CHICAGO--(BUSINESS WIRE)--Fitch Ratings has issued a presale report on 1211 Avenue of the Americas 2015-1211 commercial mortgage pass-through certificates, series 2015-1211.
Fitch expects to rate the transaction and assign Rating Outlooks as follows:
--$100,000,000a class A-1A1 'AAAsf'; Outlook Stable;
--$490,000,000a class A-1A2 'AAAsf'; Outlook Stable;
--$590,000,000b class X-A 'AAAsf'; Outlook Stable;
--$119,000,000b class X-B 'AA-sf'; Outlook Stable;
--$119,000,000a class B 'AA-sf'; Outlook Stable;
--$79,000,000a class C 'A-sf'; Outlook Stable;
--$110,800,000a class D 'BBB-sf'; Outlook Stable;
--$136,200,000a class E 'BBsf'; Outlook Stable.
a Privately placed pursuant to Rule 144A.
b Notional amount and interest only. Interest-only class X-A is equal to the notional balances of class A-1A1 and class A-1A2. Interest-only class X-B is equal to the notional balance of class B.
The expected ratings are based on information provided by the issuer as of July 20, 2015.
The certificates represent the beneficial ownership in the issuing entity, the primary asset of which is one loan having an aggregate principal balance of approximately $1.035 billion as of the cutoff date and secured by the fee simple interest in 1211 Avenue of the Americas, an approximately 2 million square foot (sf) office building located in the Midtown West submarket of Manhattan. The property is approximately 91.5% leased by 14 office and retail tenants, many of which are investment-grade rated. Major tenants include 21st Century Fox and News Corp. (as subtenant of Fox) (55.3% of net rentable area [NRA]; rated 'BBB+' by Fitch), Ropes & Gray (17.1% of NRA), Axis Reinsurance (6.1%; rated 'A+'), RBC (3.1%; rated 'AA') and Nordea (2.1%, rated 'AA-').
The largest tenant, 21st Century Fox, has a lease expiration in November 2020, with notice needed by November 2018. As reported by the sponsor, the tenant has signed a non-binding letter of intent (LOI) at 2 World Trade Center. The sponsor continues to negotiate with the tenant concerning renewal options, while holding the top three floors vacant since late 2012 to accommodate a possible lease renewal and expansion for 21st Century Fox.
The loan includes $20 million of upfront reserves to address landlord obligations for previously signed new, expansion and renewal leases to Ropes & Gray; Annaly Capital, Nordea, and RBC. The loan also includes springing reserves of up to $95.6 million beginning in November 2017 to address the potential 21st Century Fox rollover and a springing shortfall reserve of up to $36 million beginning in 2019 to address approximately 20 months of debt service and operating expenses following 21st Century Fox's potential lease expiration in November 2020.
The sponsors for the loan are Ivanhoe Cambridge Inc., Callahan Capital Properties LLC, and Beacon Capital Partners, which is controlled by BCSP IV U.S. Investments, L.P. The loan was originated by JPMorgan Chase Bank, National Association, Citigroup Global Markets Realty Corp., and Morgan Stanley Mortgage Capital Holdings LLC.
KEY RATING DRIVERS
Above-Average Property Quality in Strong Location: 1211 Avenue of the Americas consists of a 45-story, class A- office building located in Midtown Manhattan. The property is adjacent to Rockefeller Center and in close proximity to subway lines and major transportation hubs.
Strong Historical Occupancy and Diverse Tenant Base: The property was approximately 91.5% leased as of May 2015, and has maintained an average occupancy of 96.7% over the past 10 years, even as the sponsor has held the three top floors (127,673 sf) vacant since late 2012 for a potential major tenant lease renewal and expansion. The property is leased by 14 tenants, many of which are investment-grade-rated. The top five tenants account for approximately 83.8% of NRA and include 21st Century Fox and News Corp. (as subtenant; 55.3% of NRA;), Ropes & Gray (17.1% of NRA), Axis Reinsurance (6.1% of NRA), RBC (3.1% of NRA) and Nordea (2.1% of NRA).
Major Tenant Lease Expiration: The property faces the expiration of 54.0% of the NRA in 2020, which is leased to 21st Century Fox. The tenant has a renewal extension notification date in November 2018. However, according to the sponsor the tenant has signed a non-binding LOI at 2 World Trade Center. If the tenant does not renew, a springing excess cash flow sweep would fund up to $95.6 million ($90 psf) over a two-year period for future leasing costs. 21st Century Fox's base rent is $65.43 psf, below market rents for comparable office space and recent lease signings and renewals. Also, if there is an indication prior to the 2018 notice date that the tenant has signed a lease to move to another building, the sponsor could potentially lease the top three floors that have been held off the market to accommodate 21st Century's potential lease renewal and expansion.
Fitch found that the property could withstand a 71.2% decline in value and an approximate 44% decrease in the TTM April 2015 net cash flow prior to experiencing $1 of loss to any 'AAAsf' rated class.
Fitch performed several stress scenarios in which the Fitch NCF was stressed. Fitch determined that a 57.6% reduction in Fitch's net cash flow (NCF) would cause the notes to break even at a 1.0x debt service coverage ratio (DSCR), based on the actual debt service.
Fitch evaluated the sensitivity of the ratings for class A (rated 'AAAsf') and found that an 8% decline in Fitch NCF would result in a one-category downgrade, while a 36% decline would result in a downgrade to below investment grade.
The Rating Sensitivity section in the presale report includes a detailed explanation of additional stresses and sensitivities. Key Rating Drivers and Rating Sensitivities are further described in the accompanying presale report. The presale report is available to all investors on Fitch's web site 'www.fitchratings.com' or by clicking on the link.
DUE DILIGENCE USAGE
No third-party due diligence was provided to or reviewed by Fitch in relation to this rating action.
Additional information is available at www.fitchratings.com.
1211 Avenue of the Americas Trust 2015-1211 (US CMBS)
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)
Criteria for Analyzing Large Loans in U.S. Commercial Mortgage Transactions (pub. 20 Mar 2015)
Global Structured Finance Rating Criteria (pub. 06 Jul 2015)
Rating Criteria for U.S. Commercial Mortgage Servicers (pub. 14 Feb 2014)
Dodd-Frank Rating Information Disclosure Form