.0% of the initial certificate amount of such class. For as long as at least one of the Control Eligible Certificates has a principal amount (net of appraisal-reduction amounts) that is at least 25.0% of the initial certificate amount of the respective certificates, the directing holder may terminate the special servicer without cause. A control termination event exists when the Class F certificates have an aggregate principal
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balance of less than 25.0% of the initial certificate balance (net of appraisal-reduction amounts) provided that, during such time as the Class H certificates would be the controlling class, the holders of such certificates will have the right to irrevocably waive their right to appoint a directing certificateholder or to exercise any of the rights of the controlling class certificateholder. A successor controlling class certificateholder may choose to reinstate such rights. A consultation termination event will occur at such time as none of the Class H, G, or F certificates have a certificate balance at least equal to 25.0% of the initial certificate balance (without regard to appraisal reductions). Prior to a consultation termination event, but after a control termination event, the special servicer cannot be replaced, except for cause, and is subject to a vote by all bondholders.
Excluded Loan: If the special servicer becomes a borrower party with respect to any mortgage loan, it will be required to resign. The directing certificateholder (prior to the occurrence and continuance of a control termination event) will be entitled to appoint a special servicer that is not a borrower party with respect to such loan; however, if the controlling class representative or any majority controlling class certificateholder is a borrower party of such loan, the largest controlling class certificateholder (by certificate balance) that is not a borrower party will be entitled to appoint the special servicer for such loan. This mechanism is in place to mitigate conflicts of interest that can arise between the special servicer and/or controlling class representative in their respective roles within the trust and their roles as borrower parties.
Special-Servicing Fees: The liquidation fee is equal to 1.0% of the net liquidation proceeds. The workout fee is 1.0% of all payments of P&I received on each corrected loan so long as it remains a corrected loan. Both fees are subject to a minimum fee of $25,000. The special-servicer fee is equal to the greater of 0.25% or the p.a. rate that would result in a special-servicing fee of (1) $3,500 or (2) for any mortgage loan, with respect to which the risk-retention consultation party is entitled to consult with the special servicer, for as long as the related mortgage loan is a specially serviced loan during the occurrence and continuance of a consultation termination event ($5,000 in each case) for the related month.
Disclosable Special-Servicing Fees: Each collection period, the special servicer is required to provide the certificate administrator with an itemized report of all disclosable special-servicing fees. These fees are defined as any compensation or remuneration (including, but not limited to, commissions, brokerage fees, rebates, and any fee-sharing arrangement) received or retained by the special servicer or any of its affiliates that is paid in connection with the disposition or workout of the trust mortgage loan (or REO property, in the event of default and foreclosure on the subject property).
Rating Agency Confirmations (RACs): This transaction contemplates waivers of RACs. It is DBRS Morningstar’s intent to waive loan-level RACs, yet to receive notice upon their occurrence. DBRS Morningstar will review relevant loan-level changes as part of its surveillance. DBRS Morningstar will not waive RACs that affect any party involved in the operational risk of the transaction (i.e., replacement of special servicer, master servicer, etc.).
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Methodologies
The following are the methodologies DBRS Morningstar applied to assign ratings to this transaction. These methodologies can be found on www.dbrs.com under the heading Methodologies & Criteria. Alternatively, please contact [email protected] or contact the primary analysts whose information is listed in this report. • North American CMBS Multi-borrower Rating Methodology • DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria • Rating North American CMBS Interest-Only Certificates • North American CMBS Surveillance Methodology
Operational Risk Reviews DBRS Morningstar reviews loan originators, servicers and operating advisors apart from transaction analytics and determines whether they are acceptable parties.
Surveillance
DBRS Morningstar will perform surveillance subject to North American CMBS Surveillance Methodology.
Notes: All figures are in U.S. dollars unless otherwise noted.
This report is based on information as of December 5, 2019. Subsequent information may result in material changes to the rating assigned herein and/or the contents of this report.
The DBRS group of companies consists of DBRS, Inc. (Delaware, U.S.)(NRSRO, DRO affiliate); DBRS Limited (Ontario, Canada)(DRO, NRSRO affiliate); DBRS Ratings GmbH (Frankfurt, Germany)(CRA, NRSRO affiliate, DRO affiliate); and DBRS Ratings Limited (England and Wales)(CRA, NRSRO affiliate, DRO affiliate). Morningstar Credit Ratings, LLC is a separately registered NRSRO and NRSRO affiliate of DBRS, Inc.
For more information on regulatory registrations, recognitions and approvals of DBRS group of companies and Morningstar Credit Ratings, LLC, please see: http://www.dbrs.com/ research/highlights.pdf.
The DBRS group and Morningstar Credit Ratings, LLC are wholly-owned subsidiaries of Morningstar, Inc.
© 2019 Morningstar. All rights reserved. The information upon which DBRS ratings and other types of credit opinions and reports are based is obtained by DBRS from sources DBRS believes to be reliable. DBRS does not audit the information it receives in connection with the analytical process, and it does not and cannot independently verify that information in every instance. The extent of any factual investigation or independent verification depends on facts and circumstances. DBRS ratings, other types of credit opinions, reports and any other information provided by DBRS are provided “as is” and without representation or warranty of any kind. DBRS hereby disclaims any representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability, fitness for any particular purpose or non-infringement of any of such information. In no event shall DBRS or its directors, officers, employees, independent contractors, agents and representatives (collectively, DBRS Representatives) be liable (1) for any inaccuracy, delay, loss of data, interruption in service, error or omission or for any damages resulting therefrom, or (2) for any direct, indirect, incidental, special, compensatory or consequential damages arising from any use of ratings and rating reports or arising from any error (negligent or otherwise) or other circumstance or contingency within or outside the control of DBRS or any DBRS Representative, in connection with or related to obtaining, collecting, compiling, analyzing, interpreting, communicating, publishing or delivering any such information. No DBRS entity is an investment advisor. DBRS does not provide investment, financial or other advice. Ratings, other types of credit opinions, other analysis and research issued or published by DBRS are, and must be construed solely as, statements of opinion and not statements of fact as to credit worthiness, investment, financial or other advice or recommendations to purchase, sell or hold any securities. A report with respect to a DBRS rating or other credit opinion is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. DBRS may receive compensation for its ratings and other credit opinions from, among others, issuers, insurers, guarantors and/or underwriters of debt securities. DBRS is not responsible for the content or operation of third party websites accessed through hypertext or other computer links and DBRS shall have no liability to any person or entity for the use of such third party websites. This publication may not be reproduced, retransmitted or distributed in any form without the prior written consent of DBRS. ALL DBRS RATINGS AND OTHER TYPES OF CREDIT OPINIONS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AT http://www.dbrs.com/about/disclaimer. ADDITIONAL INFORMATION REGARDING DBRS RATINGS AND OTHER TYPES OF CREDIT OPINIONS, INCLUDING DEFINITIONS, POLICIES AND METHODOLOGIES, ARE AVAILABLE ON http://www.dbrs.com.
December 2019 98 Glossary
ADR average daily rate IO interest only P&I principal and interest ARA appraisal-reduction amount LC leasing commission POD probability of default ASER appraisal subordinate entitlement reduction LGD loss severity given default PIP property improvement plan BOV broker’s opinion of value LOC letter of credit PILOT property in lieu of taxes CAM common area maintenance LOI letter of intent PSA pooling and servicing agreement capex capital expenditures LS Hotel limited-service hotel psf per square foot CBD central business district LTC loan-to-cost R&M repairs and maintenance CBRE CB Richard Ellis LTCT long-term credit tenant REIT real estate investment trust CMBS commercial mortgage-backed securities LTV loan-to-value REO real estate owned CoStar CoStar Group, Inc. MHC manufactured housing community RevPAR revenue per available room CREFC CRE Finance Council MTM month to month sf square foot/square feet DPO discounted payoff MSA metropolitan statistical area STR Smith Travel Research DSCR debt service coverage ratio n.a. not available SPE special-purpose entity EGI effective gross income n/a not applicable TI tenant improvement EOD event of default NCF net cash flow TIC tenants in common F&B food & beverage NNN triple net T-12 trailing 12 months FF&E furniture, fixtures and equipment NOI net operating income UW underwriting FS Hotel full-service hotel NRA net rentable area WA weighted average G&A general and administrative NRI net rental income WAC weighted-average coupon GLA gross leasable area NR – PIF not rated – paid in full x times GPR gross potential rent OSAR operating statement analysis report YE year end HVAC heating, ventilation and air conditioning PCR property condition report YTD year to date
Definitions
Capital Expenditure (Capex) NNN (Triple Net) Costs incurred in the improvement of a property that will have a life of more than A lease that requires the tenant to pay operating expenses such as property taxes, one year. insurance and maintenance, in addition to the rent.
DBRS Morningstar Refi DSCR Net Operating Income (NOI) A measure that divides the DBRS Morningstar stabilized NCF by the product of the The revenues earned by a property’s ongoing operations less the expenses loan’s maturity balance and a stressed refinance debt constant. associated with such operations but before mortgage payments, tenant improvements, replacement reserves and leasing commissions. DBRS Morningstar Term DSCR A measure that divides the DBRS Morningstar stabilized NCF by the actual debt Net Rentable Area (NRA) service payment 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 Debt Service Coverage Ratio (DSCR) common corridors and restrooms. 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 Revenue Per Available Room (RevPAR) service payments. 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 Effective Gross Income (EGI) in the off-season, when demand is low even if rates are also low, and how well it fills Rental revenue minus vacancies plus miscellaneous income. the rooms and maximizes the rate in the high season, when there is high demand for hotel rooms. Issuer UW Issuer underwritten from Annex A or servicer reports. Tenant Improvements (TIs) The expense to physically improve the property or space, such as new Loan-to-Value (LTV) improvements or remodelling, paid by the borrower. 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 Weighted Average (WA) collateral, generally from origination. Calculation is weighted by the size of each mortgage in the pool.
Net Cash Flow (NCF) Weighted-Average Coupon (WAC) The revenues earned by a property’s ongoing operations less the expenses The average coupon or interest payment on a set of mortgages, weighted by the associated with such operations and the capital costs of tenant improvements, leasing size of each mortgage in the pool. commissions and capital expenditures (or reserves). Moreover, NCF is net operating income less tenant improvements, leasing commissions and capital expenditures.