Fitch Affirms GRACE 2014-GRCE
KEY RATING DRIVERS
The affirmations reflect the overall stable property performance since issuance. Based on Fitch's surveillance analysis, which uses the same framework that was set out at issuance, the debt service coverage ratio (DSCR) and other performance metrics have remained relatively unchanged.
The servicer-reported 2015 net cash flow (NCF) increased 19.8% from 2014. The servicer-reported year-end (YE) 2015 DSCR, on a NCF basis, was 2.03x, up from 1.69x in 2014.
As of the March 2016 rent roll, the property was 86.9% occupied, compared to 93.1% at YE 2015, 90.6% at YE 2014, and 91.2% at issuance. The recent decline in occupancy was primarily due to The Interpublic Group, which occupied 6.3% of the net rentable area (NRA), vacating at their February 2016 lease expiration.
The property's largest tenants include Home Box Office (HBO; 22.5% of NRA; lease expires December 2018; lease guaranteed by Time Warner Inc., rated 'BBB+' by Fitch), Cooley LP (6.8%; April 2019), Bain & Company (6.1%; February 2030), Tahari ASL (3.9%; October 2023), and Heidrick & Strug (3.9%; January 2024). Nearly 50% of the NRA rolls during the seven-year loan term, according to the March 2016 rent roll. Fitch considers there is an increased probability that HBO will vacate their space at lease expiration in December 2018 based on the announcement that Time Warner intends to move to Hudson Yards. In the event HBO vacates at lease expiration and cash flow declines, the loan is structured with a hard lockbox and a cash flow sweep upon the DSCR falling below 1.30x. Fitch will continue to monitor the tenancy and leasing at the property.
The transaction's certificates represent the beneficial ownership in the mortgage loan securing the fee interest in the Grace Building, a 1.5 million square foot, class A office building with an iconic design located on Bryant Park in Manhattan. Proceeds of the loan were used to refinance existing debt, fund up-front reserves, pay closing costs, and return equity to the sponsor. The certificates follow a sequential-pay structure. The interest-only, fixed-rate loan has a seven-year term with a maturity of June 2021 and a 3.61% rate. The loan is sponsored by an affiliate of Trizec Properties, Inc. (controlled by a partnership of Brookfield Office Properties Inc.) and an affiliate of The Swig Company, LLC, who originally developed the property in 1971.
The Rating Outlook for all classes remains Stable. Property performance remains consistent with expectations at issuance. No rating actions are expected unless there are material changes in property occupancy or cash flow. This transaction is secured by a single asset and is more susceptible to single event risk related to the market, sponsor, or the largest tenants occupying the property.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
Fitch has affirmed the following ratings:
--\\$520,598,000 class A at 'AAAsf'; Outlook Stable;
--\\$74,078,000 class B at 'AA-sf'; Outlook Stable;
--\\$594,676,000* class X-A at 'AA-sf'; Outlook Stable;
--\\$51,324,000 class C at 'A-sf'; Outlook Stable;
--\\$18,000,000 class D at 'A-sf'; Outlook Stable;
--\\$96,000,000 class E at 'BBB-sf'; Outlook Stable;
--\\$115,000,000 class F at 'BB-sf'; Outlook Stable;
--\\$25,000,000 class G at 'Bsf'; Outlook Stable.
*Interest-only class X-A is equal to the notional balance of class A and class B.