Kroll Bond Rating Agency Assigns Preliminary Ratings to BXP Trust 2017-GM

NEW YORK--()--Kroll Bond Rating Agency (KBRA) is pleased to announce the assignment of preliminary ratings to seven classes of BXP Trust 2017-GM, a CMBS single asset, single borrower (SASB) securitization.

The collateral for the transaction is a $1.35 billion portion of a $2.30 billion non-recourse, first lien mortgage loan. The trust portion of the whole loan is represented by four pari passu A notes ($520.0 million) and four subordinate B notes ($830.0 million). The fixed-rate loan requires interest-only payments and has a 10-year term. The whole loan is secured by the borrower’s fee simple interest in a 50-story office/retail building located at 767 Fifth Avenue, at the southeast corner of Central Park in New York City’s borough of Manhattan, which is commonly known as the GM Building.

As of June 2017, the GM Building was 95.0% leased. The five largest tenants by leased square footage are Weil, Gotshal & Manges; Aramis; Perella Weinberg; Apple; and BAMCO. Apple is currently expanding and redeveloping its iconic ‘Cube’ flagship store on the building’s plaza, which is anticipated to be completed by 2019. Several tenants have signed lease renewals that commence between 2017 and 2024, and Under Armour will constructed its flagship store known as the ‘Under Armour Brand House’ at the building in 2019 and is expected to be open for business by early 2020.

Boston Properties (NYSE:BXP), the sponsor for the subject loan, is a publicly traded real estate investment trust (REIT) that has a portfolio of 43.7 million sf located across five metro areas: New York, Boston, Washington DC, San Francisco, and Los Angeles. BXP has guaranteed all free and gap rent periods, landlord work, and TI/LC costs associated with the renewal and expansion activity at the property through 2024. In conjunction with its analysis of the subject transaction, KBRA performed a credit estimate for Boston Properties, and the results of the analysis indicated that the REIT had credit characteristics consistent with an entity with a high investment grade rating.

KBRA’s analysis of the transaction included a detailed evaluation of the property’s cash flow using our CMBS Property Evaluation Methodology and the application of our CMBS Single Borrower and Large Loan Rating Methodology. The results of our analysis yielded a KBRA net cash flow (KNCF) of $191.9 million. To value the property, we applied a capitalization rate of 6.50% to arrive at a KBRA value of $2.95 billion and a KBRA Loan to Value (KLTV) of 77.9%. In our analysis of the transaction, we also reviewed and considered third party engineering, environmental, and appraisal reports; the results of our site inspection of the property; and legal documentation review.

For further details on KBRA’s analysis, please see our Pre-Sale Report, entitled BXP Trust 2017-GM, which was published today at www.kbra.com.

The preliminary ratings are based on information known to KBRA at the time of this publication. Information received subsequent to this release could result in the assignment of final ratings that differ from the preliminary ratings.

Preliminary Ratings Assigned: BXP Trust 2017-GM

         
Class   Expected KBRA Rating   Balance (US$)
A   AAA (sf)   $494,000,000
X-A   AAA (sf)   $494,000,000*
B   AA (sf)   $273,790,000
X-B   AAA (sf)   $273,790,000*
C   A (sf)   $207,290,000
D   BBB (sf)   $245,670,000
E   BBB (sf)   $61,750,000
RR Interest**   NR   $67,500,000
   

*Notional balance
** To satisfy the US risk retention rules, the RR Interest will constitute an “eligible vertical interest” representing 5.0% of all of the certificates (excluding residual classes) issued by the trust. Each of the originators are expected to retain a portion of the RR Interest.

Representations & Warranties Disclosure

All Nationally Recognized Statistical Rating Organizations are required, pursuant to SEC Rule 17g-7, to provide a description of a transaction’s representations, warranties and enforcement mechanisms that are available to investors when issuing credit ratings. KBRA’s disclosure for this transaction can be found in the report entitled BXP Trust 2017-GM Representations & Warranties Disclosure.

Related Publications: (available at www.kbra.com)

BXP Trust 2017-GM Pre-Sale Report
CMBS Property Evaluation Methodology
CMBS Single Borrower and Large Loan Rating Methodology
Methodology for Rating Interest-Only Certificates in CMBS Transactions

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About Kroll Bond Rating Agency

KBRA is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (NRSRO). In addition, KBRA is recognized by the National Association of Insurance Commissioners (NAIC) as a Credit Rating Provider (CRP).

Contacts

Analytical:
KBRA
Patrick McQuinn, 646-731-2445
Associate Director
pmcquinn@kbra.com
or
Robin Regan, 646-731-2358
Managing Director
rregan@kbra.com
or
Michael Brown, 646-731-2307
Senior Director
mbbrown@kbra.com
or
Griffin Flagg, 646-731-2433
Analyst
gflagg@kbra.com

Contacts

Analytical:
KBRA
Patrick McQuinn, 646-731-2445
Associate Director
pmcquinn@kbra.com
or
Robin Regan, 646-731-2358
Managing Director
rregan@kbra.com
or
Michael Brown, 646-731-2307
Senior Director
mbbrown@kbra.com
or
Griffin Flagg, 646-731-2433
Analyst
gflagg@kbra.com