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Benchmark 2019-B12 Mortgage Trust

Filed: 15 Jul 19, 2:29pm

  FREE WRITING PROSPECTUS
  FILED PURSUANT TO RULE 433
  REGISTRATION FILE NO.: 333-228597-01
   

 

The information in this free writing prospectus is preliminary and may be supplemented or changed. These securities may not be sold nor may offers to buy be accepted prior to the time a final prospectus is delivered. This free writing prospectus is not an offering to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

  

THIS FREE WRITING PROSPECTUS, DATED JULY 11, 2019
MAY BE AMENDED OR SUPPLEMENTED PRIOR TO TIME OF SALE

 

BENCHMARK 2019-B12

  

 

 

The depositor has filed a registration statement (including a prospectus) with the SEC (SEC File No. 333-228597) for the offering to which this free writing prospectus relates. Before you invest, you should read the prospectus in the registration statement and other documents the depositor has filed with the SEC for more complete information about the depositor, the issuing entity and this offering. You may get these documents for free by visiting EDGAR on the SEC website at www.sec.gov. Alternatively, the depositor, Citigroup Global Markets Inc., Deutsche Bank Securities Inc., J.P. Morgan Securities LLC, Academy Securities, Inc., Drexel Hamilton, LLC, or any other underwriter or dealer participating in this offering will arrange to send you the prospectus if you request it by calling toll-free 1-800-831-9146.

 

The securities to which these collateral materials relate (“Materials”) will be described in greater detail in the prospectus expected to be dated in July 2019 (the “Preliminary Prospectus”) that will be included as part of our registration statement. The Preliminary Prospectus will contain material information that is not contained in these Materials (including, without limitation, a detailed discussion of risks associated with an investment in the offered securities under the heading“Risk Factors”).

 

These Materials are preliminary and subject to change. The information in these Materials supersedes all prior such information delivered to you and will be superseded by any subsequent information delivered prior to the time of sale.

 

Neither these materials nor anything contained in these materials shall form the basis for any contract or commitment whatsoever. These Materials are not to be construed as an offer to sell or the solicitation of any offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal.

 

The information contained in these Materials may not pertain to any securities that will actually be sold. The information contained in these Materials may be based on assumptions regarding market conditions and other matters as reflected in these Materials. We make no representations regarding the reasonableness of such assumptions or the likelihood that any of such assumptions will coincide with actual market conditions or events, and these Materials should not be relied upon for such purposes. We and our affiliates, officers, directors, partners and employees, including persons involved in the preparation or issuance of these Materials may, from time to time, have long or short positions in, and buy or sell, the securities mentioned in these Materials or derivatives thereof (including options). Information contained in these Materials is current as of the date appearing on these Materials only.

 

 

 

IMPORTANT NOTICE RELATING TO AUTOMATICALLY GENERATED EMAIL DISCLAIMERS

 

Any legends, disclaimers or other notices that may appear at the bottom of the email communication to which this free writing prospectus is attached relating to (1) these Materials not constituting an offer (or a solicitation of an offer), (2) no representation being made that these Materials are accurate or complete and that these Materials may not be updated or (3) these Materials possibly being confidential, are, in each case, not applicable to these Materials and should be disregarded. Such legends, disclaimers or other notices have been automatically generated as a result of these Materials having been sent via Bloomberg or another system.

 

 

 

LOAN #1: 30 HUDSON YARDS

  

Mortgaged Property Information Mortgage Loan Information
Number of Mortgaged Properties1 Loan Seller GACC
Location (City/State)New York, New York Cut-off Date Balance(2) $93,200,000
Property TypeOffice Cut-off Date Balance per SF(1) $765.43
Size (SF)1,463,234 Percentage of Initial Pool Balance 7.9%
Total Occupancy as of 8/6/2019100.0% Number of Related Mortgage Loans None
Owned Occupancy as of 8/6/2019100.0% Type of Security Fee Simple
Year Built / Latest Renovation2019 / NAP Mortgage Rate(3) 3.11000%
Appraised Value$2,200,000,000 Original Term to Maturity (Months) 120
Appraisal Date5/23/2019 Original Amortization Term (Months) NAP
Borrower Sponsor30 HY WM REIT Owner LP Original Interest Only Period (Months) 120
Property ManagementSelf-Managed First Payment Date 8/6/2019
   Maturity Date 7/6/2029
      
Underwritten Revenues$164,291,079    
Underwritten Expenses$42,267,893 Escrows(4)
Underwritten Net Operating Income (NOI)$122,023,186  UpfrontMonthly
Underwritten Net Cash Flow (NCF)$121,730,539 Taxes$0$0
Cut-off Date LTV Ratio(1)50.9% Insurance$0$0
Maturity Date LTV Ratio(1)50.9% Replacement Reserve(5)$0$0
DSCR Based on Underwritten NOI / NCF(1)3.46x / 3.45x TI/LC$0$0
Debt Yield Based on Underwritten NOI / NCF(1)10.9% / 10.9% Other$0$0

 

Sources and Uses
Sources$%Uses$%
Loan Combination Amount$1,430,000,00064.6%Purchase Price$2,155,000,00097.4%
Borrower Sponsor Equity781,978,27335.4   Closing Costs56,978,2732.6
Total Sources$2,211,978,273100.0%Total Uses$2,211,978,273100.0%

 

 

(1)Calculated based on the aggregate outstanding principal balance as of the Cut-off Date of the 30 Hudson Yards Senior Notes (as defined below) and excludes the 30 Hudson Yards Junior Notes (as defined below).

(2)The Cut-off Date Balance of $93,200,000 represents the non-controlling note A-1-C4, note A-1-C5 and note A-1-C10, and is part of the 30 Hudson Yards Loan Combination (as defined below), which is evidenced by 29pari passu senior notes and three junior notes, and has an aggregate outstanding principal balance as of the Cut-off Date of $1,430,000,000. See“—The Mortgage Loan” below.

(3)The Mortgage Rate of 3.11000% represents the mortgage rate of the 30 Hudson Yards Senior Notes.

(4)See “—Escrows” below.

(5)On each payment date from and after July 6, 2024, the borrower will be required to make monthly deposits into the capital expenditure reserve in an amount equal to 1/12th of $0.20 per rentable square foot.

 

The Mortgage Loan.The mortgage loan (the “30 Hudson Yards Loan”) is secured by a first mortgage encumbering the borrower’s fee simple interest in a Class A office condominium located in New York, New York (the “30 Hudson Yards Property” or the “Property”), and is part of a whole loan (the “30 Hudson Yards Loan Combination”) evidenced by 29pari passusenior notes with an aggregate initial principal balance of $1,120,000,000 (collectively the “30 Hudson Yards Senior Notes”) and three junior notes with an aggregate initial principal balance of $310,000,000 (collectively the “30 Hudson Yards Junior Notes”). A portion of the 30 Hudson Yards Senior Notes, with an aggregate balance of $698.0 million and the 30 Hudson Yards Junior Notes were contributed to the Hudson Yards 2019-30HY Trust. The 30 Hudson Yards Loan, which is evidenced by the non-controlling Note A-1-C4, Note A-1-C5 and Note A-1-C10, which have an aggregate outstanding principal balance as of the Cut-off Date of $93,200,000 and represents approximately 7.9% of the Initial Pool Balance. The remaining 30 Hudson Yards Senior Notes are currently held by Deutsche Bank AG, New York Branch (“DBNY”), Goldman Sachs Mortgage Company (“GSMC”) and Wells Fargo Bank, National Association (“WFB”), as presented in the chart below, and are expected to be contributed to one or more future commercial mortgage securitization transactions.

 

Loan Combination Summary
NoteOriginal BalanceCut-off Date Balance Note HolderControlling Piece
A-1-S1, A-1-S2, A-1-S3, A-2-S1, A-2-S2, A-2-S3, A-1-C1, A-1-C2, A-1-C9, A-2-C1, A-3-C1$698,000,000$698,000,000 Hudson Yards 2019-30HYYes
A-1-C4, A-1-C5, A-1-C10$93,200,000$93,200,000 Benchmark 2019-B12No
A-1-C6, A-1-C7,A-1-C8, A-1-C3$160,000,000$160,000,000 DBNY(1)No
A-2-C2, A-2-C3, A-2-C4, A-2-C5$84,400,000$84,400,000 GSMC(1)No
A-3-C2, A-3-C3, A-3-C4, A-3-C5$84,400,000$84,400,000 WFB(1)No
B-1, B-2, B3$310,000,000$310,000,000 Hudson Yards 2019-30HYYes
Total$1,430,000,000$1,430,000,000   

 

 

(1)Expected to be contributed to one or more future securitization transactions.

 

The 30 Hudson Yards Senior Notes have an interest rate of 3.11000%per annum and the 30 Hudson Yards Junior Notes have an interest rate of 4.21709677%per annum, resulting in a weighted average interest rate of 3.35000%per annum on the 30 Hudson Yards Loan Combination. The proceeds of the 30 Hudson Yards Loan Combination and a new cash contribution from the borrower sponsor were primarily used to fund the acquisition of the 30 Hudson Yards Property and pay origination costs.

 

3

 

 

LOAN #1: 30 HUDSON YARDS

 

The 30 Hudson Yards Loan Combination had an initial term of 120 months, has a remaining term of 119 months as of the Cut-off Date and requires monthly payments of interest only for the term of the 30 Hudson Yards Loan Combination. The scheduled maturity date of the 30 Hudson Yards Loan is July 6, 2029. Voluntary prepayment of the 30 Hudson Yards Loan Combination is permitted on or after March 6, 2029 without payment of any prepayment premium. Provided no event of default under the 30 Hudson Yards Loan Combination documents is continuing, defeasance of the 30 Hudson Yards Loan Combination with direct, non-callable obligations of the United States of America or other obligations which are “government securities” permitted under the loan documents is permitted at any time after the earlier of (i) the second anniversary of the securitization closing date of the final real estate mortgage investment conduit that includes the last portion of the 30 Hudson Yards Loan Combination to be securitized and (ii) June 14, 2022.

 

The Mortgaged Property. The 30 Hudson Yards Property is comprised of a 1,463,234 square feet office condominium designated as the Time Warner Unit located across 26 floors within the large 30 Hudson Yards building in New York, New York. The larger 30 Hudson Yards Building (as defined below) was constructed in 2019 and consists of approximately 2.6 million square feet across 68 floors (the “30 Hudson Yards Building”). The 30 Hudson Yards Building, which stands 1,296 feet tall making it the second tallest office building in New York City, is designed to achieve LEED Core & Shell Gold certification, features panoramic views, outdoor terraces, a triple-height lobby, the highest outdoor observation deck in the city, direct access to restaurants and retail at The Shops at Hudson Yards and a future underground connection to the new No. 7 subway station. Collateral for the 30 Hudson Yards Loan Combination is comprised of the WarnerMedia condominium, which consists of 1,463,234 rentable square feet across 26 floors (construction floors 12 through 38 and display floors 16 through 51) within the 30 Hudson Yards Building (the “WarnerMedia Condo”). Four floors are used for amenity space including a fitness center, a cafeteria, technology bar and a sky lobby.

 

The 30 Hudson Yards Property is subject to a condominium declaration. The 20-30 Hudson Yards Condominium is comprised of eight units: the WarnerMedia Unit (36.09% common interest), the Retail Unit (33.39% common interest), five office units (28.04% common interest collectively) and the Observation Deck Unit (2.48% common interest). In addition to the subject WarnerMedia Unit, the five office units and the Observation Deck Unit are located at the 30 Hudson Yards Building. The Retail Unit consists of the Shops at Hudson Yards, and is located adjacent to the 30 Hudson Yards Property at 20 Hudson Yards.

 

The borrower acquired the 30 Hudson Yards Property from TW NY Properties LLC, a wholly-owned subsidiary of Warner Media LLC (“WarnerMedia”) for $2.155 billion ($1,473 PSF) in a sale-leaseback transaction. WarnerMedia previously acquired the WarnerMedia Condo following the 2014 sale of its existing headquarters, Time Warner Center at Columbus Circle.

 

As of August 6, 2019, the 30 Hudson Yards Property was 100.0% occupied by WarnerMedia. WarnerMedia, who along with parent company AT&T Inc. (“AT&T”; rated Baa2/BBB/A- by Moody’s/S&P/Fitch), has reportedly invested approximately $700 million ($478 PSF) on the fit-out of its space and at loan origination, entered into a direct 15-year triple-net lease with the borrower for the entire 30 Hudson Yards Property. WarnerMedia is in the process of consolidating all of its New York-based business segments, including Turner, HBO, Warner Bros. and CNN, into 30 Hudson Yards which will serve as WarnerMedia’s global headquarters and is expected to host approximately 5,000 employees.

 

WarnerMedia (formerly Time Warner Inc.) is a global leader in media and entertainment with businesses in television networks, film and TV entertainment and publishing. Comprised of HBO, Turner, and Warner Bros., WarnerMedia is a leader in the industry in creating premium content, operating one of the world’s largest television and film studios, and owning a vast library of entertainment. As of December 31, 2017, WarnerMedia had approximately 26,000 employees. Prior to being acquired by AT&T, Time Warner Inc. was rated Baa2/BBB/A- by Moody’s/S&P/Fitch.

 

The WarnerMedia lease is a direct 15-year triple-net lease for the entire WarnerMedia Condo comprising 1,463,234 rentable square feet across 26 floors (construction floors 12 through 38 and display floors 16 through 51) within the 30 Hudson Yards Building, at an initial base rent of $75.00 PSF with 2.5% annual rent escalations. AT&T (rated Baa2/BBB/A- by Moody’s/S&P/Fitch) will serve as the guarantor on the WarnerMedia lease. The WarnerMedia lease will include four, 5-year extension options each at 100% of fair market rent. The WarnerMedia lease was signed in conjunction with loan origination in June 2019. There are no free rent periods or outstanding tenant improvements or leasing costs.

 

Additionally, the WarnerMedia lease is structured with a contraction option for up to 10 floors totaling 404,325 square feet (27.6% of rentable square feet) (the“Contraction Space”) where, on the 5th anniversary of the lease commencement date, the tenant has the right to contract one or more contiguous full floors comprising floors 42

 

4

 

 

LOAN #1: 30 HUDSON YARDS

 

through 51. In connection with the contraction option, WarnerMedia is required to pay a contraction fee to the borrower equal to $24,000,000 for each floor contracted (the“Contraction Payment”). If the tenant elects to contract more than three floors, the borrower is required to deposit with the lender an amount equal to $125 PSF of the contracted space in excess of the highest three floors, to be held by the lender and held as additional collateral for the 30 Hudson Yards Loan Combination (the“Contraction Escrow”), with the balance of the Contraction Payment (including with respect to the highest three floors), after payment of any amounts owed to the WarnerMedia tenant and all costs incurred in connection with the contraction, distributed to the borrower, or if a Trigger Period (defined below) exists, deposited with lender as additional collateral for the 30 Hudson Yards Loan Combination. The Contraction Escrow shall be released to the borrower in connection with the borrower’s re-leasing of the Contraction Space (or any portion thereof, subject to a cap of $125 PSF of re-let space, calculated in the aggregate across all re-let Contraction Space) with Qualified Leases (as defined below) that are in full force and effect in order to pay for the cost of tenant improvements, leasing commissions, leasing costs and other landlord obligations with respect to such replacement lease and (if any remaining portion of such $125 PSF cap remains after application or allocation to the foregoing amounts) to cover the payment of base rent during any initial free rent period thereunder. Once all the subject Contraction Space has been re-let, any remaining funds in the Contraction Escrow after payment of such costs and the expiration of such initial free rent periods (determined on a per square foot basis), or retention in the Contraction Escrow of amounts sufficient to pay the same, shall be disbursed to the borrower, or if a Trigger Period exists, deposited with lender as additional collateral for the 30 Hudson Yards Loan Combination.

 

A“Qualified Lease” shall mean a replacement lease (i) with a term that extends at least five years beyond the maturity date; (ii) entered into in accordance with the 30 Hudson Yards Loan Combination documents and (iii) on market terms with respect to, among other things, base rent, additional rent and recoveries and tenant improvement allowances.

 

The following table presents certain information relating to the major tenant (of which certain tenants may have co-tenancy provisions) at the 30 Hudson Yards Property:

 

Largest Owned Tenant Based on Underwritten Base Rent(1)

 

Tenant Name 

Credit Rating (Fitch/MIS/S&P)(2)

 Tenant GLA % of GLA UW Base Rent % of Total UW Base Rent UW Base Rent
$ per SF
 

UW Gross Rent(3)

 

UW Gross Rent
$ per SF(3)

 Lease Expiration Renewal / Extension Options
WarnerMedia A- / Baa2 / BBB 1,463,234 100.0% $109,742,550 100.0% $75.00 $152,010,443 $103.89 6/30/2034 4, 5-year options
All Tenants   1,463,234 100.0% $109,742,550 100.0% $75.00 $152,010,443 $103.89    
Vacant   0 0.0% 0 0.0% $0.00 0 $0.00    
Total / Wtd. Avg. All Owned Tenants   1,463,234 100.0% 

$109,742,550

 

100.0%

 

$75.00

 

$152,010,443

 

$103.89

    

 

 

(1)Based on the rent roll dated June 14, 2019.

(2)Credit Ratings are those of the parent company and guarantor on the WarnerMedia lease, AT&T.

(3)UW Gross Rent and UW Gross Rent $ per SF represents the base rent of $75.00 PSF plus underwritten reimbursements of $42,267,893 ($28.89 PSF), which are based on the 100% triple-net structure of the WarnerMedia lease.

 

The following table presents certain information relating to the lease rollover schedule at the 30 Hudson Yards Property, based on initial lease expiration dates:

 

Lease Expiration Schedule(1)(2)

 

Year Ending
December 31
 Expiring 
Owned GLA
 % of Owned GLA Cumulative % of
Owned GLA
 UW Base Rent % of Total UW
Base Rent
 UW Base Rent $
per SF
 # of Expiring
Tenants
MTM 0  0.0%  0.0%  $0  0.0%  $0.00  0 
2019 0  0.0%  0.0%  $0  0.0%  $0.00  0 
2020 0  0.0%  0.0%  $0  0.0%  $0.00  0 
2021 0  0.0%  0.0%  $0  0.0%  $0.00  0 
2022 0  0.0%  0.0%  $0  0.0%  $0.00  0 
2023 0  0.0%  0.0%  $0  0.0%  $0.00  0 
2024 0  0.0%  0.0%  $0  0.0%  $0.00  0 
2025 0  0.0%  0.0%  $0  0.0%  $0.00  0 
2026 0  0.0%  0.0%  $0  0.0%  $0.00  0 
2027 0  0.0%  0.0%  $0  0.0%  $0.00  0 
2028 0  0.0%  0.0%  $0  0.0%  $0.00  0 
2029 0  0.0%  0.0%  $0  0.0%  $0.00  0 
2030 & Thereafter 1,463,234  100.0%  100.0%  $109,742,550  100.0%  $75.00  1 
Vacant 0  0.0%  100.0%  $0  0.0%  $0.00  0 
Total / Wtd. Avg. 

1,463,234

  

100.0%

     

$109,742,550

  

100.0%

  

$75.00

  

1

 

 

 

(1)The tenant has contraction options that may become exercisable prior to the originally stated expiration date of the tenant lease that are not considered in this rollover schedule.

(2)Based on the underwritten rent roll dated June 14, 2019.

 

5

 

 

LOAN #1: 30 HUDSON YARDS

 

The following table presents certain information relating to historical leasing at the 30 Hudson Yards Property:

 

Historical Leased %(1)

 

  2015 2016 2017 2018 As of 8/6/2019
Owned Space NAP NAP NAP NAP 100.0%

 

 

(1)As provided by the borrower and which represents occupancy as of December 31 for the indicated year unless otherwise specified.

 

Operating History and Underwritten Net Cash Flow. The following table presents certain information relating to the historical operating performance and the Underwritten Net Cash Flow at the 30 Hudson Yards Property:

 

Cash Flow Analysis

 

  Underwritten 

Underwritten

$ per SF

Base Rent $109,742,550 $75.00
Rent Steps(1) 2,743,564 $1.88
Straight Line Rent Credit(2) 14,618,240 $9.99
Gross Up Vacancy 0 $0.00
Reimbursements 42,267,893 $28.89
Other Income 0 $0.00
Vacancy & Credit Loss(3) (5,081,167) ($3.47)
Effective Gross Income $164,291,079 $112.28
     
Real Estate Taxes (PILOT)(4) 21,270,425 $14.54
Insurance 1,547,918 $1.06
Condo Association Fees 5,847,159 $4.00
Management Fee(5) 1,000,000 $0.68
Other Operating Expenses 12,602,391 $8.61
Total Operating Expenses $42,267,893 $28.89
     
Net Operating Income $122,023,186 $83.39
TI/LC 0 $0.00
Capital Expenditures 292,647 $0.20
Net Cash Flow $121,730,539 $83.19
     
Occupancy 100.0%  
NOI Debt Yield(6) 10.9%  
NCF DSCR(7) 3.45x  

 

 

(1)Underwritten Rent Steps includes the first annual rent step to $76.88 PSF in June 2020.

(2)Straight Line Rent Credit given to (i) the WarnerMedia non-contraction space through the fully-extended lease term and (ii) the WarnerMedia contraction space through June 2024 (contraction option year 5).

(3)Represents an underwritten economic vacancy of 3.0%.

(4)Underwritten to the average of the projected PILOT payments over the 15-year lease term.

(5)Management Fee is set to 1.5% of Effective Gross Income, capped at $1.0 million.

(6)Calculated based on the aggregate outstanding principal balance as of the Cut-off Date of the 30 Hudson Yards Senior Notes.

(7)Based on the interest only debt service payments of the 30 Hudson Yards Senior Notes.

 

Appraisal.According to the appraisal, the 30 Hudson Yards Property had an “as-is” appraised value of $2,200,000,000 as of an effective date of May 23, 2019.

 

Appraisal Approach “As-Is” Value Discount Rate Capitalization Rate
Direct Capitalization Approach $2,225,000,000 N/A 4.75%
Discounted Cash Flow Approach $2,200,000,000 5.75% 5.25%(1)

 

 

(1)Represents the terminal capitalization rate.

 

Environmental Matters. According to a Phase I environmental report, dated May 30, 2019, the environmental consultant did not identify evidence of any recognized environmental conditions.

 

Market Overview and Competition. The 30 Hudson Yards Property is located at 530 West 33rd Street on the southwest corner of 33rd Street and 10th Avenue in New York, New York. Per the appraisal, the Manhattan office market saw leasing velocity rise 46.0% in Q4 2018 on a year-over-year basis and up 43.9% when compared to the ten-year average. Manhattan leasing in Q4 2018 was one of the strongest on record for the 2018 year, totaling 43.2 million square feet. As of Q1 2019, average asking rents in Manhattan were $76.12 PSF, slightly down from the 2018 average of $76.30 PSF. Availability saw a slight increase from 12.2% to 12.3% from year-end 2018 to Q1 2019. Midtown average asking rents remained flat for Q1 2019, at $82.02 PSF. The Far West Side, Plaza District, and Park

 

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LOAN #1: 30 HUDSON YARDS

 

 Avenue submarkets represent the three highest overall asking rents in all of Manhattan, with all 3 submarkets averaging above $100 PSF. These submarkets tend to have higher rents due to newer, boutique office product, high demand, and high leasing activity. Midtown Manhattan has a higher mix of Class A trophy buildings that range from the new construction occurring in Hudson Yards and Midtown East, to the classic, staple buildings located along Park Avenue and Plaza District.

 

Hudson Yards is an approximately 28-acre area on the far West Side of Manhattan, bounded by West 30th St., West 33rd Street, 10th Avenue and 12th Avenue. Hudson Yards is the cornerstone of the greater Hudson Yards District, which recently has been rezoned to accommodate nearly 40 million square feet of new mixed-use development. Due to the rezoning, the Hudson Yards District has the capacity to include approximately 26 million square feet of new office development, approximately 20,000 housing units, approximately three million square feet of hotel space, a public school, approximately two million square feet of retail space and more than 20 acres of public open space. The neighborhood transformation will be facilitated by the recently-completed extension of the No. 7 subway line from Grand Central Station, with the final station located immediately adjacent to the Hudson Yards site.

 

The 30 Hudson Yards Property is located in the Far West Side submarket of Manhattan. As of Q1 2019, the submarket was home to approximately 6.9 million square feet of commercial real estate space, with a vacancy rate of 2.4% and average asking rent of $119.03 PSF. The Far West Side submarket has transformed in recent years due to the establishment of the Hudson Yards development. This development has encompassed a variety of office buildings, residential buildings, retail stores and parks. Many office tenants have decided to relocate from Midtown to the Far West Side. As a result of the new developments, average asking rents increased approximately 18.5% throughout 2017 from $100.38 PSF as of Q1 2017 to $118.94 PSF as of Q4 2017. For the same time period, the average vacancy rate decreased from 20.7% as of Q1 2017 to 3.8% as of Q4 2017. Both average asking rent and the vacancy rate have slightly improved as of Q1 2019 at $119.03 PSF and 2.4%, respectively.

 

In order to compare contract rent at the 30 Hudson Yards Property with market standards, the appraiser adjusted the base rent to reflect the modified gross equivalent rent. The appraiser’s modified gross equivalent contract rent at the 30 Hudson Yards Property was $106.01 PSF, which includes contract rent of $75.00 PSF, real estate taxes of $13.85 PSF and operating expenses of $17.15 PSF. The appraiser determined a modified gross equivalent market rent at the 30 Hudson Yards Property of $100.00 PSF for floors 16 through 24, $110.00 PSF for floors 35 through 43 and $120.00 PSF for floors 44 through 51, for an overall average of $108.24 PSF. The WarnerMedia lease provides for an initial base rent of $75.00 PSF for all floors.

 

7

 

 

LOAN #1: 30 HUDSON YARDS

 

The following chart summarizes comparable office leases per the appraisal. Due to the lack of large single tenant building leases available in the marketplace, the appraiser identified comparable single-tenant and large headquarter leases within comparable properties that would directly compete with the WarnerMedia lease. The most comparable leases to the WarnerMedia lease are Deutsche Bank’s recent lease at Time Warner Center and Blackrock’s lease at 50 Hudson Yards:

 

Large Headquarter and Net Lease Comparables(1)

 

Property Name

 

Tenant Name

 

Lease Year

 

Term (mos.)

 

Tenant Size (SF)

 

Contract Net Rent PSF

 

Modified Gross Rent PSF

 

Free Rent (mos.)

30 Hudson Yards Property WarnerMedia 2019 120 1,463,234 $75.00 $106.01 0
50 Hudson Yards Blackrock 2017 264 847,081 $91.00 $128.50 21
1100 Avenue of the Americas Bank of America 2018 240 357,940 NAP $118.00 17
424 Fifth Avenue WeWork 2018 240 697,029 $108.74 $129.97 12
One Columbus Circle Deutsche Bank 2019 264 1,063,104 $73.01 $119.00 15
Total / Wtd. Avg.(2)     255 2,965,154 $88.41 $124.17 16

 

(1)Source: Appraisal.

(2)Total / Wtd. Avg. excludes the 30 Hudson Yards Property

 

Summary of Comparable Office Leases(1)

 

Property Name

 

Tenant Name

 

Lease Year

 

Term (mos.)

 

Lease Type

 

Tenant Size (SF)

 

Base Rent PSF

 

Free Rent (mos.)

55 Hudson Yards Apple Feb-2019 135 Modified Gross 29,881 $104.00 12
520 Madison Avenue Madison Realty Capital Feb-2019 128 Modified Gross 19,000 $118.00 8
425 Park Avenue Citadel Jan-2019 150 Modified Gross 161,200 $178.27 14
1095 Avenue of the Americas Lloyds Bank Jan-2019 120 Modified Gross 34,846 $150.00 0
1114 Avenue of the Americas Vinson & Elkins, LLP Jan-2019 192 Modified Gross 76,497 $95.00 12
50 Hudson Yards Confidential Jan-2019 120 Modified Gross 400,000 $110.00 18
1 Vanderbilt Avenue TD Securities Dec-2018 198 Modified Gross 118,872 $130.00 18
55 Hudson Yards Third Point Nov-2018 120 Modified Gross 89,043 $130.00 13
1114 Avenue of the Americas The Trade Desk Nov-2018 144 Modified Gross 95,580 $139.00 12
441 Ninth Avenue Peloton Interactive, LLC Nov-2018 180 Modified Gross 312,000 $106.66 22.5
55 Hudson Yards Vista Equity Partners Nov-2018 192 Modified Gross 28,429 $104.00 13
1271 Avenue of the Americas Bessemer Trust Company Sep-2018 264 Modified Gross 236,631 $107.00 0
1 Vanderbilt Avenue The Carlyle Group July-2018 189 Modified Gross 95,367 $166.00 9
66 Hudson Boulevard AllianceBernstein May-2018 240 Modified Gross 186,226 $105.00 16
390 Madison Avenue JP Morgan Chase Mar-2018 128 Modified Gross 417,157 $94.40 20
Total / Wtd. Avg.     168   2,300,729 $116.14 15

 

(1)Source: Appraisal.

 

The Borrower. The borrower is 30 HY WM Unit Owner LP, a single-purpose, single-asset entity with two independent directors. Legal counsel to the borrower delivered a non-consolidation opinion in connection with the origination of the 30 Hudson Yards Loan Combination. The sponsor of the borrower, 30 HY WM REIT Owner LP (the “Borrower Sponsor”), is a joint venture among RSA 30 HY WM LLC (the “Related Partner”), RFM Cactus NYSS 30HY Sub LLC (the “ASRS/Related JV”), Allianz U.S. Private REIT LP (“Allianz REIT”) and APKV US Private REIT LP (“APKV REIT”). The Related Partner holds 1.01% direct equity interest of the Borrower Sponsor, ASRS/Related JV holds 49.99% direct equity interest of the Borrower Sponsor, APKV REIT holds 4.9% direct equity interest of the Borrower Sponsor, and Allianz REIT holds 44.1% direct equity interest of the Borrower Sponsor. The 30 Hudson Yards Loan Combination is recourse to the borrower and there is no separate recourse guarantor.

 

Related is a privately owned real estate firm in the United States. Founded by Stephen M. Ross in 1972, Related is a fully integrated, highly diversified company with experience in development, acquisition, management, finance, marketing and sales. Headquartered in New York City, Related has offices and major developments in Boston, Chicago, Los Angeles, San Francisco, South Florida, Washington, DC and London, and has a team of approximately 4,000 professionals.

 

Arizona State Retirement System is a state agency that administers a pension plan, long term disability plan, retiree health insurance plans and other benefits to qualified government workers for the state of Arizona. More than a half-million of Arizona’s public servants belong to the ASRS, which encompasses state employees, the three state universities, community college districts, school districts and charter schools, all 15 counties, most cities and towns, and a variety of political subdivisions, such as fire and water districts.

 

8

 

 

LOAN #1: 30 HUDSON YARDS

 

Allianz is a European financial services company headquartered in Munich, Germany with core businesses in insurance and asset management. As of year-end 2018, the Allianz had approximately €1,961 billion of assets under management. In the U.S., investment advisory services are provided by AllianzGlobal Investors Capital, Allianz Global Investors Solutions and PIMCO.

 

Escrows.The 30 Hudson Yards Loan did not require upfront reserves.

 

During a Trigger Period (defined below), the borrower is required to fund the following reserves with respect to the 30 Hudson Yards Loan Combination: (i) a tax reserve in an amount equal to 1/12th of the amount that the lender estimates will be necessary to pay taxes over the then succeeding 12-month period, (ii) if an acceptable blanket policy is not in place, an insurance reserve in an amount equal to 1/12th of the amount that the lender estimates will be necessary to pay insurance premiums over the then succeeding 12-month period, (iii) a replacement reserve in an amount equal to 1/12th of $0.20 PSF and (iv) a condominium reserve in an amount equal to 1/12th of the amount that the lender estimates will be necessary to pay common charges over the then succeeding 12-month period.

 

In addition, regardless of whether a Trigger Period exists, on each payment date from and after July 6, 2024 capital expenditure reserves will be required in a monthly amount equal to 1/12th of $0.20 PSF.

 

Lockbox and Cash Management. The 30 Hudson Yards Loan Combination is structured with a hard lockbox and springing cash management. During the continuance of a Trigger Period (as defined below), the borrower is required to send tenant direction letters to all tenants of the 30 Hudson Yards Property instructing them to deposit all rents and other payments into the lockbox account controlled by the lender, and any funds received by the borrower or the property manager are required to be immediately deposited in the lockbox account. During a Trigger Period, all funds in the lockbox account are required to be transferred on each business day into a cash management account established for the sole and exclusive benefit of the lender, and applied to all required payments and reserves as set forth in the 30 Hudson Yards Loan Combination documents, and all property costs and expenses contained in the lender-approved budget, and thereafter, minimum distributions to holders of preferred shares issued by the REIT in a maximum amount not to exceed $100,000 per annum and all property costs and expenses contained in the lender-approved budget, and thereafter, minimum distributions to holders of preferred shares issued by the REIT in a maximum amount not to exceed $100,000 per annum, with any excess funds being held by lender in a lease sweep reserve or cash collateral account, as applicable, as additional collateral for the 30 Hudson Yards Loan Combination. Under certain circumstances and for limited purposes described in the 30 Hudson Yards Loan Combination documents, the borrower may request disbursements of such excess cash flow.

 

A “Trigger Period” means a period (A) commencing upon the earliest to occur of (i) an event of default under the 30 Hudson Yards Loan Combination documents, (ii) the debt yield falling below 6.50% for any calendar quarter (“Low Debt Yield Trigger”), or (iii) a Lease Sweep Period (defined below) and (B) expiring upon (x) with respect to a Trigger Period which commenced in connection with clause (i) above, the cure, if applicable, of such event of default, (y) with respect to a Trigger Period which commenced in connection with clause (ii) above, the debt yield being equal to or greater than 6.50% for two consecutive calendar quarters, and (z) with respect to a Trigger Period which commenced in connection with clause (iii) above, such Lease Sweep Period is cured as described below. In addition, the borrower shall have the right to cure a Low Debt Yield Trigger by delivering cash collateral or an acceptable letter of credit to lender in an amount that, if applied to reduce the outstanding principal balance of the 30 Hudson Yards Loan Combination, would cause the debt yield test to be satisfied.

 

Notwithstanding the foregoing, so long as the WarnerMedia lease remains in full force and effect, then in the event the debt yield falls below the Low Debt Yield Trigger as a result of the WarnerMedia tenant’s exercise of its contraction right with respect to any Contraction Space, the foregoing minimum debt yield requirement and cash flow sweep upon a Low Debt Yield Trigger shall not apply until such time as the debt yield shall have increased to (or above) the Low Debt Yield Trigger (in which event, and thereafter, the minimum debt yield requirement, and cash flow sweep upon a Low Debt Yield Trigger, shall again be applicable). Any letters of credit provided as outlined above or as otherwise outlined herein shall be subject to an aggregate cap of 10% of the loan amount and other criteria to be set forth in the 30 Hudson Yards Loan Combination documents.

 

A “Lease Sweep Period” shall occur upon or during (a) a bankruptcy, insolvency or similar events of the Major Tenant (as defined herein) or lease guarantor, (b) failure to pay base rent or other material monetary or material nonmonetary defaults by a Major Tenant under its Major Lease (as defined herein) beyond all notice and cure periods thereunder, (c) the Major Tenant going dark (i.e. ceases operations at its leased premises with respect to a portion of its leased premises such that the Major Tenant is no longer operating 800,000 rentable square feet (less contraction space that has been relet)), with subleases not counting as dark space except during the last two years of the term of the 30 Hudson Yards Loan Combination, (d) notice of (or actual) termination, cancellation, surrender, contraction of a portion

 

9

 

 

LOAN #1: 30 HUDSON YARDS

 

of its leased premises such that the Major Tenant is no longer occupying 800,000 gross square feet or non-renewal of such Major Tenant’s lease, or (e) upon a decline in the credit rating of AT&T (or of any lease guarantor of a replacement tenant that has a rating of at least “BB-” at the time of replacement) below “BB-” or the equivalent by any of the rating agencies. For the avoidance of doubt, the exercise by the WarnerMedia tenant of its contraction option for all or any portion of the Contraction Space shall not, in and of itself, constitute a Lease Sweep Period.

 

A Lease Sweep Period may be cured as follows: (i) with respect to any Lease Sweep Period, at such time as the borrower has reserved with Lender into the lease sweep reserve (or has delivered a letter of credit (satisfying criteria to be set forth in the 30 Hudson Yards Loan Combination documents) reasonably acceptable to lender) an amount equal to $125 (or, if the only Lease Sweep Period is pursuant to clause (e) above, $50 or, if the only Lease Sweep Period is pursuant to clause (c) above, $87) per rentable square foot of the applicable lease sweep, (ii) in the case of a Lease Sweep Period under clause (a), (1) if the Major Tenant became subject to a bankruptcy proceeding, (A) the Major Lease has been assumed (but not assigned) by the Major Tenant without any negative material change in the economics, scope or duration of such Major Lease and a plan of reorganization has been confirmed as to the Major Tenant and the effective date of such plan of reorganization has occurred or (B) the assignment and assumption of the Major Lease by an unaffiliated third party assignee pursuant to an assignment approved in the bankruptcy proceeding by non-appealable court order and execution of a guaranty by a replacement guarantor; and (2) if the guarantor under the Major Lease became subject to a bankruptcy proceeding, (A) the Major Lease has remained in effect and no base rent default or material monetary or material non-monetary default has occurred and is continuing (other than a bankruptcy of the Major Tenant, provided in such case, clause (1) above shall also apply), and a plan of reorganization has been confirmed as to the guarantor of the Major Lease and the effective date of such plan of reorganization has occurred (and, if applicable, clause (1)(B) above has been satisfied) or (B) the assignment and assumption of the Major Lease by an unaffiliated third party assignee pursuant to an assignment approved in the bankruptcy proceeding by non-appealable court order and execution of a guaranty by a replacement guarantor, (iii) in the case of a Lease Sweep Period under clause (b), a cure by the Major Tenant of the applicable default under its Major Lease, (iv) in the case of a Lease Sweep Period under clause (c), the Major Tenant is once again operating at least 800,000 rentable square feet of its leased premises (less contraction space that has been relet), which shall include subleased space except during the last two years of the term of the 30 Hudson Yards Loan Combination or (v) in the case of a Lease Sweep Period under clauses (c) or (d), (x) borrower’s re-leasing of the affected portion of the leased premises (or 95% of such affected portion if the contraction option has not been exercised by WarnerMedia tenant) pursuant to qualified leases and (y) the completion and payment in full of all tenant improvements, leasing commissions, leasing costs and other landlord obligations of an inducement nature with respect to such leases, all free and abated rent periods shall have expired and full rent thereunder commenced (or either (A) sufficient reserves therefor have been escrowed with lender or (B) borrower has delivered a letter of credit to lender (satisfying criteria to be set forth in the 30 Hudson Yards Loan Combination documents) reasonably acceptable to lender to secure the payment of such costs and free or abated rent).

 

As used herein, (i)“Major Lease” shall mean the WarnerMedia lease, and any replacement Lease covering all or substantially all of the space currently demised under the WarnerMedia lease (which, for this purpose, if the Contraction Option is exercised, shall not include any tenant under a lease with respect to the Contraction Space, and (ii)“Major Tenant”shall mean a tenant under a Major Lease.

 

Property Management.The 30 Hudson Yards Property is self-managed by WarnerMedia or an affiliate thereof. If WarnerMedia is no longer managing the 30 Hudson Yards Property, Borrower is required to cause the 30 Hudson Yards Property to be managed by a qualified property manager, as defined in the 30 Hudson Yards Loan Combination documents).

 

10

 

 

LOAN #1: 30 HUDSON YARDS

 

Current Mezzanine or Subordinate Indebtedness.The 30 Hudson Yards Loan Combination consists of 29 pari passu senior notes with an aggregate initial principal balance of $1,120,000,000 and three junior notes, with an aggregate initial principal balance of $310,000,000. Based on the total combined debt of $1,430,000,000, the Cut-off Date LTV Ratio, Maturity Date LTV Ratio, DSCR Based on Underwritten NCF and Debt Yield Based on Underwritten NOI are illustrated below:

  

  Financial Information  
     
  

30 Hudson Yards Loan

 

30 Hudson Yards Loan Combination

Cut-off Date Balance $93,200,000 $1,430,000,000
Cut-off Date LTV Ratio 50.9% 65.0%
Maturity Date LTV Ratio 50.9% 65.0%
DSCR Based on Underwritten NCF 3.45x 2.51x
Debt Yield Based on Underwritten NOI 10.9% 8.5%

 

Release of Collateral. Not permitted.

 

IDA / PILOT. The borrower leases the 30 Hudson Yards Property to the New York City Industrial Development Agency (the “Agency”) (the “Company Lease”), and the Agency subleases the Mortgaged Property back to the borrower (the “Agency Lease”) (the Company Lease and Agency Lease, collectively the “IDA Leases”). The benefits of this lease structure to the borrower are a mortgage recording tax exemption and real property tax abatements. As such, the borrower pays installment payments in lieu of real estate taxes as the rent under the Agency Lease (the “PILOT Payments”). In order for the PILOT Payments to achieve the same priority as would real estate tax payments (i.e., ahead of any mortgage or other lien), the borrower (with the Agency as holder of the leasehold under the Company Lease) provided mortgages in favor of the Hudson Yards Infrastructure Corporation, a not-for-profit local development corporation (“HYIC”) to secure the PILOT Payments (collectively, the “PILOT Mortgage”). The HYIC has issued Hudson Yards revenue bonds for which the PILOT Payments are used to repay the bondholders. The term of the IDA Leases runs to June 30, 2044 (such period, the “Initial Term”), with annual automatic extensions thereof for a term of one year, unless within 60 days preceding the expiration of the current term the Agency provides written notice of termination to the borrower (such date, the “Expiration Date”); provided that after the Initial Term the IDA Leases will automatically terminate within 60 days after the repayment in full or defeasance of any Hudson Yards revenue bonds issued by HYIC for which an assignment of the PILOT amount payable under the Agency Lease is used to repay the bondholders.

 

Terrorism Insurance.Terrorism coverage is provided by a stand-alone policy that provides coverage for terrorism in an amount equal to the full replacement cost of the 30 Hudson Yards Property, with limits of $5.5 billion per occurrence and in the aggregate, subject to a $100,000 deductible. Business interruption is provided for an actual loss sustained basis up to the full policy limit for a period of 36 months plus an additional 12 month extended period of indemnity. See “Risk Factors—Terrorism Insurance May Not Be Available for All Mortgaged Properties” in the Preliminary Prospectus.

 

11

 

 

LOAN #2: woodlands mall

 

Mortgaged Property Information Mortgage Loan Information
Number of Mortgaged Properties1 Loan SellerGACC
Location (City/State)Woodlands, Texas Cut-off Date Balance(3)$76,200,000
Property TypeRetail Cut-off Date Balance per SF(3)$324.70
Size (SF)758,231 Percentage of Initial Pool Balance6.4%
Total Occupancy as of 5/28/2019(1)97.8% Number of Related Mortgage LoansNone
Owned Occupancy as of 5/28/2019(1)95.8% Type of SecurityFee Simple
Year Built / Latest Renovation1994 / 2016 Mortgage Rate4.25600%
Appraised Value$953,400,000 Original Term to Maturity (Months)120
Appraisal Date4/20/2019 Original Amortization Term (Months)0
Borrower SponsorsBrookfield Property REIT Inc., Original Interest Only Period (Months)120
 Brookfield Property Partners L.P. First Payment Date9/1/2019
 and Brookfield Asset Management Inc. Maturity Date8/1/2029
Property ManagementSelf-managed   
     
     
Underwritten Revenues$53,931,267   
Underwritten Expenses$10,814,593 Escrows(5)
Underwritten Net Operating Income (NOI)$43,116,674  UpfrontMonthly
Underwritten Net Cash Flow (NCF)$42,206,797 Taxes$0$0
Cut-off Date LTV Ratio(2)25.8% Insurance$0$0
Maturity Date LTV Ratio(2)25.8% Replacement Reserve$0$0
DSCR Based on Underwritten NOI / NCF(2)4.06x / 3.97x TI/LC$0$0
Debt Yield Based on Underwritten NOI / NCF(2)17.5% / 17.1% Other$2,174,886$0
      
Sources and Uses
Sources$% Uses$%
Woodlands Mall Whole Loan$425,000,00091.4% Loan Payoff$322,891,259 63.3%
Woodlands Mall Mezzanine Loan40,000,0008.6 Upfront Reserves2,174,8860.5
    Closing Costs3,880,3930.8
    Return of Equity136,053,46229.3 
       
Total Sources$465,000,000100.0% Total Uses$465,000,000100.0%
       

 

 

(1)Total Occupancy is inclusive of Dillard’s (229,866 SF), Macy’s (199,019 SF), JC Penney (146,553 SF), and Nordstrom (138,000 SF); these four department stores separately own their own improvements and underlying land and as such are excluded from the loan collateral. Owned Occupancy is based on a total of 758,231 collateral square feet.

(2)Calculated based on the aggregate outstanding principal balance of the Woodlands Mall Senior Loans (as defined below). See “—The Mortgage Loan” below.

(3)The Woodlands Mall Loan (as defined below) is part of a whole loan (the “Woodlands Mall Whole Loan”) comprised of (i) a senior loan, comprised of seven pari passu notes with an aggregate principal balance as of the Cut-off Date of $246,200,000 (collectively, the “Woodlands Mall Senior Loans”) and (ii) a subordinate companion loan, comprised of one subordinate note with an aggregate principal balance as of the Cut-off Date of $178,800,000 (the “Woodlands Mall B Note”). The aggregate outstanding principal balance as of the Cut-off Date of all notes evidencing the Woodlands Mall Whole Loan is $425,000,000. The Woodlands Mall Subordinate Note will be an asset of the Benchmark 2019-B12 trust but will not be pooled together with the other Mortgage Loans and payments of interest and principal received in respect of the Woodlands Mall Subordinate Note will be available to make distributions in respect of the loan specific classes of certificates only. The holder of the Woodlands Mall Subordinate Note will have the right to appoint the special servicer of the Woodlands Mall Loan Combination and to direct certain decisions with respect to the Woodlands Mall Loan Combination, unless a control appraisal event exists under the related co-lender agreement; provided that after the occurrence of a control appraisal event with respect to the Woodlands Mall Subordinate Note, the holder of the Woodlands Mall Note A-3 will have such rights. For so long as the Woodlands Mall Subordinate Note is included in the Benchmark 2019-B12 trust, and a control appraisal event does not exist, such rights will be exercised by the Directing Holder of the Benchmark 2019-B12 loan specific certificates.

(4)For a full description of Escrows, please refer to “—Escrows” below.

 

The Mortgage Loan. The Woodlands Mall mortgage loan (the “Woodlands Mall Mortgage Loan”) is part of a loan combination (the “Woodlands Mall Loan Combination”) evidenced by sevenpari passu notes with an aggregate original principal balance of $246,200,000 (the “Woodlands Mall Senior Notes”) and on subordinate note with an original principal balance of $178,800,000 (the “Woodlands Mall Subordinate Note”). The Woodlands Mall Loan Combination has an aggregate principal balance of $425,000,000 as of the Cut-off Date and is secured by a first mortgage lien on the borrower’s fee simple interest in an approximately 1.47 million square foot super-regional mall located in The Woodlands, Texas (the “Woodlands Mall Property”). The Woodlands Mall Loan, which is evidenced by the non-controlling notes A-3, A-6 and A-7, have an outstanding principal balance as of the Cut-off Date of $76,200,000 and represents approximately 6.4% of the Initial Pool Balance. The related companion loans are evidenced by the non-controlling notes A-1 ($50,000,000), A-2 ($50,000,000), A-4 ($30,000,000), A-5 ($30,000,000), currently held by Deutsche Bank AG, New York Branch (an affiliate of German American Capital Corporation) (“DBNY”) and are expected to be contributed to one or more future commercial mortgage securitization transactions. The Woodlands Mall Subordinate Note will be an asset of the trust but will not be pooled together with the other Mortgage Loans, and payments of interest and principal received in respect of the Woodlands Mall Subordinate Note will be available to make distributions in respect of the loan specific classes of certificates only. The Woodlands Mall Loan Combination, which accrues interest at an interest rate of 4.25600%per annum, was originated by DBNY on July 5, 2019, had an original principal balance of $425,000,000 and has an outstanding principal balance as of the Cut-off Date of $425,000,000. The proceeds of the Woodlands Mall Loan Combination along with a $40,000,000 mezzanine loan were primarily used to refinance prior debt secured by the Woodlands Mall Property, return equity to the borrower sponsor, pay origination costs and fund upfront reserves.

 

The Woodlands Mall Whole Loan had an initial term of 120 months and has a remaining term of 120 months as of the Cut-off Date. The Woodlands Mall Whole Loan requires monthly payments of interest only for the entire mortgage loan term. The scheduled maturity date of the Woodlands Mall Whole Loan is the due date in August 2029.

 

12

 

 

LOAN #2: woodlands mall

 

Provided that no event of default has occurred and is continuing under the Woodlands Mall Loan Combination documents, at any time after the second anniversary of the securitization closing date, the Woodlands Mall Loan Combination may be defeased with certain “government securities” as permitted under the Woodlands Mall Loan Combination documents. Voluntary prepayment of the Woodlands Mall Loan Combination is permitted on or after the due date occurring in April 2029 without payment of any prepayment premium.

 

Loan Combination Summary
NoteOriginal BalanceCut-off Date Balance Note HolderControlling Piece
A-3, A-6, A-7$76,200,000 $76,200,000  Benchmark 2019-B12No(1)
A-1, A-2, A-4, A-5$170,000,000 $170,000,000  DBNYNo
Total Senior Notes$246,200,000 $246,200,000    
B-Note$178,800,000 $178,800,000  Benchmark 2019-B12 (Loan Specific)Yes(1)
Whole Loan$425,000,000 $425,000,000    
Mezzanine Debt$40,000,000 $40,000,000  DBNY 
Total$465,000,000 $465,000,000    

 

(1)The holder of the Woodlands Mall Subordinate Note will have the right to appoint the special servicer of the Woodlands Mall Loan Combination and to direct certain decisions with respect to the Woodlands Mall Whole Loan, unless a control appraisal event exists under the related co-lender agreement; provided that after the occurrence of a control appraisal event with respect to the Woodlands Mall Subordinate Notes, the holder of the Woodlands Mall Note A-3 will have such rights. For so long as the Woodlands Mall Subordinate Notes are included in the Benchmark 2019-B12 securitization, and a control appraisal event does not exist, such rights will be exercised by the Directing Holder of the Benchmark 2019-B12 loan specific certificates.

 

The Mortgaged Property.The Woodlands Mall Property is a two-level enclosed super-regional mall that contains approximately 1.47 million square feet of gross leasable area of which the sponsor owns approximately 758,231 square feet. The Woodlands Mall Property is anchored by Dillard’s, Macy’s, JCPenney, and Nordstrom. All four anchors separately own their improvements and underlying land and as such are excluded from the Woodlands Mall Loan collateral. The Woodlands Mall Property is also junior anchored by Dick’s Sporting Goods and Forever 21 (both part of the Woodlands Mall Loan collateral). The four major anchors (Dillard’s, Macy’s, JCPenney, and Nordstrom) have 2018 sales estimates of $41.0 million, $73.0 million, $15.0 million, and $34.2 million, respectively. As of the trailing 12 months ending May 2019, Dick’s Sporting Goods and Forever 21 reported total sales of approximately $12.7 million and $7.6 million, respectively.

 

The Woodlands Mall Property consists of a broad merchandise mix with over 150 specialty retailers including Apple, Athleta, Banana Republic, Coach, Microsoft, Pink, Pottery Barn, Michael Kors, and Sephora. Additionally, there are five office suites at the Woodlands Mall Property, which comprise 38,087 SF. The Woodlands Mall Property also features diverse dining options such as Brio, The Cheesecake Factory, Fleming’s Prime Steakhouse, Panera Bread, and P.F. Chang’s Asian Bistro, which is complemented by a ten-bay food court located in the lower level of the Woodlands Mall Property. The Apple store is expanding its footprint at the Woodlands Mall Property, and will comprise of 8,409 SF upon expansion, which is expected to occur in December 2019 (current footprint is 6,311 SF). The borrower sponsor plans to spend approximately $7.9 million to build out the Apple suite, which involves creation of the space in the center court of the Woodlands Mall Property. The borrower sponsor will be turning over a raw space to Apple and the tenant plans to invest significant capital to build out their space. As of the trailing 12 months ending May 2019, the Apple store generated sales of $50.1 million ($7,934 PSF (based on SF prior to their expansion)). Other notable features at the Woodlands Mall Property include its outdoor lifestyle shopping area connected to the Woodlands waterway; visitors can experience resort-like water taxi service to surrounding offices and residences.

 

The Woodlands Mall Property has an in-place underwritten occupancy of 95.8% (excluding non-collateral anchors). As of the trailing 12 months ending May 2019, the Woodlands Mall Property generated in-line (<10,000 SF) sales of $708 PSF with an occupancy cost ratio of 13.4%. Excluding the Apple store, the Woodlands Mall Property generated in-line (<10,000 SF) sales of $569 PSF with an occupancy cost ratio of 16.8% over the same period.

 

13

 

 

LOAN #2: woodlands mall

 

The following table presents certain information relating to the major tenants (of which, certain tenants may have
co-tenancy provisions) at the Woodlands Mall Property:

 

Ten Largest Owned Tenants Based on Underwritten Base Rent(1)

 

Tenant Name

Credit Rating (Fitch/MIS/S&P)(2)

Tenant
GLA

% of
Owned
GLA

UW Base
Rent

% of Total
UW Base
Rent

UW Base
Rent
$ per SF

Tenant
Sales $
per SF

Occupancy
Cost

Lease
Expiration(3)

Renewal /
Extension
Options

Forever 21NR / NR / NR85,15011.2%$1,748,4085.4%$20.53$9022.9%6/30/20251, 5-year option
Dick’s Sporting GoodsNR / NR / NR83,07511.01,536,8884.7$18.50$15316.11/31/20273, 5-year options
Victoria’s SecretNR / Ba1 / BB9,4741.2729,4982.2$77.00$82415.61/31/2027N/A
Barnes & NobleNR / NR / NR30,4714.0700,0002.2$22.97$2688.61/31/20202, 5-year options
Arhaus FurnitureNR / NR / NR14,4841.9665,1052.0$45.92$48011.91/31/20251, 5-year option
ExpressNR / NR / NR7,4291.0638,0842.0$85.89$36423.61/31/20211, 5-year option
Pottery BarnNR / NR / NR13,3631.8637,9562.0$47.74$51111.21/31/2022N/A
Tyler’sNR / NR / NR17,1162.3597,0061.8$34.88$30215.210/31/20231, 5-year option
MicrosoftAA+ / Aaa / AAA6,5060.9527,2241.6$81.04$83410.96/25/2024N/A
Altar’d StateNR / NR / NR

6,809

0.9

511,545

1.6

$75.13

$57115.11/31/2025N/A
Ten Largest Owned Tenants273,87736.1%8,291,71425.5%$30.28    
Remaining Owned Tenants452,17159.624,192,90974.5$53.50    
Vacant Spaces (Owned Space)

32,183

4.2

0

0.0

$0.00

    
Totals / Wtd. Avg. All Owned Tenants(3)758,231100.0%$32,484,623100.0%$46.39    

 

 

(1)Based on the underwritten rent roll dated May 28, 2019.

(2)Certain ratings are those of the parent company whether or not the parent guarantees the lease.

(3)The Wtd. Avg. UW Base Rent $ per SF for Owned Tenant excludes 25,819 SF which has no attributable base rent.

 

The following table presents certain information relating to the lease rollover schedule at the Woodlands Mall Property based on initial lease expiration dates:

 

Lease Expiration Schedule(1)(2)

 

Year Ending
December 31

Expiring Owned
GLA

% of Owned GLA

Cumulative % of
Owned GLA

UW Base Rent

% of Total UW Base
Rent

UW Base Rent
$ per SF

# of Expiring
Tenants(4)

MTM1,9170.3%0.3%$00.0%$0.0016
201936,6165.15.1%$1,737,1885.345.0816
202070,7269.314.4%3,013,6729.342.6121
202135,9404.719.1%2,746,0178.576.4120
202275,79910.029.1%3,620,45311.147.7615
202344,4345.935.0%2,313,2107.152.0611
202468,6339.144.1%3,083,6319.544.9316
2025145,21119.263.2%5,566,08317.138.3315
202633,7464.567.7%2,439,3847.572.2914
2027124,64416.484.1%3,536,63510.928.378
202831,0944.188.2%2,215,4266.871.2513
202938,3715.193.3%1,636,7885.042.669
2030 & Thereafter18,9172.595.8%576,1371.830.464
Vacant

32,183

4.2

100.0%

NAP

NAP

NAP

NAP

Total / Wtd. Avg.(3)(4)758,231100.0% $32,484,623100.0%$46.39158

 

 

(1)Calculated based on the approximate square footage occupied by each collateral tenant.

(2)Certain tenants may have lease termination options that are exercisable prior to the originally stated expiration date of the subject lease and that are not considered in the Lease Expiration Schedule.

(3)# of Expiring Tenants excludes approximately 30 temporary/kiosk tenants who operate under short term leases.

(4)The Wtd. Avg. UW Base Rent $ per SF for Owned Tenant excludes 25,819 SF which has no attributable base rent.

 

The following table presents certain information relating to historical occupancy and estimated tenant sales at the Woodlands Mall Property:

 

Historical Leased % & In-line Sales(1)(2)

 

 

2010

2011

2012

2013

2014

2015

2016

2017

2018

Current(3)

Owned Occupancy including anchors(4)93.1%93.6%96.1%96.5%97.7%83.8%96.6%96.4%94.9%97.8%
Owned Occupancy excluding anchors(4)91.4%92.0%95.4%95.9%97.3%81.3%96.1%95.8%94.2%95.8%
In-line Tenant (<10,000 SF) Sales per SF(4)NAPNAPNAPNAPNAPNAP$723$711$717$708
In-line Tenant (<10,000 SF) Sales per SF
(excl. Apple)(4)
NAPNAPNAPNAPNAPNAP$622$602$590$569
 
(1)Historical Occupancy is based on the average of each respective year.

(2)Not all tenants at the Woodlands Mall Property are required to report sales.

(3)Current occupancy is based on the underwritten rent roll, including recently executed leases. Current sales data is as of the trailing 12 months ending May 31, 2019.

(4)In 2015, occupancy declined due to Dick’s Sporting Goods box being added to the Woodlands Mall Property, but not capturing Dick’s lease as in-place given they did not open for operation until October 2016.

(5)Apple’s sales are based on the tenant’s 8,409 SF that they will be expanding into in December 2019 in the existing mall.

 

14

 

 

LOAN #2: woodlands mall

 

Operating History and Underwritten Net Cash Flow. The following table presents certain information relating to the historical operating performance and the Underwritten Net Cash Flow at the Woodlands Mall Property:

 

Cash Flow Analysis(1)

 

 

2016

2017

2018

 

Underwritten

Underwritten

TTM 5/31/2019

$ per SF

Base Rent$28,621,745$31,111,560$32,538,184$33,313,292$32,484,623$42.84
Rent Steps(2)0000747,681$0.99
Gross Up Vacancy00002,965,936$3.91
Reimbursements11,821,12612,508,57811,984,19412,383,92613,320,934$17.57
Other Income(3)6,723,4258,189,5378,267,8248,220,4847,378,029$9.73
Vacancy & Credit Loss(122,935)(278,970)172,149(109,714)(2,965,936)($3.91)
Effective Gross Income

$47,043,362

$51,530,705

$52,962,351

$53,807,988

$53,931,267

$71.13

       
Real Estate Taxes2,779,7513,901,9524,054,1514,370,019$5,083,264$6.70
Insurance224,629212,697111,713116,909116,928$0.15
Management Fee1,000,0001,000,0001,000,0001,000,0001,000,000$1.32
Other Operating Expenses5,083,9264,894,7274,619,6274,614,4014,614,401$6.09
Total Operating Expenses

9,088,306

10,009,375

9,785,492

10,101,329

$10,814,593

$14.26
       
Net Operating Income

$37,955,056

$41,521,330

$43,176,859

$43,706,659

$43,116,674

$56.86

TI/LC0000758,231$1.00
Capital Expenditures0000151,646$0.20
Net Cash Flow

$37,955,056

$41,521,330

$43,176,859

$43,706,659

$42,206,797

$55.66

       
Occupancy(4)96.1%95.8%94.2%95.4%95.8% 
NOI Debt Yield(5)15.4%16.9%17.5%17.8%17.5% 
NCF DSCR(5)3.57x3.91x4.06x4.11x3.97x 

 

 

(1)Certain items such as straight line rent, interest expense, interest income, lease cancellation income, depreciation, amortization, debt service payments and any other non-recurring or non-operating items were excluded from the historical presentation and are not considered for the underwritten cash flow.

(2)Includes $621,640 of contractual rent steps through June 1, 2020 and the straight line average rent for Microsoft, Starbucks, Sephora, AT&T, Coach and Michael Kors.

(3)Other Income consists of % in lieu income ($550,214), overage rent ($722,055), specialty leasing income ($5,488,535), and miscellaneous income ($617,224), which includes parking revenue, carousal revenue and trash pad/recycling income.

(4)TTM Occupancy is based on the underwritten rent roll.

(5)Metrics are calculated based on the Loan Combination.

 

Appraisal. According to the appraisal, the Woodlands Mall Property had an “as-is” appraised value of $953,400,000 as of April 20, 2019.

 

Appraisal Approach

As-Is Value

Discount Rate

Capitalization Rate

Direct Capitalization Approach$957,400,000N/A    4.25%
Income Capitalization Approach(1)$953,400,0006.75% 4.75%(1)

 

 

(1)Represents the terminal capitalization rate.

 

Environmental Matters. According to a Phase I environmental report, dated May 3, 2019, there are no recognized environmental conditions or recommendations for further action at the Woodlands Mall Property, except that the following actions were recommended: (i) the biomedical waste generated from Unit 4010 (office dental unit) be disposed of in an appropriate manner by a contracted waste hauler, and (ii) continued implementation of the company-wide environmental / asbestos policy.

 

15

 

 

LOAN #2: woodlands mall

 

Market Overview and Competition. The Woodlands Mall Property is located in The Woodlands, Texas at the intersection of I-45. The Woodlands Mall was originally built across 1994, 2003 and 2016 as a two level enclosed shopping center. The Woodlands Mall Property is located within Houston’s largest and most successful mixed-use development known as The Woodlands, which is located approximately 30 miles north of Houston. Development of this community began in 1974 by The Woodlands Corporation, a subsidiary of Mitchell Energy and Development Corporation. The Woodlands is a master-planned community that includes residential, commercial, business, and industrial segments, and is designed to be a self-supporting economic entity. The Woodlands is home to more than nearly 112,000 residents and over 900 businesses employing an estimated 40,638 people. Single and multi-family home development totals over 26,000 homes with over five million SF of retail/general commercial space and seven million square feet of office and industrial space. Based on current population projections, The Woodlands’ residential component is forecasted to be fully built out by 2020 and is projected to have approximately 130,000 residents.

 

The following table presents certain information relating to the primary competition for the Woodlands Mall Property:

 

Competitive Set(1)

 

 

Woodlands Mall

Market Street at The Woodlands

Willowbrook Mall

Deerbrook Mall

Houston Premium Outlets

Distance from SubjectNAP0.1 miles15 miles15 miles20 miles
Property TypeSuper-Regional MallLifestyle CenterSuper-Regional MallSuper-Regional MallOutlet Center
Year Built1994, 2003, 20162003198119842008
Total GLA1,468,699492,2441,449,6321,211,733542,000
Total Occupancy95.8%98%97%99%99%
Sales per SF$680$650$610$530$500
Anchors & Jr. Anchors

Macy’s,

Dillard’s,

JC Penney,

Nordstrom,

Dick’s Sporting Goods,

Forever 21,

Barnes & Noble

HEB,

Cinemark

Macy’s,

Dillard’s,

JC Penney,

Nordstrom Rack,

Sears,

Dick’s Sporting Goods,

Forever 21

Macy’s,

Dillard’s,

JC Penney,

Sears,

Dick’s Sporting Goods,

Forever 21,

AMC 24

Saks Off Fifth,

Forever 21,

Nike Factory Store

 

 

(1)Source: Appraisal.

 

The Borrower. The mortgage borrower is The Woodlands Mall Associates, LLC (the “Woodlands Mall Borrower”), a single purpose, bankruptcy remote single member Delaware limited liability company with two independent directors. Legal counsel to the borrower provided a non-consolidation opinion in connection with the origination of the Woodlands Mall Loan Combination.

 

The borrower sponsor is BPR OP, LP, an affiliate of Brookfield Properties. Brookfield Properties is a fully-integrated, global real estate services company, providing industry-leading development and portfolio management capabilities across the real estate investment strategies of Brookfield Asset Management — a global alternative asset manager with over $365 billion in assets under management. Brookfield Properties manages or owns approximately 320 million SF of office, retail or multifamily commercial real estate worldwide.

 

Lockbox and Cash Management. The Woodlands Mall Whole Loan is structured with a hard lockbox and springing cash management. The Woodlands Mall Borrower was required at loan origination to deliver letters to all tenants at the Woodlands Mall Property directing them to deposit all rents and payments into a lender controlled lockbox account. To the extent no Cash Sweep Period (as defined below) is continuing, all funds in the lockbox account are required to be transferred to or at the direction of the Woodlands Mall Borrower. Following the occurrence and during the continuance of a Cash Sweep Period, all funds in the lockbox account are required to be swept each business day to a segregated cash management account under the control of the lender and disbursed in accordance with the loan documents.

 

During the continuance of a Cash Sweep Period, all excess cash will remain in the lender controlled account and held as additional collateral for the Woodlands Mall Whole Loan; provided, however, that if a Major Anchor Sweep Period (as defined below) is then continuing the excess cash will be deposited into a major anchor sweep reserve account to be applied pursuant to the mortgage loan documents.

 

A “Cash Sweep Period” means any period during the continuance of (i) an event of default under the loan documents, (ii) during a bankruptcy action of the Woodlands Mall Borrower or guarantor, (iii) any Low DSCR Trigger Period (as defined below), or (iv) the continuance of a Major Anchor Sweep Period (as defined below), until such time that Woodlands Mall Borrower has cured the applicable cause of the Cash Sweep Period in accordance with the terms of the mortgage loan documents.

 

16

 

 

LOAN #2: woodlands mall

 

A “Low DSCR Trigger Period” means any period during the continuance of which (i) the debt service coverage ratio (“DSCR”) based on the Woodlands Mall Whole Loan is less than 2.00x or (ii) the combined DSCR based on the Woodlands Mall Whole Loan and related mezzanine loan is less than 1.45x and will end on the earlier to occur (a) the date a DSCR of at least 2.00x and (b) a combined DSCR of at least 1.45x is achieved for as of any DSCR calculation date, as determined by the lender.

 

A “Major Anchor Sweep Period” will commence upon the earliest to occur of (a) the early termination, early cancellation or early surrender of the Major Anchor (as defined below) premises or upon the Woodlands Mall Borrower’s receipt of notice by a Major Anchor of its intent to effect an early termination, early cancellation or early surrender with respect its respective premises, (b) if a Major Anchor has ceased its business (“goes dark”) at substantially all of its space or (c) a bankruptcy action of any major anchor or its direct or indirect parent.

 

A Major Anchor Sweep Period will end (a) if such Major Anchor premises is owned by Woodlands Mall Borrower or an affiliate of the Woodlands Mall Borrower, a portion of the Major Anchor premises equal to at least the Occupancy Threshold (as defined below) has been redeveloped and/or is being operated for a retail or related use and in a manner which is not inconsistent with the operation of the balance of Woodlands Mall Property and such Major Anchor premises have been re-tenanted pursuant to the loan documents, or (iii) a portion of the Major Anchor premises equal to at least the Occupancy Threshold has been redeveloped and is open and being operated for a non-retail use in a manner which is complementary to the use of the balance of Woodlands Mall Property, but only if permitted by lender in its sole and absolute discretion, (b) if such Major Anchor premises is not owned by Woodlands Mall Borrower or an affiliate of Woodlands Mall Borrower, and (i) such Major Anchor premises is otherwise occupied and open for business with one or more retail operators in at least the applicable Occupancy Threshold, (ii) such Major Anchor premises has been redeveloped and/or is being operated in a manner which is not inconsistent with the operation of the balance of the Woodlands Mall Property, as determined by lender and open for business with one or more retail operators in at least the Occupancy Threshold, or (iii) a portion of the Major Anchor premises equal to at least the Occupancy Threshold has been redeveloped and is open and being operated for a non-retail use in a manner which is not inconsistent with the use of the balance of Woodlands Mall Property, but only if approved by the lender.

 

A “Major Anchor” is any of (a) Nordstrom, (b) Macy’s, (c) Dillard’s, (d) JCPenney or (e) any other owner, operator or tenant with respect to substantially all of any space occupied by such anchor tenants.

 

The “Occupancy Threshold” is (i) if a Major Anchor is 150,000 SF or greater, then 65% of such Major Anchor premises occupied or (ii) if the Major Anchor premises is less than 150,000 SF, then 80% of such Major Anchor premises occupied.

 

Escrows. In connection with the origination of the Woodlands Mall Loan, the Woodlands Mall Borrower funded rollover reserves of a $2,174,886 for tenant improvements.

 

On each due date, the Woodlands Mall Borrower will be required to fund the following reserves provided that a Cash Sweep Period under the Woodlands Mall Whole Loan documents has occurred and is continuing, (i) one-twelfth of the taxes that the lender estimates will be payable over the next-ensuing 12-month period, (ii) one-twelfth of the amount that the lender estimates will be necessary to pay insurance premiums for the renewal of coverage, provided that an insurance reserve will be waived if the Woodlands Mall Property is covered under an acceptable blanket policy, (iii) a monthly replacement reserve deposit of $15,720, subject to a cap of $377,291, (iv) a monthly rollover deposit of $125,764, subject to a cap of $3,018,324, (v) during the continuance of a Major Anchor Sweep Period, all excess funds (after payment of all amounts due under the Woodlands Mall Whole Loan Documents, including the monthly reserves) will be swept into a subaccount of the cash management account to be held as additional collateral for the Woodlands Mall Loan until an aggregate amount equal to the Individual Anchor Cap (as defined below) for all Major Anchor Periods then existing has been deposited into such subaccount (the “Anchor Sweep Reserve”).

 

An “Individual Major Anchor Cap” means (x) if a Major Anchor Sweep Period has occurred with respect to either JCPenney or Nordstrom, an amount equal to not less than the product obtained by multiplying $75.00 by the aggregate amount of gross leasable SF of the Major Anchor premises previously occupied by the applicable Major Anchor and (y) if a Major Anchor Sweep Period has occurred with respect to either Dillard’s or Macy’s, an amount equal to not less than the product obtained by multiplying $100.00 by the aggregate amount of gross leasable SF of the Major Anchor premises previously occupied by the applicable the Major Anchor.

 

Property Management.The Woodlands Mall Property is self-managed.

 

17

 

 

LOAN #2: woodlands mall

 

Current Mezzanine or Subordinate Indebtedness.In connection with origination of Woodlands Mall Whole Loan, DBNY provided a mezzanine loan with a principal balance of approximately $40.0 million (the “Woodlands Mall Mezzanine Loan”) to an affiliate of the Woodlands Mall Borrower. The Woodlands Mall Mezzanine Loan is secured by a pledge of the direct equity interest in the Woodlands Mall Borrower and is coterminous with the Woodlands Mall Whole Loan. The Woodlands Mall Mezzanine Loan accrues interest at a rate of 5.50000%per annum and is fully amortizing by the August 1, 2029 maturity date pursuant to a fixed amortization schedule as set forth in Annex G in the Prospectus. The Woodlands Mall Mezzanine Loan was sold to a third party. Based on the combined Woodlands Mall Whole Loan and the Woodlands Mall Mezzanine Loan, the cumulative Cut-off Date LTV is 48.8%, the cumulative U/W NCF DSCR is 1.79x and the cumulative U/W NOI Debt Yield is 9.1%. The rights of the mezzanine lender under the Woodlands Mall Mezzanine Loan are further described under“Description of the Mortgage Pool—Additional Indebtedness—Mezzanine Indebtedness” in the Prospectus.

 

Total Debt Metrics

 

 % of Total DebtCut-off Date
Cumulative LTV

UW Cumulative NOI

Debt Yield

UW Cumulative NCF

DSCR

A-Notes52.9%25.8%17.5%3.97x
$246,200,000
B-Notes38.5%44.6%10.1%2.30x
$178,800,000
Mezzanine8.6%48.8%9.3%2.10x
$40,000,000

 

Permitted Future Mezzanine or Subordinate Indebtedness.From and after the final securitization of the Woodlands Mall Loan Combination, the Woodlands Mall Borrower will have a one-time right to cause a permitted mezzanine Woodlands Mall Borrower to incur additional indebtedness in the form of a mezzanine loan (the “Permitted Mezzanine Loan”), subject to the consent of the lender in its sole and absolute discretion and satisfaction of all of the following conditions precedent: (i) no event of default shall then be continuing; (ii) the principal amount of the Permitted Mezzanine Loan shall in no event be greater than an amount equal to the lesser of (A) $35,000,000; (B) the amount which will yield an aggregate loan-to-value ratio (including the Loan and the proposed Permitted Mezzanine Loan) of 52%; (C) the amount which shall yield a permitted mezzanine debt service coverage ratio that is equal to or greater than 1.25x; and (D) the amount which will yield a combined debt yield of 8.6%; (iii) the collateral for the Permitted Mezzanine Loan will include only pledges of the direct or indirect equity interests in Mezzanine A Woodlands Mall Borrower (which will not include the cash management account and will not include any portion of the Woodlands Mall Property); (iv) the lender of the Permitted Mezzanine Loan shall be an approved mezzanine lender and shall not be an affiliate of Woodlands Mall Borrower ; (v) the lender of the Permitted Mezzanine Loan shall enter into a market intercreditor agreement with the lender and Mezzanine A lender in form and substance acceptable to the lender, Mezzanine A lender and the applicable rating agencies in their reasonable discretion; (vi) the maturity date of the Permitted Mezzanine Loan shall be coterminous with the maturity date and the Permitted Mezzanine Loan shall amortize on a customary monthly basis in amounts sufficient to pay off the principal balance thereof in full on the Maturity Date; (vii) all loan documents governing the Permitted Mezzanine Loan shall be acceptable to Lender in its reasonable discretion and otherwise consistent with the Mezzanine A Loan Documents (collectively, the “Permitted Mezzanine Loan Documents”) and permitted mezzanine Woodlands Mall Borrower shall satisfy such other conditions as are customary in connection with such mezzanine loans and delivers such other documents, agreements, certificates and legal opinions (including but not limited to an additional insolvency opinion which shall be in form, scope and substance reasonably acceptable in all respects to the lender and the rating agencies) as the lender shall reasonably request; (viii) the Permitted Mezzanine Borrower and any other pledgors of interests in the Woodlands Mall Borrower shall be structured into the organizational structure of the Woodlands Mall Borrower and Mezzanine A borrower in a manner such as not to adversely affect the bankruptcy remote nature of the Woodlands Mall Borrower , which structure shall be consistent with all current rating agency criteria, all as determined in the reasonable opinion of the lender; (ix) the lender will have received a rating agency confirmation from the applicable rating agencies confirming that such new mezzanine loan will not cause a downgrade, withdrawal or qualification of the then current rating of the securities or any class thereof; (x) all organizational documents of the Woodlands Mall Borrower and all loan documents shall be revised and/or amended to the reasonable satisfaction of the lender to reflect such changes as are necessary for the Permitted Mezzanine Loan; and (xi) the Woodlands Mall Borrower shall pay all of the lender’s reasonable out-of-pocket costs and expenses in connection with such Permitted Mezzanine Loan.

 

Release of Collateral.The Woodlands Mall Borrower may obtain the release of (A) one or more vacant, non-income producing and unimproved parcels or outlots or (B) any parcel of land, together with any improvements located thereon, that (a) constitutes an integral part of, or adjoins to, or is proximately located near the Woodlands Mall of which the Woodlands Mall Property is a part, (b) is not owned by the Woodlands Mall Borrower on the closing date, and (c) is not an Acquired Parcel. Expansion Parcels shall expressly include any Major Anchor Premises or any part

 

18

 

 

LOAN #2: woodlands mall

 

 thereof (the “Expansion Parcel”), upon satisfaction of specified conditions including, among other things, that (i) there is no event of default, (ii) the parcel subject to the release is not necessary for the remaining Woodlands Mall Property to comply with zoning or legal requirements, (iii) the release will not result in the downgrade, withdrawal or qualification of the then current rating assigned to any class of certificates, (iv) the release will not result in an LTV ratio that does not comply with REMIC guidelines to be less than 125% and (v) the release will not result in a material diminution in the value of Woodlands Mall Property. In addition, with respect to an Expansion Parcel that is an anchor premises, such anchor premises may be released with the reasonable consent of the lender to another retail operator that has agreed in writing to open and operate the anchor premises for retail use within 24 months from the date of release and no reserves have been expended with respect to such anchor premises.

 

In addition, the Woodlands Mall Borrower is permitted to obtain the release of collateral parcels (an “Exchange Parcel”) from the lien of the mortgage in exchange for the substitution of new parcels (each, an “Acquired Parcel”) as collateral for the Woodlands Mall Whole Loan upon 20 days prior notice, subject to the satisfaction of certain conditions, including among other things, that: (i) the Exchange Parcel is vacant, non-income producing and unimproved (or improved only by landscaping or readily re-locatable facilities), (ii) with respect to the Acquired Parcel, the Woodlands Mall Borrower has delivered, among other things (a) an environmental report acceptable to lender, (b) title insurance, (c) if the Acquired Parcel is improved, a property condition report indicating that the Acquired Parcel is in good condition and (d) if repairs are recommended by the property condition report or if the environmental report discloses the presence of hazardous materials at the Acquired Parcel, in an amount equal to $21,250,000 (“Alteration Threshold”), cash or a guaranty from the guarantor in an amount equal to 125% of any estimated repairs or remediation costs, as applicable, (iii) the LTV ratio of the remaining Woodlands Mall Property (after giving effect to such substitution) is equal to or less than 125% unless the Acquired Parcel has a fair market value equal to or greater than the fair market value of the Exchange Parcel and (iv) the substitution does not adversely affect the debt service coverage ratio of the Woodlands Mall Whole Loan except in a de minimis manner. See“Description of the Mortgage Pool – Certain Terms of the Mortgage Loans – Partial Releases” in the Prospectus.

 

Terrorism Insurance. The Woodlands Mall Loan Combination documents require that the “all-risk” insurance policy required to be maintained by the Woodlands Mall Borrower provides coverage for terrorism in an amount equal 100% of the replacement cost of the Woodlands Mall Property, or that if the Terrorism Risk Insurance Program Reauthorization Act is no longer in effect and such policies contain an exclusion for acts of terrorism, the Woodlands Mall Borrower will obtain, to the extent available, a stand-alone policy that provides the same coverage as the policies would have if such exclusion did not exist. See “Risk Factors—Terrorism Insurance May Not Be Available for All Mortgaged Properties” in the Preliminary Prospectus.

 

19

 

 

LOAN #3: THE ZAPPETTINI PORTFOLIO

 

 

Mortgaged Property Information Mortgage Loan Information
Number of Mortgaged Properties10 Loan Seller CREFI
Location (City/State)Mountain View, California Cut-off Date Balance(4) $65,000,000
Property TypeOffice Cut-off Date Balance per SF(3) $476.99
Size (SF)251,575 Percentage of Initial Pool Balance 5.5%
Total Occupancy as of 8/6/2019(1)100.0% Number of Related Mortgage Loans None
Owned Occupancy as of 8/6/2019(1)100.0% Type of Security Fee Simple
Year Built / Latest RenovationVarious / Various Mortgage Rate 4.30000%
Appraised Value(2)$187,400,000 Original Term to Maturity (Months) 60
Appraisal Date5/7/2019 Original Amortization Term (Months) NAP
Borrower SponsorJohn Zappettini and Original Interest Only Period (Months) 60
 Zappettini Investment Company, LLC First Payment Date 7/6/2019
Property ManagementZappettini Capital Terra Bella LLC Maturity Date 6/6/2024
      
Underwritten Revenues$10,955,024    
Underwritten Expenses$1,364,472 Escrows(5)
Underwritten Net Operating Income (NOI)$9,590,551  UpfrontMonthly
Underwritten Net Cash Flow (NCF)$9,555,142 Taxes$347,991$57,999
Cut-off Date LTV Ratio(3)64.0% Insurance$34,225$5,704
Maturity Date LTV Ratio(3)64.0% Replacement Reserve(6)$150,000$0
DSCR Based on Underwritten NOI / NCF(3)1.83x / 1.83x TI/LC$1,667,365$0
Debt Yield Based on Underwritten NOI / NCF(3)8.0% / 8.0% Other$0$0
      
Sources and Uses
Sources$ % Uses$ %
Loan Combination$120,000,000100.0% Loan Payoff$76,803,012   64.0%
    Partner Buyout(7)33,675,26428.1
    Principal Equity Distribution6,650,6905.5
    Upfront Reserves2,199,5811.8
    Closing Costs671,4530.6
Total Sources$120,000,000100.0% Total Uses$120,000,000100.0%

 

 
(1)Based on the underwritten rent rolls dated as of May 21, 2019 for the 850 – 900 North Shoreline property and the underwritten rent roll dated as of August 6, 2019 for the remaining properties.

(2)Appraised Value is based on the sum of the “as-is” values of all the properties in the portfolio. See “--The Mortgaged Properties” below.

(3)Calculated based on the aggregate outstanding principal balance as of the Cut-off Date of The Zappettini Portfolio Loan Combination (as defined below).

(4)The Cut-off Date Balance of $65,000,000 represents the controlling note A-1 of The Zappettini Portfolio Loan Combination, which is evidenced by twopari passu notes and has an aggregate outstanding principal balance as of the Cut-off Date of $120,000,000. The Zappettini Loan Combination also consists of one non-controlling note A-2 with an original outstanding balance of $55,000,000, which is currently being held by CREFI (as defined below).

(5)See “-Escrows” below.

(6)Monthly deposits into the replacement reserve account are waived so long as the balance in the replacement reserve account remains greater than or equal to $150,000. If the balance in the replacement reserve account falls below $150,000, the borrowers are required to deposit a monthly amount equal to $5,451 until the balance reaches the cap of $150,000.

(7)A portion of loan proceeds were used to fund the buyout of previous partners’ interests.

 

The Mortgage Loan. The mortgage loan (“The Zappettini Portfolio Loan”) is part of a loan combination (“The Zappettini Portfolio Loan Combination”) evidenced by twopari passu notes that are together secured by a first mortgage encumbering the borrowers’ fee simple interest in a ten-property office portfolio located in Mountain View, California, comprising 251,575 SF of net rentable area (each, a “The Zappettini Portfolio Property”and together “Zappettini Portfolio Properties”). The Zappettini Portfolio Loan, which is evidenced by the controlling note A-1, had an original principal balance of $65,000,000, has a Cut-off Date Balance of $65,000,000 and represents approximately 5.5% of the Initial Pool Balance. The Zappettini Portfolio Loan Combination had an original principal balance of $120,000,000 and has an outstanding principal balance as of the Cut-off Date of $120,000,000. The non-controlling note A-2, which had an original principal balance of $55,000,000 and has an outstanding principal balance as of the Cut-off Date of $55,000,000, is currently held by Citi Real Estate Funding Inc. (“CREFI”) and is expected to be contributed to one or more future securitization transactions. The Zappettini Portfolio Loan Combination, which accrues interest at a fixed rate of 4.30000%per annum, was originated by CREFI on May 31, 2019. The proceeds of The Zappettini Portfolio Loan Combination were primarily used to pay off existing debt, fund the buyout of previous partners’ interests, return equity to the sponsor, fund upfront reserves and pay closing costs.

 

The Zappettini Portfolio Loan Combination had an initial term of 60 months and has a remaining term of 58 months as of the Cut-off Date. The Zappettini Portfolio Loan Combination requires monthly payments of interest only for the term of The Zappettini Portfolio Loan Combination. The scheduled maturity date of The Zappettini Portfolio Loan Combination is the due date in June 2024.Provided no event of default has occurred and is continuing, at any time after the earlier to occur of (i) May 31, 2022 and (ii) the second anniversary of the last securitization of a note comprising part of The Zappettini Portfolio Loan Combination (the “Release Date”), The Zappettini Portfolio Loan Combination may be defeased with certain direct full faith and credit obligations of the United States of America or other obligations which are “government securities” permitted under The Zappettini Portfolio Loan documents. TheZappettini Portfolio Loan Combination may be prepaid with payment of a yield maintenance premium at any time prior to the due date occurring in December 2023. Voluntary prepayment of The Zappettini Portfolio Loan Combination is permitted on or after the due date occurring in December 2023 without payment of any prepayment premium.

 

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LOAN #3: THE ZAPPETTINI PORTFOLIO

The Zappettini Portfolio Loan Combination Summary
NoteOriginal BalanceCut-off Date Balance Note HolderControlling Piece
A-1  $65,000,000  $65,000,000 Benchmark 2019-B12Yes
A-2  $55,000,000  $55,000,000 CREFI(1)No
Total$120,000,000$120,000,000   

 

 
(1)Note A-2 is currently held by CREFI and is expected to be contributed to one or more future securitization transactions.

 

The Mortgaged Properties.The Zappettini Portfolio Properties are comprised of 251,575 SF of suburban office space across 10 buildings all of which are located in Mountain View, California.

 

Portfolio Summary(1)

 

Property Name

 

Year Built / Renovated

 

SF

 

Allocated Loan Combination Cut-off Date Balance

 

% Allocated Loan Combination Original Balance

 

Appraisal Date(2)

 

Appraised Value(2)

 

% Appraised Value(2)

 

UW NCF

 

% of UW NCF

1350 West Middlefield 1975 / NAP 29,670 $9,100,000  14.0% 5/7/2019 $22,700,000  12.1% 1,435,544  15.0%
1212 Terra Bella 1976 / NAP 37,166 8,796,667  13.5  5/7/2019 26,500,000  14.1  1,273,068  13.3 
850 – 900 North Shoreline 1969 / NAP 31,347 8,775,000  13.5  5/7/2019 24,300,000  13.0  1,287,244  13.5 
1277 Terra Bella 1962 / 2017 24,000 8,666,667  13.3  5/7/2019 22,000,000  11.7  1,281,065  13.4 
1215 Terra Bella 1974 / NAP 25,000 6,315,292  9.7  5/7/2019 17,800,000  9.5  915,046  9.6 
1340 West Middlefield 1977 / NAP 25,000 5,997,333  9.2  5/7/2019 17,300,000  9.2  856,630  9.0 
1255 Terra Bella 1990 / NAP 17,980 4,888,542  7.5  5/7/2019 14,100,000  7.5  695,611  7.3 
1305 Terra Bella 1977 / NAP 20,732 4,241,250  6.5  5/7/2019 14,100,000  7.5  631,417  6.6 
1330 West Middlefield 1975 / NAP 25,000 4,197,917  6.5  5/7/2019 17,000,000  9.1  572,850  6.0 
1245 Terra Bella 1965 / NAP 15,680 4,021,333  6.2  5/7/2019 11,600,000  6.2  606,667  6.3 
Total / Wtd. Avg.   251,575 $65,000,000  100.0%   $187,400,000  100.0% $9,555,142  100.0%

 

 
(1)Based on the underwritten rent rolls dated as of May 21, 2019 for the 850 – 900 North Shoreline property and as of August 6, 2019 for the remaining properties.

(2)Source: Appraisal.

 

The Zappettini Portfolio Properties are 100% occupied by tenants, including Google, Inc. (“Google”), The County of Santa Clara, and Elementum SCM, Inc. (“Elementum”) amongst others. The Zappettini Portfolio Properties are located directly across Freeway 101 from Google’s global headquarters and Microsoft’s Silicon Valley campus. The City of Mountain View is currently developing a growth plan, known as the Terra Bella Vision Plan, which is aimed at a complete redevelopment of a 110-acre area which includes the area where the Zappettini Portfolio Properties are located. According to the City of Mountain View’s planning personnel, the overall planned changes are expected to take place in the next three to five years and it is expected that this will have a positive value impact on the Zappettini Portfolio Properties.

 

Six of the 10 properties were developed by the sponsor for The Zappettini Portfolio Loan and the remaining four properties were acquired between 2016 and 2018. Each building is occupied by a single tenant other than the 850 – 900 North Shoreline property, which is occupied by two tenants. Across the portfolio, tenants have been at the Zappettini Portfolio Properties for a weighted average lease term of approximately 9.1 years. Additionally, approximately 42.8% of the Zappettini Portfolio Properties is leased to investment grade tenants, which include Elementum, Google and The County of Santa Clara. According to the appraisal, the leases at the Zappettini Portfolio Properties range from 0.5% above to 51.1% below market rent with a weighted average below market rent of 21.5%.

 

Elementum SCM, Inc.

Elementum leases a total of 49,000 SF in two buildings within the Zappettini Portfolio Properties. Elementum leases and occupies the entire 24,000 SF at the 1277 Terra Bella mortgaged property pursuant to a lease that commenced in September 2017 and expires in December 2024. At any time after December 31, 2020, Elementum may terminate its lease at the 1277 Terra Bella property with written notice at least nine months prior to the effective date of termination. Elementum also leases the entire 25,000 SF at the 1215 Terra Bella mortgaged property pursuant to a lease that commenced in February 2018 and expires in January 2023. At any time after January 31, 2021, Elementum may terminate its lease at the 1215 Terra Bella property with written notice at least nine months prior to the effective date of termination. However, Elementum currently subleases its space at the 1215 Terra Bella mortgaged property to two tenants. Firewood Marketing, Inc., which occupies 12,861 SF of space with a sublease dated July 31, 2018 that expires on January 31, 2021 and Glowlink Communications Technology, Inc., which occupies 12,139 SF of space with a sublease dated October 25, 2018 that also expires on January 31, 2021. Elementum’s short term plan is to sublease this space until they require more space in the future.‎ Elementum provides mobile platform development services. It offers data, cloud, and mobile technology solutions for supply chain management to automotive, healthcare, industrial and technology clients throughout the United States.

 

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LOAN #3: THE ZAPPETTINI PORTFOLIO

 

Egnyte, Inc.

Egnyte, Inc. occupies the entire 29,670 SF at the 1350 West Middlefield property, on a triple-net lease that commenced in March 2014 and expires in April 2024. The tenant does not have any renewal options under the lease. Egnyte, Inc. can terminate its lease at any time after April 30, 2022 with at least nine months’ written notice. The 1350 West Middlefield property is the location of its headquarters. Egnyte, Inc.is a privately held company, founded in 2007, which provides content collaboration, data protection and infrastructure modernization services to customers in various industries.

 

Google, Inc. (Planet Labs, Inc.)

Google occupies the entire 17,980 SF, at the 1255 Terra Bella property. Planet Labs, Inc. occupies the entire 15,680 SF, at the 1245 Terra Bella property, on a sublease with Google that commenced in April 2017 and expires in March 2021. Google guarantees Planet Labs, Inc.’s sublease and is a shareholder of Planet Labs, Inc. Planet Labs, Inc. is a private Earth imaging company based in San Francisco, California. The company’s goal is to image the entirety of the planet daily to monitor changes and pinpoint trends.

 

The following table presents certain information relating to the major tenants (of which certain tenants may have co-tenancy provisions) at the Zappettini Portfolio Properties:

 

Largest Owned Tenants by Underwritten Base Rent(1)

 

Tenant Name 

Credit Rating (Fitch/MIS/S&P)(2)

 Tenant GLA % of GLA 

UW Base Rent(3)

 

% of Total UW Base Rent(3)

 

UW Base Rent
$ per SF(3)

 Lease Expiration Renewal / Extension Options
Elementum SCM, Inc.(4)(6) BBB- / Baa3 / BBB- 49,000 19.5% $2,345,760 22.8% $47.87  1/31/2023 One, Five year extension
Egnyte, Inc.(5) BB / Ba3 / BB 29,670 11.8  1,520,291 14.8  51.24  4/30/2024 NAP
Google, Inc.(6) NR / Aa2 / AA+ 33,660 13.4  1,395,669 13.6  41.46  3/10/2021 NAP
Iridex Corporation NR / NR / NR 37,166 14.8  1,355,147 13.2  36.46  2/28/2022 NAP
Nuro, Inc.(7) NR / NR / NR 25,000 9.9  911,550 8.9  36.46  8/15/2023 NAP
Zendesk (X Motors)(6) NR / NR / NR 16,613 6.6  867,199 8.4  52.20  12/31/2021 NAP
Vimo, Inc. NR / NR / NR 20,732 8.2  671,717 6.5  32.40  6/30/2023 NAP
The County of Santa Clara AA+ / NR / AAA 25,000 9.9  623,099 6.1  24.92  9/30/2021 One, Two-year extension
Vita Insurance Associates, Inc.(8) NR / NR / NR 14,734 5.9  592,846 5.8  40.24  12/31/2026 One, Three-year extension
Largest Owned Tenants   251,575 100.0% $10,283,276 100.0% $40.88     
Vacant   0 0.0  0 0  0     
Total / Wtd. Avg. All Tenants   251,575 100.0% $10,283,276 100.0% $40.88     

 

 
(1)Based on the underwritten rent rolls dated as of May 21, 2019 for the 850 – 900 North Shoreline property and as of August 6, 2019 for the remaining properties.

(2)Certain ratings are those of the parent company whether or not the parent guarantees the lease.

(3)UW Base Rent, % of Total UW Base Rent and UW Base Rent $ per SF includes approximately $262,799 in contractual rent steps through May 2020 and $32,099 which represents the present value of rent steps for The County of Santa Clara.

(4)At any time after January 31, 2021, Elementum may terminate its lease at the 1215 Terra Bella property with written notice at least nine months prior to the effective date of termination. At any time after December 31, 2020, Elementum may terminate its lease at the 1277 Terra Bella property with written notice at least nine months prior to the effective date of termination.

(5)At any time after April 30, 2022, Egnyte, Inc. may terminate its lease at the 1350 West Middlefield property with written notice at least nine months prior to the effective date of termination.

(6)Several of the properties are subleased. Google is currently subleasing the 1245 Terra Bella property (15,680 SF) to Planet Labs, Inc. Google guarantees the sublease and currently is a shareholder in Planet Labs, Inc. Elementum is currently subleasing the 1215 Terra Bella property to Firewood Marketing, Inc and Glowlink, with a plan to move into these properties once they require the space and have to expand. Zendesk is currently subleasing the 850 – 900 North Shoreline property to XMotors. XMotors will take over the lease officially in 2020 with an expiration of 2021

(7)At any time after February 1, 2022, Nuro, Inc. may terminate its lease at the 1340 West Middlefield property with written notice at least nine months prior to the effective date of termination.

(8)At any time after December 31, 2020, Vita Insurance Associates, Inc. may terminate its lease at the 850 – 900 North Shoreline property with written notice at least six months prior to the effective date of termination.

 

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LOAN #3: THE ZAPPETTINI PORTFOLIO

 

 

The following table presents certain information relating to the lease rollover schedule at the Zappettini Portfolio Properties, based on initial lease expiration dates:

 

Lease Expiration Schedule(1)(2)

 

Year Ending

December 31

 

Expiring

Owned GLA

 % of Owned GLA Cumulative % of Owned GLA 

UW Base Rent(3)

 

% of Total UW Base Rent(3)

 

UW Base Rent $ per SF(3)

 # of Expiring Tenants
MTM 0  0.0% 0.0% $0  0.0% $0.00  0 
2019 0  0.0  0.0  0  0.0  0.00  0 
2020 0  0.0  0.0  0  0.0  0.00  0 
2021 75,273  29.9  29.9  2,885,966  28.1  38.34  3 
2022 37,166  14.8  44.7  1,355,147  13.2  36.46  1 
2023 70,732  28.1  72.8  2,555,267  24.8  36.13  3 
2024 53,670  21.3  94.1  2,894,051  28.1  53.92  2 
2025 0  0.0  94.1  0  0.0  0.00  0 
2026 14,734  5.9  100.0  592,846  5.8  40.24  1 
2027 0  0.0  100.0  0  0.0  0.00  0 
2028 0  0.0  100.0  0  0.0  0.00  0 
2029 0  0.0  100.0  0  0.0  0.00  0 
2030 & Beyond 0  0.0  100.0  0  0.0  0.00  0 
Vacant 0  0.0  100.0  

NAP

  

NAP

  

NAP

  

NAP

 
Total / Wtd. Avg. 251,575  100.0%    $10,283,276  100.0% $40.88  10 

 

 
(1)Calculated based on the approximate square footage occupied by each collateral tenant.

(2)Certain tenants may have lease termination options that are exercisable prior to the originally stated expiration date of the subject lease and that are not considered in the Lease Expiration Schedule.

(3)UW Base Rent, % of Total UW Base Rent and UW Base Rent $ per SF includes approximately $262,799 in contractual rent steps through May 2020 and $32,099 which represents the present value of rent steps for The County of Santa Clara.

 

The following table presents certain information relating to historical leasing at the Zappettini Portfolio Properties:

 

Historical Leased %(1)

 

Property

2016

2017

2018

Most Recent(2)

1350 West Middlefield100.0%100.0%100.0%100.0%
1212 Terra Bella100.0%100.0%100.0%100.0%
850 - 900 North ShorelineNAV100.0%100.0%100.0%
1277 Terra BellaNAVNAV100.0%100.0%
1215 Terra Bella100.0%NAV100.0%100.0%
1340 West Middlefield100.0%100.0%NAV100.0%
1255 Terra Bella83.3%100.0%100.0%100.0%
1305 Terra Bella100.0%100.0%100.0%100.0%
1330 West Middlefield100.0%100.0%100.0%100.0%
1245 Terra Bella83.3%100.0%100.0%100.0%

 

 
(1)Historical occupancies are as of December 31 of each respective year.

(2)Most Recent occupancy is based on the underwritten rent roll dated as of May 21, 2019 for the 850 – 900 North Shoreline property and as of August 6, 2019 for the remaining properties.

 

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LOAN #3: THE ZAPPETTINI PORTFOLIO

 

 

Operating History and Underwritten Net Cash Flow. The following table presents certain information relating to the Underwritten Net Cash Flow at the Zappettini Portfolio Properties:

 

Cash Flow Analysis(1)

 

  2016 2017 2018 Trailing 12 3/19 Underwritten 

Underwritten

$ per SF

Base Rent(2) $6,674,789  $6,294,118  $8,083,005  $8,499,156  $9,988,378  $39.70 
Rent Steps(3) 0.00  0.00  0.00  0.00  294,898  1.17 
Potential Income from Vacant Space 0.00  0.00  0.00  0.00  0.00  0.00 
Reimbursements 894,460  933,417  1,569,368  1,697,995  1,248,327  4.96 
Gross Potential Rent 7,569,249  7,227,536  $9,652,372  $10,197,152  $11,531,604  $45.84 
Economic Vacancy & Credit Loss(4) 0.00  0.00  0.00  0.00  (576,580) (2.29)
Effective Gross Income $7,569,249  $7,227,536  $9,652,372  $10,197,152  $10,955,024  $43.55 
                   
Real Estate Taxes $285,882  $410,259  $727,851  $725,322  $662,841  $2.63 
Insurance 241,961  285,943  476,533  545,963  65,190  0.26 
Management Fee 227,077  216,826  289,571  305,915  328,651  1.31 
Other Operating Expenses 311,281  419,377  353,489  340,306  307,791  1.22 
Total Operating Expenses $1,066,201  $1,332,405  $1,847,444  $1,917,505  $1,364,472  $5.42 
                   
Net Operating Income(5) $6,503,048  $5,895,131  $7,804,928  $8,279,647  $9,590,551  $38.12 
Replacement Reserves 0.00  0.00  0.00  0.00  35,410  0.14 
TI/LC 0.00  0.00  0.00  0.00  0.00  0.00 
Net Cash Flow 6,503,048  $5,895,131  $7,804,928  $8,279,647  $9,555,142  $37.98 
                   
Occupancy 97.1% 91.3% 90.1% 100.0.%(5) 95.0%(3)   
NOI Debt Yield(6) 5.4% 4.9% 6.5% 6.9% 8.0%   
NCF DSCR(6) 1.24x 1.13x 1.49x 1.58x 1.83x   

 

 
(1)Certain items such as straight line rent, interest expense, interest income, lease cancellation income, depreciation, amortization, debt service payments and any other non-recurring or non-operating items are not considered for the underwritten cash flow.

(2)Based on the underwritten rent rolls dated as of May 21, 2019 for the 850 – 900 North Shoreline property and the underwritten rent roll dated as of August 6, 2019 for the remaining properties.

(3)Represents approximately $262,799 in contractual rent steps through May 2020 and $32,099 which represents the present value of rent steps for The County of Santa Clara.

(4)Underwritten Economic Vacancy & Credit Loss represents the economic vacancy of 5.0%.

(5)2016 and 2017 cash flows were not provided for the 1277 Terra Bella property because the property was renovated in 2018. Overall, the increase from 2016 Net Operating Income to March 31, 2019 Net Operating Income as well as the increase from March 31, 2019 Net Operating Income to Underwritten Net Operating Income is primarily attributable to recent leasing at the properties. The 1215 Terra Bella property was vacant in 2017 and Elementum executed a lease that commenced in February 2018 accounting for $972,000 of Underwritten Base Rent. The 1340 West Middlefield property was vacant in 2018 and Nuro, Inc. executed a lease that commenced in February 2019 accounting for $911,950 of Underwritten Base Rent. In addition, rent steps were underwritten at $294,898 (inclusive of contractual rent steps through 2020 and present value rent steps for The County of Santa Clara). Earthquake insurance was also required in the past at the Zappettini Portfolio Properties, however going forward, the borrowers are not required to maintain earthquake insurance, which is why the Underwritten Insurance expense is lower than historical Insurance expense.

(6)Metrics are calculated based on the Loan Combination.

 

Appraisal. According to the appraisal, the Zappettini Portfolio Properties had an aggregate “as-is” appraised value of $187,400,000 as of May 7, 2019.

 

Property

Appraisal Approach

Value

Discount Rate

Capitalization Rate

1350 West MiddlefieldDirect Capitalization Approach$23,000,000 N/A6.00%
Discounted Cash Flow Approach(1)$22,500,000 8.00%6.50%(1)
1212 Terra BellaDirect Capitalization Approach$25,900,000 N/A4.75%
Discounted Cash Flow Approach(1)$26,400,000 8.00%6.50%(1)
850 - 900 North ShorelineDirect Capitalization Approach$24,400,000 N/A5.5%
Discounted Cash Flow Approach(1)$24,100,000 8.00%6.50%(1)
1277 Terra BellaDirect Capitalization Approach$22,200,000 N/A5.75%
Discounted Cash Flow Approach(1)$21,800,000 7.50%6.50%
1215 Terra BellaDirect Capitalization Approach$17,700,000 N/A5.00%
Discounted Cash Flow Approach(1)$17,800,000 8.00%6.50%
1340 West MiddlefieldDirect Capitalization Approach$17,400,000 N/A4.75%
Discounted Cash Flow Approach(1)$17,200,000 8.00%6.50%
1255 Terra BellaDirect Capitalization Approach$14,300,000 N/A4.75%
Discounted Cash Flow Approach(1)$14,000,000 7.00%6.50%
1305 Terra BellaDirect Capitalization Approach$14,000,000 N/A4.50%
Discounted Cash Flow Approach(1)$14,200,000 8.00%6.50%
1330 West MiddlefieldDirect Capitalization Approach$17,200,000 N/A3.00%
Discounted Cash Flow Approach(1)$17,000,000 8.00%6.50%
1245 Terra BellaDirect Capitalization Approach$11,800,000 N/A5.00%
Yield Capitalization Approach(1)$11,500,000 7.50%6.50%(1)

 

 
(1)Represents the terminal cap rate.

 

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LOAN #3: THE ZAPPETTINI PORTFOLIO

 

 

Environmental Matters. The Phase I environmental reports, dated on May 20, 2019, identify as a REC for the following properties their location within a National Priorities List (“NPL”) site groundwater plume: 1212 Terra Bella, 1277 Terra Bella, 1215 Terra Bella, 1340 West Middlefield, 1255 Terra Bella, 1305 Terra Bella, 1330 West Middlefield, and 1245 Terra Bella (collectively, the “Zappettini NPL Properties”). According to the Phase I ESA consultant, groundwater remediation activities have been and are continuing to be performed by the responsible party identified as Thermo Fisher (formerly Spectra Physics). As part of the remediation, soil vapor extraction/mitigation systems have been installed at 1245 Terra Bella and the 1277 Terra Bella properties, and a system has been proposed at the 1255 Terra Bella property. The identified responsible party is also conducting vapor intrusion investigations and monitoring activities at certain properties within the area overlying the groundwater plume. While Thermo Fisher remains responsible and liable for investigation and remediation of the groundwater plume underlying the properties, the Regional Water Quality Control Board (“RWQCB”) has recommended that the borrowers share in the cost of the soil vapor mitigation at 1277 Terra Bella due to a low concentration of a Halogenated Volatile Organic Compound identified in the soil in such property, the source of which is unknown and possibly not related to the Thermo Fisher plume. Subject to this cost sharing with respect to the 1277 Terra Bella property, and subject to the continued remediation of the properties by Thermo Fisher (who has been conducting remediation activities at the NPL site, including the Zappettini NPL Properties, since the late 1980s), the Phase I ESA consultant concluded that United States Environmental Protection Agency and the RWQCB are unlikely to seek any enforcement against or require action by the related borrower.

 

Market Overview and Competition.All 10 properties comprising the Zappettini Portfolio Properties are located in Mountain View, California which is part of the San Jose-Sunnyvale-Santa Clara MSA. According to the appraisal, the local market area is somewhat more heavily weighted toward the manufacturing, services and information sectors and the immediate area consists almost entirely of good-quality office and R&D buildings. Land uses in the Zappettini Porfolio Properties’ immediate area consist of a mixture of retail and commercial uses along the major arterials with residential uses located on secondary streets to the south and northeast. According to the appraisal, major employers in the area include, Apple Inc., Alphabet Inc., Stanford University, Cisco Systems Inc. and Kaiser Permanente, to name a few.

 

The Zappettini Portfolio Properties are located in the western-most portion of Mountain View. The immediate area has access to U.S. Highway 101, which serves most Santa Clara cities, and is located one block north of the Zappettini Portfolio Properties. Additionally, a Santa Clara Valley light rail station, Middlefield Station, is proximate to the Zappettini Portfolio Properties and a bus stop is also located near the light rail station. Additionally, the San Jose Airport is approximately 10 miles and San Francisco International Airport is approximately 25 miles from the Zappettini Portfolio Properties. Notable high-technology firms in the immediate area include: Clontech Laboratories, Google, Microsoft, Omnicell Inc., Symantec and Teledyne Microwave Solutions. According to the appraisal, the Zappettini Portfolio Properties are located in the Mountain View R&D submarket of Silicon Valley. At the end of the first quarter of 2019, the Mountain View R&D submarket contained approximately 10.8 million SF of R&D inventory with 6.9% vacancy and asking rents of $54.84 per SF. According to a third party report, the population within a one-, three- and five-mile radius of the Zappettini Portfolio Properties is 23,149, 140,987 and 326,309, respectively. The average household income within a one-, three- and five-mile radius of the Zappettini Portfolio Properties is $144,229, $180,837 and $190,189, respectively.

 

The appraiser also identified seven properties that are located within a five-mile radius of the Zappettini Portfolio Properties and are considered to be the competitive set for all of the properties in the portfolio. The seven comparable properties range from 25,000 SF to 114,175 SF and were constructed between 1961 and 1983. The competitive set reported a rental range of $49.80 per SF to $58.80 per SF on a triple-net basis. The appraiser concluded that the market rent for the Zappettini Portfolio Properties ranges between $51.00 per SF to $58.20 per SF on a triple-net basis. As of the current rent roll, the Zappettini Portfolio Properties have a physical occupancy of 100%.

 

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LOAN #3: THE ZAPPETTINI PORTFOLIO

 

 

The following table presents certain information relating to the primary competition for the Zappettini Portfolio Properties:

 

Directly Competitive Buildings(1)

 

Property NameOffice Area (NRA)Year BuiltCity, StateVacancy(2)NOI PSF
1212 Terra Bella37,1661976Mountain View, CA0.00%$33.07
1350 West Middlefield Road29,6701975Mountain View, CA0.0046.58
1215 Terra Bella25,0001974Mountain View, CA0.0035.44
410-430 N. Mary Ave349,7581989Sunnyvale, CA0.0042.57
10900 N. Tantau Ave100,4812009Cupertino, CA0.0038.81
10201 Torre Ave88,5801983Cupertino, CA0.0044.58
590 E. Middlefield Rd99,8802012Mountain View, CA0.0037.00
470 Potreo Ave58,1901979Sunnyvale, CA0.00

37.68

650 Clyde Court34,6061977Mountain View, CA100.00N/A

 

 
(1)Source: Appraisals.

(2)Vacancy as of August 6, 2019.

 

The Borrowers. The borrowers are ZIC 1212 Terra Bella LLC, ZIC 1215 Terra Bella LLC, ZIC 1245 Terra Bella LLC, ZIC 1255 Terra Bella LLC, ZIC 1305 Terra Bella LLC, ZIC 1330 W Middlefield LLC, ZIC 1340 W Middlefield LLC, ZIC 1350 W Middlefield LLC, ZCTB 1277 Terra Bella LLC and ZCTB 850 N Shoreline LLC, each a Delaware limited liability company and single purpose entity with at least one independent director. Legal counsel to the borrowers delivered a non-consolidation opinion in connection with the origination of The Zappettini Portfolio Loan Combination. Founded in 1921, Zappettini Capital is a private real estate firm that has focused on investing, managing and developing real estate in San Francisco and Silicon Valley for over three generations. The firm has completed over $600 million in real estate financing and investment transactions since 2008 and has commercial assets spanning over 500,000 SF in investments. John Zappettini serves as the President and CEO of Zappettini Capital, with over 30 years of experience in the corporate finance, private equity and commercial real estate industries and has led or advised on over $850 million of transactions in the United States and Europe.

 

Escrows. On the origination date of The Zappettini Portfolio Loan Combination, the borrowers funded reserves of (i) $347,991 for real estate taxes, (ii) $34,225 for insurance, (iii) $1,667,365 for tenant improvements and leasing commissions and (iv) $150,000 for replacement reserves.

 

On each due date, the borrowers will be required to fund the following reserves with respect to The Zappettini Portfolio Loan Combination: (i) provided that that the tax reserve waiver conditions under The Zappettini Portfolio Loan Combination documents are not satisfied with respect to any individual property (which tax reserve waiver conditions are currently satisfied for all of the Zappettini Portfolio Properties), one-twelfth of the taxes that the lender estimates will be payable over the next-ensuing 12-month period for each such property (initially estimated at $57,999 per month for all of the Zappettini Portfolio Properties), (ii) provided that that the insurance reserve waiver conditions under The Zappettini Portfolio Loan Combination documents are not satisfied with respect to any individual property, (which insurance reserve waiver conditions are currently satisfied for all of the Zappettini Portfolio Properties), one-twelfth of the amount that the lender estimates will be necessary to pay insurance premiums for the renewal of coverage for each such property (initially estimated at $5,704 per month for all of the Zappettini Portfolio Properties), and (iii) provided that the replacement reserve falls below the cap of $150,000, an amount equal to $5,451.

 

Lockbox and Cash Management. The Zappettini Portfolio Loan Combination documents require a springing lockbox account with springing cash management. After the occurrence of a Zappettini Portfolio Trigger Period (as defined below), the borrowers are required to deliver tenant direction letters to each existing tenant at the Zappettini Portfolio Properties directing each of them to remit their rent payments directly to the lender-controlled lockbox. The borrowers are also required to deliver a tenant direction letter to all future tenants after the occurrence of a Zappettini Portfolio Trigger Period. The borrowers are required to (and are required to cause the property manager to) deposit all revenue derived from the Zappettini Portfolio Properties into the lockbox account. Upon the occurrence and during the continuance of a Zappettini Portfolio Trigger Period, all funds in the lockbox account are required to be swept on each business day to a cash management account under the control of the lender to be applied and disbursed in accordance with The Zappettini Portfolio Loan Combination documents. Upon an event of default under The Zappettini Portfolio Loan Combination documents, the lender may apply funds in such order of priority as it may determine. The borrowers are entitled a one-time right to revert back to a springing lockbox account with springing cash management upon the cure of the first Zappettini Portfolio Trigger Period. Following the second occurrence of a Zappettini Portfolio Trigger Period, the lockbox account and the cash management account remain in place with all rents being deposited in the lockbox account and transferred to the cash management account during the existence of

 

26

 

 

LOAN #3: THE ZAPPETTINI PORTFOLIO

 

 

a Zappettini Portfolio Trigger Period or otherwise remitted to the borrowers if no Zappettini Portfolio Trigger Period exists.

 

A “Zappettini Portfolio Trigger Period” shall mean a period commencing upon (i) the occurrence and continuance of an event of default under The Zappettini Portfolio Loan Combination documents or (ii) the debt yield falling below 6.00%.

 

A Zappettini Portfolio Trigger Period caused by the event described in clause (i) above will expire upon the cure (if applicable) of such event of default. In the case of a Zappettini Portfolio Trigger Period caused by the event described in clause (ii) above, such Zappettini Portfolio Trigger Period will expire on the date that the debt yield is equal to or greater than 6.25% for two consecutive calendar quarters.

 

Property Management. The Zappettini Portfolio Properties are currently managed by Zappettini Capital Terra Bella LLC, an affiliate of the borrower. Under The Zappettini Portfolio Loan Combination documents, the lender has the right to terminate the property management agreement or direct the borrowers to terminate the property management agreement and replace the property manager if (i) the property manager becomes insolvent or a debtor in (x) an involuntary bankruptcy or insolvency proceeding not dismissed within 90 days or (y) any voluntary bankruptcy or insolvency proceeding, (ii) a Zappettini Portfolio Trigger Period exists, (iii) the property manager has engaged in gross negligence, fraud, willful misconduct or misappropriation of funds, or (iv) a default by the property manager under the property management agreement has occurred and is continuing beyond all applicable notice and cure periods. Provided that no event of default has occurred and is continuing under The Zappettini Portfolio Loan Combination documents, the borrowers have the right to replace the property manager with a property manager approved in writing by the lender (which approval may be conditioned on receipt of a rating agency confirmation).

 

Current Mezzanine or Secured Subordinate Indebtedness. None.

 

Permitted Future Mezzanine or Secured Subordinate Indebtedness. Not permitted.

 

Release of Collateral. Provided that no event of default is then continuing under The Zappettini Portfolio Loan Combination, The Zappettini Portfolio Loan Combination documents permit a partial release of one or more of the individual Zappettini Portfolio Properties (A) at any time, if the borrowers are partially prepaying the loan as described below, or (B) at any time after the earlier of (a) May 31, 2022, and (b) the date that is two years after the closing date of the securitization that includes the last note to be securitized, if the borrowers partially defease a portion of The Zappettini Portfolio Loan Combination as described below, in each case, subject to certain conditions, including, without limitation, the following: (i) delivery of the partial defeasance collateral or the prepayment of a portion of The Zappettini Portfolio Loan Combination, in each case, in accordance with The Zappettini Portfolio Loan Combination documents and in an amount equal to 120% of the allocated loan amount for the individual Zappettini Portfolio property to be released, (ii) as of each of the release date and the date of notice of such release, after giving effect to the release, the debt yield for the remaining individual Zappettini Portfolio Properties is greater than the greater of (x) the debt yield for all individual Zappettini Portfolio Properties securing The Zappettini Portfolio Loan Combination immediately prior to the release or the date of such notice, as applicable, and (y) 7.70%, (iii) as of each of the release date and the date of notice of such release, after giving effect to the release, the debt yield for the remaining Zappettini Portfolio Properties (which shall be calculated solely with respect to this clause (iii) by excluding any gross rents on any leases that are scheduled to expire or terminate within 18 months from the consummation of the release) is greater 6.00%, (iv) as of each of the release date and the date of notice of such release, after giving effect to the release, the loan-to-value ratio for the remaining individual Zappettini Portfolio Properties is no greater than the lesser of (a) 64.0%, and (b) the loan-to-value ratio for the individual Zappettini Portfolio Properties securing The Zappettini Portfolio Loan Combination immediately prior to the release date or the date of such notice, as applicable, (v) as of each of the release date and the date of notice of such release, after giving effect to the release, the debt service coverage ratio for the remaining individual Zappettini Portfolio Properties is greater than the greater of (a) 1.80x, and (b) the debt service coverage ratio for the individual Zappettini Portfolio Properties securing The Zappettini Portfolio Loan Combination immediately prior to the release date or the date of such notice, as applicable, (vi) delivery to lender of a REMIC opinion and (vii) delivery to the lender (in the case of a partial prepayment, if requested by the lender) a rating agency confirmation.

 

27

 

 

LOAN #3: THE ZAPPETTINI PORTFOLIO

 

 

Terrorism Insurance. The borrowers are required to maintain an “all-risk” insurance policy without an exclusion of terrorism in an amount equal to the full replacement cost of the Zappettini Portfolio Properties, plus business interruption coverage in an amount equal to 100% of the projected gross income for the applicable property until the completion of restoration or the expiration of 18 months, with a 6-month extended period of indemnity. The “all-risk” policy containing terrorism insurance is required to contain a deductible that is no greater than $25,000. See“Risk Factors—Terrorism Insurance May Not Be Available for All Mortgaged Properties” in the Preliminary Prospectus.

 

28

 

 

LOAN #4: montalvo square

 

Mortgaged Property Information Mortgage Loan Information
Number of Mortgaged Properties1 Loan Seller GACC
Location (City/State)Ventura, California Cut-off Date Balance $55,000,000
Property TypeRetail Cut-off Date Balance per SF $252.02
Size (SF)218,234 Percentage of Initial Pool Balance 4.7%
Total Occupancy as of 6/1/201994.8% Number of Related Mortgage Loans None
Owned Occupancy as of 6/1/201994.8% Type of Security Fee Simple/Leasehold
Year Built / Latest Renovation2002-2003 / NAP Mortgage Rate 3.87000%
Appraised Value$85,000,000 Original Term to Maturity (Months) 120
Appraisal Date5/2/2019 Original Amortization Term (Months) NAP
Borrower SponsorsD. John Miller, Lindsay Parton, Dieter Mees Original Interest Only Period (Months) 120
Property ManagementDJM Capital Partners, Inc. First Payment Date 8/6/2019
   Maturity Date 7/6/2029
      
Underwritten Revenues$6,874,422    
Underwritten Expenses$1,924,190 Escrows(1)
Underwritten Net Operating Income (NOI)$4,950,232  UpfrontMonthly
Underwritten Net Cash Flow (NCF)$4,797,469 Taxes$214,109$53,527
Cut-off Date LTV Ratio64.7% Insurance$0$0
Maturity Date LTV Ratio64.7% Replacement Reserve$0$3,637
DSCR Based on Underwritten NOI / NCF2.29x / 2.22x TI/LC$0$9,093
Debt Yield Based on Underwritten NOI / NCF9.0% / 8.7% Other$0$0
      
Sources and Uses
Sources$ %Uses$ %
Loan Amount$55,000,000100.0%Loan Payoff$51,867,95494.3%
   Principal Equity Distribution$2,138,1443.9
   Closing Costs779,793 1.4 
   Reserves214,1090.4
Total Sources$55,000,000100.0%Total Uses$55,000,000100.0%
              

 

(1)See “—Escrows” below.

 

The Mortgage Loan.The Montalvo Square mortgage loan (the “Montalvo Square Loan”) is evidenced by a note in the original principal amount of $55,000,000 and is secured by a first mortgage encumbering the borrower’s fee simple and leasehold interest in a 218,234 SF anchored retail shopping center located in Ventura, California (the “Montalvo Square Property”). The Montalvo Square Loan was originated by DBNY on July 1, 2019. The Montalvo Square Loan has an outstanding principal balance as of the Cut-off Date of $55,000,000 and an interest rate of 3.87000%per annum.The Montalvo Square Loan represents approximately 4.7% of the Initial Pool Balance. The proceeds of the Montalvo Square Loan were primarily used to refinance the existing debt on the Montalvo Square Property, fund upfront reserves, pay closing costs and return equity to the borrower sponsor.

 

The Montalvo Square Loan had an initial term of 120 months and has a remaining term of 119 months as of the Cut-off Date. The Montalvo Square Loan requires payments of interest only for the term of the Montalvo Square Loan. The scheduled maturity date of the Montalvo Square Loan is July 6, 2029. Voluntary prepayment of the Montalvo Square Loan is permitted on or after March 6, 2029 without payment of any prepayment premium. Provided no event of default under the Montalvo Square Loan documents is continuing, defeasance of the Montalvo Square Loan with direct, non-callable obligations of the United States of America or other obligations, which are “government securities” permitted under the loan documents is permitted at any time after the earlier of (a) the second anniversary of the securitization closing date and (b) July 1, 2022 .

 

The Mortgaged Property. The Montalvo Square Property is a 218,234 SF anchored retail center located in Ventura, California. The Montalvo Square Property was constructed between 2002 and 2003 on an approximately 20.1 acre site with 891 surface parking spaces, resulting in a parking ratio of approximately 3.9 spaces per 1,000 SF. There is a 2.64-acre strip of land along the northern boundary of the Montalvo Square Property which encompasses a portion of the parking area and one outparcel pad building leased to CJ’s BBQ. The 2.64 acre parcel which is a portion of the Montalvo Square Property is ground leased from the fee owner, Southern California Edison, for a 30-year term with two, 10-year extension options. The current term expires in 2032 and the fully extended term expires in 2052.

 

As of June 1, 2019, the Montalvo Square Property was approximately 94.8% occupied by 42 tenants including the grocery anchor Ralph’s Grocery Company. The improvements are comprised of three primary anchor/subanchor buildings, two, 2-story mixed-use buildings, which contain office and medical office above ground floor retail, and five, multi-tenant retail outparcel buildings. The tenant mix includes grocery, fitness, food, and community-serving office uses, such as chiropractors, dentists, and urgent care centers. The Montalvo Square Property is anchored by Ralph’s Grocery Company (“Ralph’s”) (26.6% of NRA; 22.1% of UW Base Rent; 3.8% Occupancy Cost). Ralph’s recently extended its lease an additional ten years in 2019 with a lease expiration date of 2032. Ralph’s is a subsidiary of The Kroger Company (rated Baa1/BBB by Moody’s/S&P). The Montalvo Square Property’s junior anchor tenants are LA

29

 

 

LOAN #4: montalvo square

 

Fitness (21.2% of NRA; 16.4% of UW Base Rent) and CVS (10.6% of NRA; 10.5% of UW Base Rent). The five multi-tenant pad buildings are primarily comprised of national, regional, and local businesses and franchisees including Panda Express, Coffee Bean & Tea Leaf, Jimmy John’s, Rubio’s, and Weight Watchers. Additionally, the Montalvo Square Property has approximately 23,797 SF of second floor office and medical office space. The Montalvo Square Property has maintained a 10-year historical occupancy rate from 2009 – 2018 of 94.5%.

 

The following table presents certain information relating to the major tenants (of which certain tenants may have co-tenancy provisions) at the Montalvo Square Property:

 

Ten Largest Owned Tenants Based on Underwritten Base Rent(1)

 

Tenant Name

Credit Rating
(Fitch/MIS/S&P)(2)

Tenant
NRA

% of
NRA

UW Base
Rent

% of
Total UW
Base
Rent

UW Base
Rent
$ per SF

Tenant Sales $ per
SF(3)

Occupancy Cost(4)

Lease Expiration

Renewal /
Extension Options

Ralph’s Grocery CompanyNR / Baa1 / BBB58,00026.6%$1,229,50722.9%$21.20$5653.8%6/30/20326, 5-year options
LA FitnessNR / NR / NR46,30021.2%$914,51517.1%$19.75 NAVNAV6/30/20272, 5-year options
CVS StoreNR / Baa2 / BBB23,11210.6%$584,00410.9%$25.27$4435.7%2/28/20233, 5-year options
AT&TA- / Baa2 / BBB4,9012.2%$249,9514.7%$51.00 NAVNAV9/30/20231, 3-year option
Patrick DiesfeldNR / NR / NR6,1992.8%$165,8853.1%$26.76 NAVNAV4/30/20201, 5-year option
El Pollo LocoNR / NR / NR2,6441.2%$157,8602.9%$59.70 NAVNAV2/28/2022 1, 10-year option
Sola SalonsNR / NR / NR6,0002.7%$144,0002.7%$24.00 NAVNAV11/30/2024 2, 5-year options
David Ingram Law, APCNR / NR / NR5,1412.4%$120,9932.3%$23.53 NAVNAV1/31/20221, 10-year option
Sumo Japanese Restaurant, Inc.NR / NR / NR2,9291.3%$119,5032.2%$40.80$1,3073.1%7/31/2022 1, 5-year option
Rubio’sNR / NR / NR

2,201

1.0%

$109,651

2.0%

$49.82

$45111.1%10/31/2027N/A
Ten Largest Owned Tenants 

157,427

 

72.1%

 

$3,795,869

 

70.8%

 

$24.11

 

    
Remaining Tenants 49,35922.6%1,563,06329.2%$31.67    
Vacant 

11,448

5.2%

0

0.0%

$0.00

    
Total / Wtd. Avg. All Tenants 

218,234

 

100.0%

 

$5,358,932

 

100.0%

 

$25.92

 

    
           

 

(1)Based on the underwritten rent roll dated June 1, 2019.

(2)Certain ratings are those of the parent company whether or not the parent guarantees the lease.

(3)Tenant Sales $ per SF were provided by the borrower and reflect year-end sales for 2018.

(4)Occupancy Cost is based on UW Base Rent.

 

The following table presents certain information relating to the lease rollover schedule at the Montalvo Square Property, based on initial lease expiration dates:

 

Lease Expiration Schedule(1)(2)

 

Year Ending

December 31

 Expiring

Owned GLA

 % of Owned GLA

 Cumulative % of Owned GLA

 UW Base Rent

 % of Total UW
Base Rent

 UW Base Rent $
per SF

 # of Expiring Tenants

MTM 0  0.0%  0.0%  $0  0.0%  $0.00  0 
2019 1,855  0.9  0.9%  37,131  0.7  $20.02  2 
2020 14,580  6.7  7.5%  377,920  7.1  $25.92  7 
2021 7,755  3.6  11.1%  186,465  3.5  $24.04  5 
2022 20,020  9.2  20.3%  738,464  13.8  $36.89  9 
2023 38,028  17.4  37.7%  1,167,876  21.8  $30.71  9 
2024 8,747  4.0  41.7%  225,717  4.2  $25.81  3 
2025 2,500  1.1  42.8%  52,500  1.0  $21.00  1 
2026 1,200  0.5  43.4%  46,800  0.9  $39.00  1 
2027 52,301  24.0  67.4%  1,206,696  22.5  $23.07  4 
2028 0  0.0  67.4%  0  0.0  $0.00  0 
2029 1,800  0.8  68.2%  89,856  1.7  $49.92  1 
2030 & Thereafter 58,000  26.6  94.8%  1,229,507  22.9  $21.20  1 
Vacant 11,448  5.2  100.0%  NAP  NAP  NAP  NAP 
Total / Wtd. Avg. 

218,234

  

100.0%

    

$5,358,932

  

100.0%

  

$25.92

  

42

 

 

 

(1)Certain tenants may have lease termination options that are exercisable prior to the originally stated expiration date of the subject lease and that are not considered in the Lease Expiration Schedule.

(2)Based on the underwritten rent roll dated June 1, 2019.

 

The following table presents certain information relating to historical leasing at the Montalvo Square Property:

 

Historical Leased %(1)

 

 

2016

2017

2018

As of 6/1/2019

Owned Space96.6%97.0%96.6%94.8%

 

 

(1)As provided by the borrower and which represents occupancy as of December 31 for the indicated year unless otherwise specified.

 

30

 

 

LOAN #4: montalvo square

 

Operating History and Underwritten Net Cash Flow. The following table presents certain information relating to the historical operating performance and the Underwritten Net Cash Flow at the Montalvo Square Property:

 

Cash Flow Analysis(1)

 

  

2016

 

2017

 

2018

 

TTM 3/31/2018

 

Underwritten

 

Underwritten

$ per SF

Base Rent $5,175,147 $5,260,893 $5,510,846 $5,415,080 $5,358,932 $24.56
Rent Steps(2) 0 0 0 0 $69,455 0.32
Gross Up Vacancy 0 0 0 0 490,690 2.25
Reimbursements 1,175,460 1,272,057 1,200,650 1,173,761 1,302,536 5.97
Other Income 16,279 11,093 14,402 15,484 13,889 0.06
Vacancy & Credit Loss(3) 

0

 

0

 

0

 

0

 

(361,081)

 

(1.65)

Effective Gross Income $6,366,886 $6,544,043 $6,725,899 $6,604,325 $6,874,422 $31.50
             
Real Estate Taxes $568,552 $627,665 $638,838 $644,623 $651,265 $2.98
Insurance 18,207 25,200 29,791 29,791 46,801 0.21
Ground Rent 95,000 95,000 79,167 95,000 108,585 0.50
Management Fee 222,047 231,110 232,719 278,214 240,605 1.10
Other Operating Expenses 

909,577

 

895,437

 

906,753

 

858,950

 

876,934

 

4.02

Total Operating Expenses $1,813,383 $1,874,412 $1,887,267 $1,906,579 1,924,190 $8.82
             
Net Operating Income $4,553,502 $4,669,631 $4,838,632 $4,697,746 $4,950,232 $22.68
TI/LC 0 0 0 0 109,117 0.50
Capital Expenditures 

0

 

0

 

0

0

 

43,647

 

0.20

Net Cash Flow $4,553,502 $4,669,631 $4,838,632 $4,697,746 $4,797,469 $21.98
             
Occupancy(4) 96.6% 97.0% 96.6% 94.8% 96.3%  
NOI Debt Yield 8.3% 8.5% 8.8% 8.5% 9.00%  
NCF DSCR(5) 2.11x 2.16x 2.24x 2.18x 2.22x  

 

 

(1)Certain items such as straight line rent, interest expense, interest income, lease cancellation income, depreciation, amortization, debt service payments and any other non-recurring or non-operating items were excluded from the historical presentation and are not considered for the underwritten cash flow.

(2)Underwritten Rent Steps includes $13,718 of straight line rent for Ralph’s over the lease term and contractual rent steps of $65,693 through June 1, 2020.

(3)Represents an underwritten economic vacancy of 5.0%.

(4)TTM Occupancy is as of June 1, 2019.

(5)Based on the interest only debt service payments of the Montalvo Square Loan.

 

Appraisal. According to the appraisal, the Montalvo Square Property had an “as-is” appraised value of $85,000,000 as of May 2, 2019.

 

Appraisal Approach 

“As-Is” Value

Discount Rate

Capitalization Rate

Direct Capitalization Approach$86,100,000N/A5.50%
Discounted Cash Flow Approach$83,800,0006.75%6.00%(1)

 

 

(1)Represents the terminal capitalization rate.

 

Environmental Matters. According to a Phase I environmental report, dated May 14, 2019, the environmental consultant did not identify evidence of any recognized environmental conditions

 

Market Overview and Competition. The Montalvo Square Property is located in Ventura, Ventura County, California, which is approximately 68 miles northwest of Los Angeles. The Montalvo Square Property has good local and regional access located along the east side of South Victoria Avenue. Victoria Avenue is a major north/south thoroughfare in the area. Regional access is provided by the Ventura Freeway (Highway 101), which is located approximately one-half mile east. Regional access is also provided by the Santa Paula Freeway (Highway 126), located approximately one mile north.

 

Downtown Ventura is a creative and lively area that features unique architecture and a mix of retail shops, restaurants and service businesses. The area also exhibits numerous historic homes, museums, boutiques, Mission San Buenaventura, antique shops and restaurants. Downtown Ventura is the largest shopping area in the county with over 400 shops & restaurants, primarily within walking distance of each other. The 2018 estimated population within a one-, three- and five-mile radius of the Montalvo Square Property is approximately 21,175, 99,955 and 217,188, respectively. Median household income within a one-, three- and five-mile radius is $70,114, $79,212 and $74,265, respectively.

 

According to the appraisal, the Montalvo Square Property is located in the Ventura County retail submarket. As of the first quarter of 2019, the Ventura County submarket contained a total of approximately 7.4 million SF. Over the same period, the Ventura County submarket had a vacancy rate of 2.5% and had asking rents of $22.00 per SF.

 

31

 

 

LOAN #4: montalvo square

 

The following table presents certain information relating to the primary competition for the Montalvo Square Property:

 

Competitive Set(1)

 

Property Name

Address

City, State

Occupancy

Montalvo Square1746 South Victoria AvenueVentura, CA94.8%
Ventura Shopping Center1717-1783 South Victoria AvenueVentura, CA100.0%
Victoria VillageNWC South Victoria Avenue & Ralson StreetVentura, CA97.7%
Ventura VillageSWC Telephone Road & South Victoria AvenueVentura, CA89.7%
Ventura GatewaySWC Telephone Road & Portola RoadVentura, CA98.6%
Telephone PlazaNWC Telephone Road & Westinghouse StreetVentura, CA92.6%
Poinsettia PlazaSWC Telephone Road & East Main StreetVentura, CA94.6%
Donlon PlazaSEC East Main Street & Callens RoadVentura, CA97.0%
The PlazaSEC East Thompson Blvd & South Borchard DriveVentura, CA100.0%
    

 

 

(1)Source: Appraisal.

 

The Borrower. The borrower is Montalvo Square Associates, LLC, a recycled single-purpose, single-asset entity with two independent directors. Legal counsel to the borrower delivered a non-consolidation opinion in connection with the origination of the Montalvo Square Loan. The non-recourse carve-out guarantors and borrower sponsors of the Montalvo Square Loan are D. John Miller, Lindsay Parton and Dieter Mees.

 

D. John Miller founded DJM Capital, which provides private equity investment, development and asset management services within the real estate sector with a core strength in retail combined with expertise in office, industrial and residential product types. DJM Capital has approximately 2.8 million SF of retail managed and owned and over $1.3 billion in assets under management.

 

Escrows. On the origination date of the Montalvo Square Loan, the borrower funded escrow reserves of $214,109 for real estate taxes.

 

On each due date, the borrower is required to fund the following reserves with respect to the Montalvo Square Loan: (i) a tax reserve in an amount equal to one-twelfth of the amount that the lender estimates will be necessary to pay taxes over the then succeeding 12-month period (initially estimated to be $53,527 per month), (ii) a replacement reserve in an amount equal to $3,637, (iii) a tenant improvements and leasing commission reserve in an amount equal to (a) $9,093, so long as the occupancy at the Montalvo Square Property is equal to or great than 90.0% and (b) $18,186, if the occupancy at the Montalvo Square Property is less than 90.0%, subject to a cap of $654,702, and (iv) a ground rent reserve in an amount equal to any rent, additional rent or other charge payable by the tenant under the ground lease (currently equates to $95,000).

 

Insurance escrows are waived so long as the Montalvo Square Property is covered by an acceptable blanket policy (which is currently maintained). If such condition is no longer satisfied, on each payment date, the Montalvo Square borrower will be required to fund an insurance reserve in an amount equal to one-twelfth of the amount that the lender estimates will be necessary to pay the annual insurance premiums.

 

Lockbox and Cash Management. The Montalvo Square Loan is structured with a hard lockbox and springing cash management. At origination, the borrower is required under the Montalvo Square Loan documents to send tenant direction letters to all tenants of the Montalvo Square Property instructing them to deposit all rents and other payments into the lockbox account controlled by the lender, and any funds received by the borrower or the property manager are required to be deposited within one business day in the lockbox account. During a Trigger Period (as defined below), all funds in the lockbox account are required to be transferred on each business day into a cash management account established for the sole and exclusive benefit of the lender, and applied to all required payments and reserves as set forth in the Montalvo Square Loan documents. Provided that no Trigger Period is continuing, all funds in the lockbox account are required to be transferred on each business day to borrower’s operating account. Upon the occurrence of an event of default under the Montalvo Square Loan documents, funds in the cash management account may be applied in such order of priority as the lender may determine.

 

A “Trigger Period” means a period ommencing upon the occurrence of (i) an event of default under the Montalvo Square Loan documents, (ii) a Lease Sweep Period (as defined below) or (iii) the debt service coverage ratio being less than 1.15x (“DSCR Trigger Period”). A Trigger Period will be cured upon (a) in connection with clause (i) above, the cure, if applicable, of such event of default, (b) in connection with clause (ii) above, such Lease Sweep Period has

 

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LOAN #4: montalvo square

 

ended and (c) in connection with clause (iii) above, the debt service coverage ratio being equal to or greater than 1.20x for two consecutive calendar quarters.

 

A “Lease Sweep Period” will commence (a) with respect to each Lease Sweep Lease (as defined below) upon the earlier of (i) six months prior to the earliest expiration of a Lease Sweep Lease or (ii) upon the date required under the Lease Sweep Lease by which the Lease Sweep Tenant (as defined below) is required to give notice of its exercise of a renewal option thereunder (and such renewal has not been so exercised); (b) upon the early termination, early cancellation or early surrender of a Lease Sweep Lease or upon the borrower’s receipt of notice by a Lease Sweep Tenant of its intent to effect an early termination, early cancellation or early surrender of its Lease Sweep Lease; (c) if a Lease Sweep Tenant has ceased operating its business (i.e., “goes dark”) at substantially all of its space at the Montalvo Square Property; (d) upon a default under a Lease Sweep Lease by a Lease Sweep Tenant beyond any applicable notice and cure period, or (e) upon a bankruptcy or insolvency proceeding of a Lease Sweep Tenant or its parent.

 

A Lease Sweep Period will end once the applicable event that triggered such Lease Sweep Period has been cured or the space demised under the Lease Sweep Lease has been re-tenanted pursuant to one or more “Qualified Leases” as defined in the Montalvo Square loan documents (or, if applicable, the applicable Lease Sweep Lease has been renewed pursuant to its terms) and, in the lender’s reasonable judgment, sufficient funds have been accumulated in the Lease Sweep reserve to cover all anticipated tenant improvements and leasing commissions and free and/or abated rent in connection therewith (and any operating shortfalls relating to the delay in the commencement of full rent payments). A Lease Sweep Period shall also cease on the date on which $25.00 per square foot with respect to the portion of the space demised under the applicable Sweep Lease that has accumulated in the Lease Sweep Account (unless the applicable space has been re-tenanted and the leasing costs will actually exceed $25.00 per square foot, in which case the amount necessary to re-tenant must be on deposit).

 

A “Lease Sweep Lease” means (i) the Ralph’s lease, (ii) the LA Fitness lease or (iii) any replacement lease that, either individually, or when taken together with any other lease with the same tenant or its affiliates, covers the majority of the applicable Lease Sweep Lease space.

 

A “Lease Sweep Tenant” means any tenant under a Lease Sweep Lease.

 

Property Management.The Montalvo Square Property is currently managed by DJM Capital Partners, Inc., an affiliate of the borrower, pursuant to a management agreement. Under the Montalvo Square Loan documents, the lender has the right, and has the right to direct the borrower, to terminate the property management agreement and replace the property manager: (i) at any time following the occurrence of an event of default, (ii) if the property manager is in material default under the management agreement beyond any applicable notice and cure period, (iii) if the property manager shall become insolvent or a debtor in any bankruptcy or insolvency proceeding, or (iv) if at any time the property manager has engaged in gross negligence, fraud, willful misconduct or misappropriation of funds.

 

Current Mezzanine or Subordinate Indebtedness. None.

 

Permitted Future Mezzanine or Secured Subordinate Indebtedness. Not permitted.

 

Release of Collateral. Not permitted.

 

Terrorism Insurance.The borrower is required to maintain an “all-risk” insurance policy that provides coverage for terrorism in an amount equal to the full replacement cost of the Montalvo Square Property, plus business interruption coverage in an amount equal to 100% of the projected gross income from the Montalvo Square Property until the completion of restoration or the expiration of 18 months. The terrorism insurance is required to contain a deductible that is acceptable to the lender and is no greater than $25,000. In the event TRIPRA is no longer in effect, terrorism insurance coverage will be subject to a cap equal to an amount equal to two times the amount of the insurance premium that is payable in respect of the property and business interruption/rental loss insurance required under the loan documents (without giving effect to the cost of terrorism and earthquake components of such property and business interruption/rental loss insurance) at the time that such terrorism coverage is excluded from the applicable. See “Risk Factors—Terrorism Insurance May Not Be Available for All Mortgaged Properties” in the Preliminary Prospectus.

 

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LOAN #5: chemours hq

 

Mortgaged Property Information Mortgage Loan Information
Number of Mortgaged Properties1 Loan Seller JPMCB
Location (City/State)Wilmington, Delaware Cut-off Date Balance $50,400,000
Property TypeOffice Cut-off Date Balance per SF $178.05
Size (SF)283,069 Percentage of Initial Pool Balance 4.3%
Total Occupancy as of 8/1/2019100.0% Number of Related Mortgage Loans None
Owned Occupancy as of 8/1/2019100.0% Type of Security Fee Simple
Year Built / Latest Renovation1913-1970 / 2018 Mortgage Rate 3.96000%
Appraised Value(1) $84,000,000 Original Term to Maturity (Months) 63
Appraisal Date5/2/2019 Original Amortization Term (Months)  NAP
Borrower SponsorArch Street Capital Advisors Original Interest Only Period (Months)63
Property ManagementBPG Real Estate Services LLC First Payment Date9/1/2019
   Maturity Date11/1/2024
    
Underwritten Revenues$8,536,221  
Underwritten Expenses$2,859,276  Escrows(2) 
Underwritten Net Operating Income (NOI)$5,676,945  UpfrontMonthly
Underwritten Net Cash Flow (NCF)$5,478,797 Taxes$0$30,942
Cut-off Date LTV Ratio60.0% Insurance$12,190$2,743
Maturity Date LTV Ratio60.0% Replacement Reserve(3)$1,000,000$2,359
DSCR Based on Underwritten NOI / NCF2.81x / 2.71x TI/LC$0$0
Debt Yield Based on Underwritten NOI / NCF11.3% / 10.9% Other(4)$4,162,642$0
       
 Sources and Uses    
Sources$%Uses$%
Loan Amount$50,400,00055.0%Purchase Price$84,000,000  91.8%
Principal’s New Cash Contribution   41,130,73845.0    Reserves5,174,8315.7
   Closing Costs2,355,9072.6
Total Sources$91,530,738100.0%Total Uses$91,530,738100.0%
                     

 

(1)The appraisal provided a “hypothetical market value assuming vacant” value of $46,350,000, which assumes the property is vacant and available for lease. The Cut-off Date LTV Ratio and Maturity Date LTV Ratio based on the “hypothetical go dark” value are each 108.7%.

(2)See “—Escrows” below.

(3)Provided that a Cash Sweep Event (as defined below) does not exist, the Replacement Reserve is subject to a cap of approximately $56,614 (excluding any amounts remaining from the Upfront Replacement Reserve deposit).

(4)Upfront Other Escrows represents an approximately $2,018,882 PNC distributions reserve, an approximately $922,359 free rent reserve, an approximately $621,401 HTC Put Obligations reserve and a $600,000 permitted PACE loan reserve. See “—Escrows” below.

 

The Mortgage Loan. The mortgage loan (the “Chemours HQ Loan”) is evidenced by a note in the original principal amount of $50,400,000 and is secured by a first mortgage encumbering the borrower’s fee simple interest in an 11-floor office condominium unit comprising 283,069 SF (the “Chemours HQ Property”) within the 13-story, approximately 969,000 SF Chemours Building located in Wilmington, Delaware (the “Chemours Building”). The Chemours HQ Loan was originated by JPMorgan Chase Bank, National Association (“JPMCB”) on July 8, 2019 and represents approximately 4.3% of the Initial Pool Balance. The note evidencing the Chemours HQ Loan has an outstanding principal balance as of the Cut-off Date of $50,400,000 and an interest rate of 3.96000%per annum. The proceeds of the Chemours HQ Loan along with $41,130,738 of borrower equity were primarily used to purchase the Chemours HQ Property, fund reserves and pay closing costs.

 

The Chemours HQ Loan had an initial term of 63 months and has a remaining term of 63 months as of the Cut-off Date. The Chemours HQ Loan requires monthly payments of interest only for the entire term. The scheduled maturity date of the Chemours HQ Loan is the due date in November 2024. Provided that no event of default has occurred and is continuing under the Chemours HQ Loan documents, at any time after the second anniversary of the securitization closing date, the Chemours HQ Loan may be defeased with certain “government securities” as permitted under the Chemours HQ Loan documents. Voluntary prepayment of the Chemours HQ Loan is permitted after the due date occurring in May 2024 without payment of any prepayment premium.

 

The Mortgaged Property.The Chemours HQ Property is an 11-story, 283,069 SF condominium interest located within the approximately 969,000 SF Chemours Building (f/k/a the DuPont Building) that includes office space on floors 2 to 13, ground-floor retail space, the 217-room four-star Hotel DuPont and a theater currently occupied by the Grand Opera House of Delaware. The Chemours Building encompasses an entire city block bound by 10th, 11th, Market and Orange Streets in Wilmington, Delaware and is located approximately 15.0 miles southwest of the Philadelphia International Airport and approximately 21.0 miles southwest of the Philadelphia CBD. The Chemours Building was built in phases from 1913 through approximately 1970 by the DuPont Company and is listed on the National Register of Historic Places. In mid-2015, the DuPont Company spun off the Chemours unit, and the Chemours HQ Property was transferred to Chemours since it occupied all of the office space in the Chemours Building. Chemours has been an office tenant at the Chemours HQ Property since prior to theChemours spin off from DuPont Company. The Chemours HQ Property serves as the corporate headquarters for Chemours and is leased through December 2033 with $0.50 per SF annual rent increases, two consecutive 10-year extension options at fair market value and no termination options other than customary rights following a casualty or condemnation.

 

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LOAN #5: chemours hq

 

The remainder of the Chemours HQ Property was sold to two related entities of the Buccini Pollin Group (“BPG”) in early 2017 for $32.0 million. After acquiring the property, BPG began an approximately $175.0 million renovation of the Chemours Building. The renovation focused on creating the Chemours headquarters environment, which included significant base building, mechanical system replacements and upgrades. Upgrades to the Chemours Building included a complete refresh of the Hotel DuPont lobby, the addition of a 13,000 SF food hall, new interior ground floor common corridors, as well as a new entrance and lobby off of 10th Street. The last major proposed part of the renovation is the creation of 155 luxury apartments in the remaining portion of the Chemours Building. Of the approximately $175.0 million invested in the entire Chemours Building, approximately $32.3 million of base building work was allocated to the Chemours HQ Property. In addition to an approximately $16.2 million tenant improvement allowance, Chemours has contributed approximately $37.8 million ($133.54 PSF) to its space.

 

As of August 1, 2019, the Chemours HQ Property is 100.0% occupied and triple-net leased to Chemours (rated BB by S&P and Ba3 by Moody’s) under two leases, each with a term through December 2033. Chemours is a Fortune 500 Company and a global leader in the research and manufacturing of performance chemicals, operating through three segments: Titanium Technologies, Fluoroproducts and Chemical Solutions. The Titanium Technologies segment is a producer of titanium dioxide, the Fluoroproducts segment is a provider of fluoroproducts, including refrigerants and industrial fluoropolymer resins and the Chemical Solutions segment is a North American provider of industrial chemicals used in gold production, oil and gas, water treatment and other industries. As of December 31, 2018, Chemours operated 58 manufacturing facilities, laboratory sites and offices, employing approximately 7,000 people worldwide and serving customers in approximately 120 countries. Financial year 2018 global sales were over $6.6 billion and adjusted EBITDA was approximately $1.7 billion. Chemours is the parent company and guarantor of the lease.

 

The following table presents certain information relating to the tenant at the Chemours HQ Property:

 

Largest Owned Tenant Based on Underwritten Base Rent(1)

 

Tenant Name

 

Credit Rating

(Fitch/MIS/S&P)(2)

 

Tenant
GLA

 

% of
Owned
GLA

 

UW Base
Rent(3)

 

% of Total
UW Base
Rent

 

UW Base
Rent $
per SF(3)

 

Lease
Expiration

 

Renewal /
Extension
Options

Chemours NR / Ba3 / BB 283,069  100.0% $5,986,909  100.0% $21.15  12/31/2033 2, 10-year options
All Tenants   283,069  100.0% $5,986,909  100.0% $21.15     
Vacant   0  0.0  0  0.0  0.00     
Total / All Owned Tenants   283,069  100.0% $5,986,909  100.0% $21.15     

 

 
(1)Based on the underwritten rent roll dated.

(2)Certain ratings are those of the parent company whether or not the parent guarantees the lease.

(3)UW Base Rent and UW Base Rent $ per SFincludes rent steps occurring through May 2020(current contractual rent is $20.65 per SF).

 

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LOAN #5: chemours hq

 

The following table presents certain information relating to the lease rollover schedule at the Chemours HQ Property, based on initial lease expiration dates:

 

Lease Expiration Schedule(1)

 

Year Ending

December 31

 

Expiring

Owned GLA

 

% of Owned
GLA

 

Cumulative % of
Owned GLA

 

UW Base Rent(2)

 

% of Total UW Base
Rent

 

UW Base Rent
$ per SF(2)

 

# of
Expiring Tenants

MTM 0  0.0% 0.0% $0  0.0% $0.00  0 
2019 0  0.0  0.0% 0  0.00  $0.00  0 
2020 0  0.0  0.0% 0  0.00  $0.00  0 
2021 0  0.0  0.0% 0  0.00  $0.00  0 
2022 0  0.0 0.0% 0  0.00  $0.00  0 
2023 0  0.0  0.0% 0  0.00  $0.00  0 
2024 0  0.0 0.0% 0  0.00  $0.00  0 
2025 0  0.0  0.0% 0  0.00  $0.00  0 
2026 0  0.0  0.0% 0  0.00  $0.00  0 
2027 0  0.0  0.0% 0  0.00  $0.00  0 
2028 0  0.0  0.0% 0  0.00  $0.00  0 
2029 0  0.0 0.0% 0  0.00  $0.00  0 
2030 & Thereafter 283,069  100.0  100.0% 5,986,909  100.00  $21.15  1 
Vacant 0  0.0  100.0% 

NAP

  

NAP

  

NAP

  

NAP

Total 283,069  100.0%    $5,986,909  100.0% $21.15  1 

 

 
(1)Based on the underwritten rent roll dated August 1, 2019.

(2)UW Base Rent and UW Base Rent $ per SF includes rent steps occurring through May 2020 (current contractual rent is $20.65 per SF).

 

The following table presents certain information relating to historical leasing at the Chemours HQ Property:

 

Historical Leased%(1)

 

  2018 

As of 8/1/2019(2)

Owned Space  100.0%  100.0%
 

(1)As provided by the borrower and which represents leased occupancy as of December 31 for the indicated year unless otherwise specified.

(2)Based on the underwritten rent roll dated August 1, 2019.

 

Operating History and Underwritten Net Cash Flow. The following table presents certain information relating to the historical operating performance and the Underwritten Net Cash Flow at the Chemours HQ Property:

 

Cash Flow Analysis(1)(2)

 

  

Underwritten

 

 

 

Underwritten

$ per SF

Base Rent(3) $5,986,909   $21.15 
Vacant Income 0   0.00 
Total Reimbursement Revenue 2,768,189   9.78 
Gross Revenue $8,755,098   $30.93 
Vacancy & Credit Loss (218,877)  (0.77)
Concessions 0   0.00 
Effective Gross Income $8,536,221   $30.16 
        
Real Estate Taxes $354,008   1.25 
Insurance 75,000   0.26 
Management Fee 256,087   0.90 
Other Operating Expenses 2,174,181   7.68 
Total Operating Expenses $2,859,276   $10.10 
        
Net Operating Income $5,676,945   $20.05 
TI/LC, Capex/RR 198,148   0.70 
Net Cash Flow $5,478,797   $19.35 
        
Occupancy 100.0%    
NOI Debt Yield(4) 11.3%    
NCF DSCR(4) 2.71x    

 

 
(1)Certain items such as straight line rent, interest expense, interest income, lease cancellation income, depreciation, amortization, debt service payments and any other non-recurring or non-operating items were excluded from the historical presentation and are not considered for the underwritten cash flow.

(2)Limited historical financial information was provided when the sponsor acquired the Chemours HQ Property in connection with loan closing.

(3)Underwritten Base Rent includes rent steps occurring through May 2020 (current contractual rent is $20.65 per SF).

(4)Debt service coverage ratios and debt yields are based on the Chemours HQ Loan.

 

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LOAN #5: chemours hq

 

Appraisal. According to the appraisal, the Chemours HQ Property had an “as-is” appraised value of $84,000,000 as of May 2, 2019. The appraiser also concluded a “hypothetical market value assuming vacant” appraised value of $46,350,000 as of May 2, 2019, equating to a Cut-off Date LTV Ratio and a Maturity Date LTV Ratio of 108.7%.

 

Appraisal Approach Value Discount Rate Capitalization Rate
Income Capitalization Approach $84,000,000  8.50% 7.50%(1)

 

 
(1)Represents the terminal capitalization rate.

 

Environmental Matters. The Phase I environmental report dated May 14, 2019 did not identify any evidence of recognized environmental conditions at the Chemours HQ Property.

 

Market Overview and Competition. The Chemours HQ Building encompasses an entire city block bound by 10th, 11th, Market and Orange Streets within the Wilmington CBD and is located approximately 15.0 miles southwest and approximately 21.0 miles southwest of the Philadelphia International Airport and the Philadelphia CBD, respectively. The Chemours HQ Property is accessible by a network of interstate highways including I-95, I-495 and I-295, as well as U.S. Route 13. Amtrak and SEPTA commuter rail stations are situated approximately 0.6 miles south of the Chemours HQ Property with 55 daily trains from the Wilmington Station.

 

The Chemours HQ Property is located directly west of Rodney Square, which is the center of the Wilmington CBD. The immediate area surrounding the Chemours HQ Property consists of office uses or office amenities and includes numerous retailers including Rite Aid, Walgreens, Qdoba Mexican Grill as well as other small shops and restaurants. Since 1996, Wilmington’s Riverfront District has been the focus of a more than $1.0 billion joint venture redevelopment effort by the City of Wilmington and several private real estate developers opening restaurants, shops, corporate headquarters and a regional conference facility. The Penn Cinema Riverfront & IMAX complex, which opened in December 2012, is estimated to bring an additional 700,000 visitors to the Riverfront District annually. Recent investments in the Wilmington CBD include the approximately $210 million, 337,000 SF expansion of Christiana Care’s Wilmington Hospital completed in 2014 and the approximately $260 million, five-story, 425,000 SF expansion of the Nemours/Alfred I. DuPont Hospital for Children.

 

According to the appraisal, the Chemours HQ Property is located in the Wilmington CBD office submarket within the greater Northern Delaware office market. According to the appraisal, as of the fourth quarter of 2018, the Wilmington CBD office submarket, was comprised of approximately 7.5 million SF with an overall vacancy rate of 15.3% and average rents of approximately $26.53 per SF. The appraisal identified seven comparable office leases in the Northern Delaware market signed between May 2017 and February 2020 and ranging in size from approximately 12,052 SF to 279,000 SF. Initial base rents for comparable office leases ranged from $21.25 to $35.50 per SF, with a weighted average of approximately $30.89 per SF. The underwritten base rent for the Chemours HQ Property, based on the straight-line average over the remaining loan term, is $21.15 per SF, in-line with the appraisal’s concluded market rent of $21.00 per SF.

 

The Borrower. The borrowing entity for the Chemours HQ Loan is North Market Property Corp., a Delaware corporation and a single-purpose entity structured to be bankruptcy remote with two independent directors. There is no separate non-recourse carveout guarantor, and the borrower is the sole party responsible for any breaches or violations of the non-recourse carveout provisions or the environmental indemnity.

 

The borrower sponsor of the Chemours HQ Loan is Arch Street Capital Advisors (“Arch Street”). Arch Street is a full service real estate investment and advisory firm founded in 2003 that specializes in advising investors on its U.S. real estate strategies. Arch Street provides a range of services including acquisition, asset management, joint ventures and restructuring and workouts. Arch Street has over 15 years of experience and has advised clients on more than $7.4 billion of transactions totaling approximately 12.4 million square feet spanning the following sectors: multifamily, office, retail, industrial, hospitality, student housing, seniors housing, condo development, land entitlement and single family housing.

 

Escrows. At loan origination, the borrower deposited approximately $2,018,882 into a PNC distributions reserve, $1,000,000 into a replacement reserve, approximately $922,359 into a free rent reserve, approximately $621,401 into a reserve for the HTC Put Obligations (as defined below) reserve, $600,000 into a reserve for a permitted PACE loan reserve and $12,190 for insurance.

 

On each due date, the borrower is required to fund the following reserves with respect to the Chemours HQ Loan: (i) a tax reserve in an amount equal to one-twelfth of the amount that the lender estimates will be necessary to pay taxes

 

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LOAN #5: chemours hq

 

over the then succeeding 12-month period (initially estimated to be $30,942.08 per month), (ii) a replacement reserve in an amount equal to $2,358.91 (subject to a cap of approximately $56,614 excluding any amounts remaining from the upfront replacement reserve deposit) and (iii) during the continuance of a Cash Sweep Event (as defined below), a tenant improvements and leasing commission reserve in an amount equal to $30,665.81. The Chemours HQ Loan documents require monthly deposits into the insurance reserve account in the amount of one-twelfth of the annual insurance premiums (a) upon an event of default or (b) if an acceptable blanket insurance policy is not in place (initially estimated to be $2,742.73 per month).

 

Lockbox and Cash Management.The Chemours HQ Loan is structured with a hard lockbox and springing cash management. The borrower was required at loan origination to send a tenant direction letter to the sole tenant at the Chemours HQ Property, instructing it to deposit all rents and payments into a lender controlled lockbox account. To the extent no Cash Sweep Event (as defined below) is continuing, all funds in the lockbox account are required to be transferred to or at the direction of the borrower. Following the occurrence and during the continuance of a Cash Sweep Event, all funds in the lockbox account are required to be swept each business day to a segregated cash management account under the control of the lender and disbursed in accordance with the Chemours HQ Loan documents. To the extent there is a Cash Sweep Event continuing, all excess cash flow after payment of debt service, required reserves and operating expenses is required to be held as additional collateral for the Chemours HQ Loan, provided (i) if the Cash Sweep Event is solely caused by a Tenant Downgrade Trigger Event and Tenant Downgrade Trigger Event is caused by the rating of the long-term unsecured debt obligations of Chemours being downgraded by S&P or Fitch from its rating at closing to B+ (but no lower) or downgraded by Moody’s from its rating at closing to B1 (but no lower), the cash sweep shall be capped at $9,907,415 and (ii) provided no Event of Default has occurred and is continuing, upon request by borrower, lender shall disburse excess cash flow reserve up to an aggregate maximum amount of $150,000.00per annum to borrower to pay for operating expense short falls. The lender has been granted a first priority security interest in the cash management account.

 

A “Cash Sweep Event” means the occurrence of (i) an event of default, (ii) any bankruptcy of the borrower, Sponsor Master Lessee, HTC master lessee, managing member of HTC master lessee; pledgor or property manager, (iii) a DSCR Trigger Event (as defined below), (iv) a Tenant Trigger Event (as defined below) and (v) a Tenant Downgrade Trigger Event (as defined below).

 

A “Cash Sweep Event Cure” means (a) with respect to clause (i) above, the acceptance by the lender of a cure of such event of default (which may not be unreasonably withheld, conditioned or delayed unless the lender has accelerated the Chemours HQ Loan, commenced foreclosure proceedings or initiated any other remedy), (b) with respect to clause (ii) above solely with respect to the bankruptcy of the property manager, (A) such involuntary petition is dismissed within 60 days of filing or (B) borrower replaces the manager with a manager qualified in the lender’s discretion within 60 days of such Cash Sweep Event, (c) with respect to a DSCR Trigger Event, a DSCR Cure Event (as defined below) has taken place, (d) with respect to a Tenant Trigger Event, a Tenant Cure Event (as defined below) has taken place or (e) with respect to a Tenant Downgrade Trigger Event, a Tenant Downgrade Cure Event (as defined below) has taken place.

 

A “DSCR Trigger Event” means the date on which the debt service coverage ratio (as calculated in the Chemours HQ Loan documents and based on the trailing three-month period immediately preceding the date of determination) is less than 1.35x.

 

A “DSCR Cure Event” means the debt service coverage ratio (as calculated in the Chemours HQ Loan documents and based on the trailing three-month period immediately preceding the date of determination) is at least 1.45x for two consecutive quarters.

 

A “Tenant Trigger Event” means (i) if any specified tenant is in default under its specified tenant lease beyond applicable notice and cure periods, (ii) any specified tenant or specified tenant Guarantor is involved in a bankruptcy action, (iii) any specified tenant terminates its specified tenant Lease or gives notice or otherwise announces it intends to terminate its specified tenant Lease, or (iv) if any specified tenant “goes dark”, vacates, ceases to occupy or discontinues its operations in more than 40% of the applicable specified tenant space or if any specified tenant gives notice that it intends to “go dark”, vacate, cease to occupy or discontinue its operations in more than 40% of the applicable specified tenant space.

 

A “Tenant Cure Event” means (i) if the Tenant Trigger Event is due solely to the specified tenant being in default under its specified tenant lease beyond applicable notice and cure periods, the applicable specified tenant has cured all of the defaults under the applicable specified tenant lease, (ii) for any other Tenant Trigger Event, the replacement

 

38

 

 

LOAN #5: chemours hq

 

of the applicable specified tenant with one or more acceptable replacement tenants pursuant to one or more leases approved by the lender covering the specified tenant space and such tenants being in occupancy and paying full contractual rent without right of offset or free rent credit (unless such free rent is deposited with lender) and without any further landlord obligations for tenant improvement work, tenant allowance or leasing commissions (unless an amount sufficient to cover such obligations is deposited with lender) and delivery of a tenant estoppel acceptable to the lender, or (iii) if the Tenant Trigger Event is due solely to the specified tenant going dark or giving notice that it intends to go dark as provided in subsection (iv) in the definition of Tenant Trigger Event, (A) the replacement of the applicable “dark” specified tenant with one or more acceptable replacement Tenants pursuant to one or more leases approved by the lender covering the specified tenant space or the vacated portion of the specified tenant space and such tenants being in occupancy and paying full contractual rent without right of offset or free rent credit (unless such free rent is deposited with the lender) and without any further landlord obligations for tenant improvement work, tenant allowance or leasing commissions (unless an amount sufficient to cover such obligations is deposited with the lender) and delivery of a tenant estoppel acceptable to lender, or (B) such “dark” specified tenant returns to full occupancy of its premises and paying full contractual rent without right of offset or free rent credit (unless such free rent is deposited with Lender) and delivery of a tenant estoppel acceptable to the lender.

 

A “Tenant Downgrade Trigger Event” means if the rating of the long-term unsecured debt obligations of Chemours (the initial guarantor under the lease) is (i) withdrawn by any of Moody’s, S&P or Fitch, or (ii) downgraded by S&P or Fitch from its rating at origination to B+ or lower or downgraded by Moody’s from its rating at origination to B1 or lower.

 

A “Tenant Downgrade Cure Event” means if the rating of the long-term unsecured debt obligations of Chemours is (i) reinstated by the rating agency that withdrew such rating, or (ii) increased to BB- or higher (or the equivalent) by the rating agency that downgraded its rating, such that long-term unsecured debt obligations are then rated ‘BB-’ or higher by S&P and Fitch and ‘Ba3’ or higher by Moody’s.

 

Property Management.The property is managed by BPG Real Estate Services LLC. The lender may require the borrower to terminate the management agreement and replace the manager with a qualified manager in accordance with the terms of the Chemours HQ Loan documents, pursuant to a replacement management agreement, if (a) an event of default under the Chemours HQ Loan documents has occurred and remains uncured, (b) the manager becomes insolvent or a debtor in any bankruptcy or insolvency proceeding, which in the case of an involuntary bankruptcy only, if such involuntary petition is not dismissed within 60 days of filing, or (c) a default by the manager occurs under the management agreement and continues beyond applicable cure periods.

 

Current Mezzanine or Secured Subordinate Indebtedness. None.

 

Permitted Future Mezzanine or Secured Subordinate Indebtedness.Not permitted.

 

Partial Release of Collateral. Not permitted.

 

Terrorism Insurance. The borrower is required to maintain the following insurance policies covering perils of terrorism and acts of terrorism (and losses therefrom): (i) an “all-risk” insurance policy that provides coverage in an amount equal to 100% of the full replacement cost of the Chemours HQ Property, with no deductible in excess of $25,000 (provided, however, that deductibles for damage caused by earth movement and wind may not exceed 5% of the total insurable value of the applicable individual property), and (ii) a business interruption insurance policy that provides 18 months of business interruption coverage plus up to six months of extended indemnity. See“Risk Factors—Terrorism Insurance May Not Be Available for All Mortgaged Properties” in the Prospectus.

 

Historic Tax Credits. The Chemours Building is a historic building which was rehabilitated by a BPG affiliate in accordance with federal tax code and state regulations to make it eligible for federal and state historic tax credits (“HTC”). The federal tax credits are subject to recapture if, prior to the five year period ending on April 24, 2024 (the “Recapture Period”), among other things: (i) the holder of the tax credits no longer has an ownership interest in the property, (ii) the property is physically altered in a manner that impacts that status of the Chemours Building as a certified historic structure, or (iii) the property is leased or transferred to a tax-exempt entity which causes the property to be used as a “tax-exempt use property” (as defined in the IRS code) (a “Disqualified Transferee”). Disqualified Transferees are generally limited to non-profits and governmental entities, foreign persons or entities and other non-tax paying entities. The amount of credits subject to recapture decreases each year by 20% until the expiration of the Recapture Period. The BPG affiliate passed the federal tax credits through a HTC master lease covering the Chemours HQ Property (the “HTC Master Lease”) to an affiliate of PNC as an investor in the HTC master

 

39

 

 

LOAN #5: chemours hq

 

 

lessee. The state tax credits were reserved to BPG. At origination of the Chemours HQ Loan, the estimated amount of the federal tax credits generated by the BPG rehabilitation and held by PNC for the Chemours HQ Property was $13,745,716. The HTC structure is expected to terminate pursuant to a put option agreement whereby, upon the expiration of the Recapture Period, PNC will have the option to require the managing member of the HTC master lessee to purchase PNC’s interest in the HTC master lessee for the put price as further described in the Prospectus. At origination of the Chemours HQ Loan, the amounts of the priority return owed to PNC, the put price, and the estimated excess profits payments due PNC were escrowed with the lender. The reserve is subject to annual adjustment to insure that the reserve is sufficient to cover the estimated payment due PNC during the Recapture Period. See “Risk FactorsRisks Related to Zoning Non-Compliance and Use Restrictions” in the Prospectus for additional information regarding the federal tax credits related to the Chemours HQ Property.

 

The HTC Master Lease is subordinate to the mortgage securing the Chemours HQ Loan in exchange for the lender’s agreement, among other things, to not terminate the HTC Master Lease by or following a foreclosure of the Chemours HQ Loan pursuant to a subordination, non-disturbance and attornment agreement (the “HTC SNDA”). Pursuant to the HTC SNDA, the lender agreed that, among other things, neither the lender nor any transferee may permit any transfer to a Disqualified Transferee during the Recapture Period. A transfer includes any judicial or non-judicial sale of the Chemours HQ Property or the HTC master lessee’s managing member interest pursuant to a foreclosure action. For transfers other than a sale pursuant to a foreclosure action, the lender may not effect a transfer unless the lender pre-identifies the transferee for pre-clearance by PNC that the transfer will not cause a recapture event with respect to the HTCs. If the lender or any transferee takes title to the HTC master lessee’s managing member interest by reason of foreclosure, the managing member will continue to have the right to operate the Chemours HQ Property under the HTC master lessee operating agreement (including engaging a property manager and entering into leases); subject to PNC’s consent rights with respect to those actions or occurrences that are likely to dilute the interest of PNC in the HTC master lessee or cause a recapture event with respect to the HTCs. The limitations set forth in the HTC SNDA may limit the lender’s workout and resolution remedies in the case of an event of default under the Chemours HQ Loan agreement during the Recapture Period. For additional information with respect to the HTC structure for the Chemours HQ Loan and risks related thereto, see “Risk FactorsRisks Relating to Tax Credits” and “Description of the Mortgage PoolCertain Terms of the Mortgage LoansReal Estate and Other Tax Considerations” in the Prospectus.

 

Condominium Structure.The Chemours HQ Property consists of the borrower’s condominium unit of floors 3-14 of office space in the Chemours Building that is subject to a condominium regime governing a total of 7 condominium units. The other condominium units consist of a hotel condominium unit, a to be renovated residential condominium unit, a retail condominium unit, a theatre condominium unit and two other office condominium units are part of the collateral for the Chemours HQ Loan. The Chemours HQ Loan sponsor owns 29.99% of the condominium and has the right to appoint one of the seven board members on the executive board of the condominium association (the “Executive Board”). The Executive Board votes based on the respective ownership interests of unit holders that appointed such board member. The Chemours HQ Loan borrower does not control the Executive Board, but has certain blocking rights on certain major decisions, together with other protections when any decision affects its unit. The sole tenant of the Chemours HQ property, Chemours, also has rights to block certain matters so long as it is the tenant. The related condominium declaration may not be amended in any material respect without the affirmative vote of a supermajority of the members consisting of 75% ownership of the condominium association. The lender also has notice and cure rights under the condominium documents. See“Risk Factors—Lending on Condominium Units Creates Risks for Lenders That Are Not Present When Lending on Non-Condominiums” in the Prospectus.

 

Shari’ah Compliant Structure.The Chemours HQ Property is owned by a special purpose entity borrower owned by a third party services company. The borrower master leases the Chemours HQ Property to a special purpose entity (the “Sponsor Master Lessee”) that is indirectly owned by Shari’ah compliant investors (the “Sponsor Master Lease”). The rent under the Sponsor Master Lease is equal to the debt service due to the lender under the Chemours HQ Loan. The Sponsor Master Lessee has collaterally assigned all tenant leases at the Chemours HQ Property to the borrower (which has assigned its interest to the lender), and the Sponsor Master Lease is subordinate to the mortgage securing the Chemours HQ Loan. In addition, the Sponsor Master Lessee granted a mortgage on the Sponsor Master Lease to the borrower, which in turn assigned that mortgage to the lender. The Sponsor Master Lease is subordinate to the mortgage securing the Chemours HQ Loan. In the event of a foreclosure, the Sponsor Master Lease would be terminated and the HTC Master Lease (described above) would become a direct lease between the borrower and the HTC master lessee. For additional information and risk factors related to Shari’ah compliant loans, see “Risk FactorsRisks Relating to Shari’ah Compliant Loans” in the related Prospectus.

 

Permitted PACE Financing.Under the Chemours HQ Loan documents, the lender has agreed to not unreasonably withhold its consent to the condominium entering into a property assessed clean energy (PACE) loan that is repaid

 

40

 

 

LOAN #5: chemours hq

 

 

through multi-year assessments against the condominium units, including the Chemours HQ Property, subject to the terms and conditions set forth in the Chemours HQ Loan documents including, without limitation, (i) the PACE loan is required to be used for the installation, construction, repair and replacement of improvements to chiller plant and steam plant boilers, (ii) the total amount of the PACE loan (including principal and interest accrued thereon) allocated to the Chemours HQ Property does not exceed $1,200,000, (iii) the PACE loan amortizes over a period of at least 25 years, (iv) the annual debt service on the PACE loan allocated to the Chemours HQ Property does not exceed $115,000, (v) assuming the full amount of the PACE loan is advanced, loan-to-value ratio of the Chemours HQ Loan and the PACE loan will not be greater than 62%, (vi) the lien of the PACE loan on the Chemours HQ Property is be limited to the pro-rata share of the PACE loan allocated to the Chemours HQ Property, (vii) Chemours shall have consented to the PACE loan and the chiller upgrade and shall have confirmed it shall be responsible for the payment of the monthly payments allocated to the Chemours HQ Property under the PACE loan and (viii) if requested by the lender, delivery of a rating agency confirmation. At origination, the borrower deposited with the lender $600,000 for a permitted PACE loan reserve and is required to deposit another $600,000 (or a higher amount proportionate to any increase in the size of the PACE loan) as a condition to lender’s consent to the PACE loan, each as additional collateral for the Chemours HQ Loan. See“Risk Factors—Various Other Laws Could Affect the Exercise of Lender’s Rights” in the Prospectus.

 

41

 

 

LOAN #6: Osborn triangle

 

Mortgaged Property Information Mortgage Loan Information
Number of Mortgaged Properties3    Loan Seller JPMCB
Location (City/State)Cambridge, Massachusetts Cut-off Date Balance(4) $50,000,000
Property TypeMixed Use Cut-off Date Balance per SF(3) $635.20
Size (SF)676,947 Percentage of Initial Pool Balance 4.2%
Total Occupancy as of 5/1/2019100.0% Number of Related Mortgage Loans None
Owned Occupancy as of 5/1/2019100.0% Type of Security Leasehold
Year Built / Latest Renovation(1)Various / Various Mortgage Rate 3.79700%
Appraised Value(1)$1,158,000,000 Original Term to Maturity (Months) 120
Appraisal Date4/11/2019 Original Amortization Term (Months) NAP
Borrower SponsorHarrison Street Real Estate Capital, MIT Original Interest Only Term (Months)120
 Investment Management Company, Bulfinch First Payment Date7/1/2019
 Companies, Inc Maturity Date6/1/2029
Property Management(2)Jones Lang LaSalle Americas, Inc.   
     
    
    
Underwritten Revenues$70,789,429  
Underwritten Expenses$17,055,013  Escrows(5) 
Underwritten Net Operating Income (NOI)$53,734,416  UpfrontMonthly
Underwritten Net Cash Flow (NCF)$51,673,090 Taxes$0$0
Cut-off Date LTV Ratio(3)37.1% Insurance$0$0
Maturity Date LTV Ratio(3)37.1% Replacement Reserve$0$0
DSCR Based on Underwritten NOI / NCF(3)3.25x / 3.12x TI/LC$0$0
Debt Yield Based on Underwritten NOI / NCF(3)12.5% / 12.0% Other$0$0
       
 Sources and Uses   
Sources$          %   Uses $            %     
Loan Combination Amount$575,000,00049.7% Purchase Price$1,148,275,00099.3%
Principal’s New Cash Contribution581,942,65650.3 Closing Costs8,667,6560.7  
Total Sources$1,156,942,656100.0% Total Uses$1,156,942,656

100.0% 

        

 

(1)See “Portfolio Summary” chart below for the Year Built and Appraised Values of the individual Osborn Triangle Properties (as defined below).

(2)The borrowers have the right, without the lender’s consent, to replace Jones Lang LaSalle Americas, Inc. with an affiliate of Bulfinch, pursuant to a form of management agreement pre-approved by the lender at origination.

(3)Calculated based on the aggregate outstanding principal balance as of the Cut-off Date of the Osborn Triangle SeniorPari Passu Notes (as defined below).

(4)The Cut-off Date Balance of $50,000,000 represents the non-controlling note A-2. The related companion loans, are evidenced by the controlling notes A-1 ($250,000,000) and subordinate note B-1 ($145,000,000), which have been contributed to the JPMCC 2019-OSB transaction, and the non-controlling Notes A-3 ($50,000,000), A-4 ($30,000,000), A-5 ($25,000,000) and A-6 ($25,000,000), are currently held by JPMCB and expected to be contributed to one or more future commercial mortgage securitization transactions.

(5)See“—Escrows” below.

 

The Mortgage Loan. The mortgage loan (the “Osborn Triangle Loan”) is part of a loan combination (the “Osborn Triangle Loan Combination”) evidenced by sixpari passu notes (collectively, the “Osborn Triangle SeniorPari PassuNotes”) and one subordinate note the (“Osborn Junior Non-Trust Note”) that are together secured by four first mortgages encumbering the borrowers’ leasehold interest in the four condominium units that together comprise the Class A office/laboratory properties and a parking garage located in Cambridge, Massachusetts (the “Osborn Triangle Property”). The Osborn Triangle Loan, which is evidenced by the non-controlling note A-2, has an outstanding principal balance as of the Cut-off Date of $50,000,000 and represents approximately 4.2% of the Initial Pool Balance. The related companion loans are evidenced by the controlling notes A-1 ($250,000,000) and subordinate note B-1 ($145,000,000), which have been contributed to the JPMCC 2019-OSB transaction, and the non-controlling Notes A-3 ($50,000,000), A-4 ($30,000,000), A-5 ($25,000,000) and A-6 ($25,000,000), which are expected to be contributed to one or more future commercial mortgage securitization transactions. The Osborn Triangle Loan Combination, which accrues interest at an interest rate of 3.79700%per annum, was originated by JPMorgan Chase Bank, National Association (“JPMCB”) on May 16, 2019, had an original principal balance of $575,000,000 and has an outstanding principal balance as of the Cut-off Date of $575,000,000. The proceeds of the Osborn Triangle Loan Combination along with the principal’s new cash contribution were primarily used to purchase the Osborn Triangle Property and pay origination costs.

 

Loan Combination Summary

 

Note Original Balance Cut-off Date Balance Note Holder Controlling Piece
A-1 $250,000,000  $250,000,000  JPMCC 2019-OSB Yes
A-2 $50,000,000  $50,000,000  Benchmark 2019-B12 No
A-3 $50,000,000  $50,000,000  JPMCB(1) No
A-4 $30,000,000  $30,000,000  JPMCB(1) No
A-5 $25,000,000  $25,000,000  JPMCB(1) No
A-6 $25,000,000  $25,000,000  JPMCB(1) No
B-1 $145,000,000  $145,000,000  JPMCC 2019-OSB No
Total / Wtd. Avg. $575,000,000  $575,000,000     

 

 

(1)       Expected to be contributed to one or more future securitization transactions.

 

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LOAN #6: Osborn triangle

 

The Osborn Triangle Loan Combination had an initial term of 120 months, has a remaining term of 118 months as of the Cut-off Date and requires monthly payments of interest only for the term of the Osborn Triangle Loan. The scheduled maturity date of the Osborn Triangle Loan Combination is the due date in June 2029. Provided no event of default has occurred and is continuing under the Osborn Triangle Loan Combination documents, the borrowers may prepay the Osborn Triangle Loan Combination in whole, but not in part, after July 31, 2021, provided that the borrowers pay the greater of a yield maintenance premium or a prepayment premium equal to 1.0% of the principal amount being prepaid. The Osborn Triangle Loan Combination is prepayable without penalty on or after December 1, 2028. Additionally, the Osborn Triangle Loan Combination may be prepaid in part in connection with the release of the 1 Portland Street mortgaged property or the 700 Main Street mortgaged property, subject to the satisfaction of certain related conditions set forth in the loan documents. See “Release of Collateral” below for additional information.

 

The Mortgaged Properties. The Osborn Triangle Property is a collection of three Class A office/laboratory buildings totaling 676,947 SF and a 650-space parking garage located directly adjacent to the Massachusetts Institute of Technology (“MIT”) campus in Cambridge, Massachusetts. The collateral for the Osborn Triangle Loan consists of 610 Main Street North, 1 Portland Street, 700 Main Street and a subterranean 650-space parking garage situated on approximately 4.8 acres of land. The three properties are set around Watson Court, a central green space with outdoor seating. The Osborn Triangle Property was designed by Boston-based Elkus Manfredi Architects, Lab Architect Group and Tsai Kobus and completed by MIT Investment Management Company (“MITIMCo”). 610 Main Street North is LEED Gold certified and designed with electric vehicle charging stations, a reflective roof as well as water efficient fixtures and irrigation. 1 Portland Street has efficient layouts for a variety of office and laboratory requirements. 700 Main Street was converted from an industrial building into a life science facility in 2002, further expanded in 2012 and offers a modern tenant experience combined with preserved historical architecture.

 

Portfolio Summary

 

Property Name Year Built / Renovated SF Allocated
Loan
Combination
Cut-off Date Balance
 % Allocated
Loan
Combination Original
Balance
 Appraisal
Date
 Appraised
Value
 

% Appraised Value(1)

 UW NCF % of
UW
NCF
610 Main Street North 2016 / NAP 278,738 $20,182,609 40.4% 4/11/2019 $462,000,000 39.9% $23,500,965 45.5%
1 Portland Street 2013 / NAP 229,330 17,826,087 35.7 4/11/2019 416,000,000 35.9 17,670,161 34.2
700 Main Street Late 1800s / 2002, 2012 168,879 11,991,304 24.0 4/11/2019 280,000,000 24.2 10,501,964 20.3
  Total / Wtd. Avg.   676,947 $50,000,000 100.0%   $1,158,000,000 100.0% $51,673,090 100.0%

 

 

(1)Source: Appraisal.

 

The Osborn Triangle Property is currently 100.0% occupied by seven tenants (three office tenants and four retail tenants). The three office tenants at the Osborn Triangle Property consist of Pfizer, Novartis Institutes for Biomedical Research, Inc. (“Novartis”) and Lab Central Inc. (“Lab Central”). Retail tenants include Sulmona Restaurant Group, Café Luna, Boston Burger and Revela and comprise 1.3% of NRA and 0.6% of underwritten base rent.

 

The largest tenant based on underwritten base rent, Pfizer (73.8% of NRA; 77.9% of underwritten base rent; rated A1 / AA / A+ by Moody’s / S&P / Fitch), occupies a total of 499,386 SF of office and laboratory space and has been a tenant at the Osborn Triangle Property since December 2013. Pfizer leases 229,330 SF of space at 1 Portland Street which expires in January 2024 and 270,056 SF of space at 610 Main Street North which expires in December 2031, both with two, five-year renewal options. Pfizer subleases a portion of its space totaling 163,644 SF to CRISPR Therapeutics, Lab Central, Casebia Therapeutics and KSQ Therapeutics. Pfizer is one of the world’s largest biopharmaceutical companies, with a global portfolio that encompasses medicines, vaccines and healthcare products. Headquartered in New York City with approximately 92,400 employees worldwide, Pfizer’s products are sold in over 125 countries. As of 2018, Pfizer reported revenues of approximately $53.6 billion. Pfizer’s location at 610 Main Street North and 1 Portland Street employs approximately 1,000 people and focuses on pharmaceutical and biologics research, drug metabolism, biotechnology and therapeutic areas including inflammation, immunology, rare diseases and internal medicine. In addition to Pfizer’s location at the Osborn Triangle Property, Massachusetts is home to Pfizer’s research and manufacturing site in Andover and serves as the global headquarters for Pfizer’s Center for Therapeutic Innovation.

 

The second largest tenant based on underwritten base rent, Novartis (14.8% of NRA; 14.1% of underwritten base rent; rated A1 / AA- / AA- by Moody’s / S&P / Fitch), occupies 99,883 SF of office and laboratory space through July 2024 with two, five-year renewal options and has been a tenant at the Osborn Triangle Property since March 2014. Novartis is a multinational medicine company based in Basel, Switzerland with 125,000 employees worldwide. As of 2018, Novartis reported sales of $51.9 billion. Novartis’ location at 700 Main Street is home to Novartis Institutes for BioMedical Research (“NIBR”), the innovation engine of Novartis which focuses on discovering new drugs. NIBR employs approximately 6,000 people in six research campuses across the globe. In addition to Novartis’ 700 Main

 

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LOAN #6: Osborn triangle

 

Street location, Novartis has complementary Cambridge locations along Massachusetts Avenue, Windsor Street and within Technology Square.

 

The third largest tenant based on underwritten base rent, Lab Central (10.2% of NRA; 7.4% of underwritten base rate), occupies 68,996 SF of office and laboratory space through March 2027 with two five-year renewal options and has been a tenant at the Osborn Triangle Property since April 2013. Lab Central is a shared laboratory space designed as a launchpad for potential life-sciences and biotech startups. Founded in 2013, Lab Central was primarily funded by two grants from the Massachusetts Life Sciences Center and MIT. 700 Main Street serves as Lab Central’s headquarters and primary incubator space. Along with 610 Main Street North, Lab Central’s two-building campus offers fully permitted laboratory and office space with a capacity to serve 450 scientists and entrepreneurs in about 70 companies. Lab Central subleases additional space from Pfizer at 610 Main Street North.

 

The following table presents certain information relating to the tenants at the Osborn Triangle Property:

 

Owned Tenants by Underwritten Base Rent(1)

 

Tenant Name

 

Credit Rating
(Fitch/MIS/S&P)(2)
 

 

Tenant GLA

 

% of Owned GLA

 

UW Base Rent(3)

 

% of Total UW Base Rent(3)

 

UW Base Rent $ per SF(3)

 

Lease Expiration

 

Lease Escalations

 

Renewal / Extension Options

Pfizer(6) A+/A1/AA 499,386 73.8% $40,772,108 77.9% $81.64 Various(4) Various(5) 2, 5-Year
Novartis AA-/A1/AA- 99,883 14.8% 7,382,067 14.1% 73.91 7/31/2024 3% Annually 2, 5-Year
Lab Central NR/NR/NR 68,996 10.2% 3,853,357 7.4% 55.85 3/31/2027 2.75% Annually 2, 5-Year
Sulmona Restaurant Group NR/NR/NR 3,355 0.5% 126,248 0.2% 37.63 2/28/2027 3% Annually 1, 5-Year
Café Luna NR/NR/NR 2,328 0.3% 86,442 0.2% 37.13 3/31/2027 3% Annually 1, 5-Year
Boston Burger NR/NR/NR 1,984 0.3% 71,523 0.1% 36.05 9/30/2027 3% Annually 1, 5-Year
Revela NR/NR/NR 1,015 0.1% 47,854 0.1% 47.15 7/31/2027 3% Annually 1, 5-Year
Total / Wtd. Avg. All Tenants   676,947 100.0% $52,339,600 100.0% $77.32      
                   

 

 

(1)Based on the underwritten rent roll dated May 1, 2019.

(2)Certain ratings are those of the parent company whether or not the parent guarantees the lease.

(3)UW Base Rent, % of Total UW Base Rent and UW Base Rent $ per SF includes the present value of rent steps and a mark to market at the end of the lease term for Pfizer and Novartis. The average contractual rent per SF over the lease term is $70.96 per SF for the 2024 Pfizer lease expiration, $86.61 per SF for the 2031 Pfizer lease expiration and $59.46 for the 2024 Novartis lease expiration. For the remaining tenants, the UW Base Rent, % of Total UW Base Rent and UW Base Rent $ per SF includes rent steps through May 1, 2020.

(4)Pfizer leases 229,330 SF of space at 1 Portland Street which expires January 31, 2024. Pfizer leases 270,056 SF of space at 610 Main Street North which expires December 31, 2031.

(5)Pfizer’s lease associated with 139,212 SF of space at 610 Main Street North and 229,330 SF of space at 1 Portland Street has 2.75% lease escalations. Pfizer’s lease associated with 130,844 SF of space at 610 Main Street North has 3% lease escalations.

(6)Pfizer subleases a portion of its space totaling 163,644 SF to CRISPR Therapeutics, Lab Central, Casebia Therapeutics and KSQ Therapeutics. Caesbia Therapeutics sub-subleases 5,184 SF of its space to Bayer’s Life Hub Boston through March 31, 2024 at $77.26 per SF plus 3.0% annual increases commencing April 1, 2019. Bayer reimburses expenses at a rate of $4.40 per SF.

 

The following table presents certain information relating to the lease rollover schedule at the Osborn Triangle Property, based on initial lease expiration dates:

 

Lease Expiration Schedule(1)

 

Year Ending

December 31

 

Expiring

Owned GLA

 

% of Owned GLA

 

Cumulative % of

Owned GLA

 

UW Base Rent(2)

 

% of UW Base Rent Expiring(2)

 

UW Base Rent $

per SF(2)

 

# of Expiring

Leases

MTM 0 0.0% 0.0% $0 0.0% $0.00 0
2019 0 0.0 0.0% 0 0.0% $0.00 0
2020 0 0.0 0.0% 0 0.0% $0.00 0
2021 0 0.0 0.0% 0 0.0% $0.00 0
2022 0 0.0 0.0% 0 0.0% $0.00 0
2023 0 0.0 0.0% 0 0.0% $0.00 0
2024 329,213 48.6 48.6% 25,600,102 48.9% $77.76 2
2025 0 0.0 48.6% 0 0.0% $0.00 0
2026 0 0.0 48.6% 0 0.0% $0.00 0
2027 77,678 11.5 60.1% 4,185,425 8.0% $53.88 5
2028 0 0.0 60.1% 0 0.0% $0.00 0
2029 0 0.0 60.1% 0 0.0% $0.00 0
2030 & Thereafter 270,056 39.9 100.0% 22,554,072 43.1% $83.52 1
Vacant 0 0.0 100.0% 0 0.0% $0.00 0
Total / Wtd. Avg. 676,947 100.0%   $52,339,600 100.0% $77.32 8

 

 

(1)Certain tenants may have lease termination options that are exercisable prior to the originally stated expiration date of the subject lease and that are not considered in the Lease Expiration Schedule.

(2)UW Base Rent, % of Total UW Base Rent Expiring and UW Base Rent $ per SF includes the present value of rent steps and a mark to market at the end of the lease term for Pfizer and Novartis. The average contractual rent per SF over the lease term is $70.96 per SF for the 2024 Pfizer lease expiration, $86.61 per SF for the 2031 Pfizer lease expiration and $59.46 per SF for the 2024 Novartis lease expiration. For the remaining tenants, the UW Base Rent, % UW Base Rent Expiring and UW Base Rent $ per SF includes rent steps through May 1, 2020.

 

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LOAN #6: Osborn triangle

 

The following table presents certain information relating to historical leasing at the Osborn Triangle Property:

 

Historical Leased%(1)

 

  2016 2017 2018 

As of 5/1/2019(2)

610 Main Street North  99.0%  99.9%  100.0%  100.0%
1 Portland Street  100.0%  100.0%  100.0%  100.0%
700 Main Street  100.0%  100.0%  100.0%  100.0%
Osborn Triangle  99.6%  99.9%  100.0%  100.0%

 

 

(1)As provided by the borrowers and which represents average month-end occupancy for the indicated year unless otherwise specified.

(2)Based on the underwritten rent roll dated May 1, 2019.

 

Operating History and Underwritten Net Cash Flow. The following table presents certain information relating to the historical operating performance and the Underwritten Net Cash Flow at the Osborn Triangle Property:

 

Cash Flow Analysis(1)

 

  

2017

 

2018

 

T-12 3/31/2019

 

Underwritten

 

Underwritten

$ per SF

Base Rent $40,270,949 $42,583,273 $43,432,253 $44,714,419 $66.05
IG Rent Steps and Market Adjustment(2) 0 0 0 7,625,181 11.26
Vacant Income 0 0 0 0 0.00
Total Reimbursement Revenue 13,282,194 14,252,881 14,607,789 16,481,111 24.35
Parking Income 1,920,448 2,339,140 2,363,122 2,255,641 3.33
Gross Revenue $55,473,591 $59,175,294 $60,403,164 $71,076,352 $105.00
Other Income(3) 413,828 451,151 464,927 529,887 0.78
Vacancy & Credit Loss(4) 0 0 0 (816,810) (1.21)
Effective Gross Income $55,887,418 $59,626,445 $60,868,091 $70,789,429 $104.57
           
Real Estate Taxes $5,708,393 $6,097,226 $6,312,129 $6,962,331 $10.28
Insurance 469,641 153,730 128,547 247,479 0.37
Management Fee 580,053 521,434 516,241 1,000,000 1.48
Other Operating Expenses 7,092,520 8,949,407 8,903,369 8,845,203 13.07
Total Operating Expenses $13,850,608 $15,721,797 $15,860,286 $17,055,013 $25.19
           
Net Operating Income(5) $42,036,811 $43,904,648 $45,007,805 $53,734,416 $79.38
TI/LC 0 0 0 1,878,551 2.78
Capital Expenditures 0 0 0 182,776 0.27
Net Cash Flow $42,036,811 $43,904,648 $45,007,805 $51,673,090 $76.33
           
Occupancy 99.9% 100.0% 100.0% 100.0%(6)  
NOI Debt Yield(7) 7.3% 7.6% 7.8% 9.3%  
NCF DSCR(7) 1.90x 1.98x 2.03x 2.33x  

 

 

(1)Certain items such as straight line rent, interest expense, interest income, lease cancellation income, depreciation, amortization, debt service payments and any other non-recurring or non-operating items were excluded from the historical presentation and are not considered for the underwritten cash flow.

(2)Includes the present value of rent steps and a mark to market at the end of the lease term for Pfizer and Novartis. The average contractual rent per SF over the lease term is $70.96 per SF for the 2024 Pfizer lease expiration, $86.61 per SF for the 2031 Pfizer lease expiration and $59.46 per SF for the 2024 Novartis lease expiration. For the remaining tenants, includes rent steps through May 1, 2020.

(3)Other Income consists of storage income, percentage rent (retail tenancy), sublease income and TI rent.

(4)Vacancy is underwritten to the blended economic vacancy of 1.1%. The blended vacancy reflects the appraiser’s assumption of 2.0% market vacancy for 1 Portland Street and 700 Main Street, as well as the appraisers 0.0% vacancy assumption for 610 Main Street North because of its long term lease with credit tenant, Pfizer, which has a December 2031 expiration and is 2.5 years beyond the loan term. Other third party data sources show a submarket vacancy between 0.5% and 1.0% for buildings completed after 2009. The Osborn Triangle Property was completed or gut renovated between 2012 and 2016.

(5)The increase from T-12 3/31/2019 Net Operating Income to Underwritten Net Operating Income was primarily due to IG Rent Steps and Market Adjustment for Pfizer and Novartis (as described above).

(6)Based on the underwritten rent roll dated May 1, 2019.

(7)Metrics are calculated based on the Osborn Triangle Loan Combination.

 

Appraisal. According to the appraisal, the Osborn Triangle Property had an “as-is” appraised value of $1,158,000,000 as of April 11, 2019.

 

Property Appraisal Approach Value Discount Rate Capitalization Rate
610 Main Street North Discounted Cash Flow Approach $462,000,000  6.25% 5.25%(1)
1 Portland Street Discounted Cash Flow Approach $416,000,000  6.25% 5.00%(1)
700 Main Street Discounted Cash Flow Approach $280,000,000  6.25% 5.00%(1)

 

 

(1)Represents the terminal capitalization rate.

 

Environmental Matters. Based on a Phase I environmental report dated April 10, 2019, the environmental consultant did not identify evidence of any recognized environmental conditions or recommendations for further action at the Osborn Triangle Property.

 

Market Overview and Competition. The Osborn Triangle Property is located in Cambridge, Massachusetts, within the Boston office market (specifically the East Cambridge/Kendall Square office submarket). Situated on

 

45

 

 

LOAN #6: Osborn triangle

 

approximately 4.8 acres of land directly adjacent to MIT, the Osborn Triangle Property is located in the East Cambridge neighborhood in a dynamic biotech cluster, which is bound by Main Street, Albany Street and Massachusetts Avenue. Osborn Triangle Property’s location allows it to capitalize on its proximity to major institutional and research entities in Cambridge, affording its tenants immediate access to parking and public transportation, as well as the city’s entertainment, hospitality and residential districts. The neighborhood is anchored by the Kendall/MIT MBTA Red Line subway station and the approximately 166-acre MIT campus. MIT’s iconic Great Dome is less than 400 yards from the center of the Osborn Triangle Property. The Osborn Triangle Property is surrounded by a cluster of global life science/technology companies and fast-growing start-ups anchored by Akamai, Amazon, Apple, Biogen, Boeing, Broad Institute, Cambridge Innovation Center, Draper, Google, Koch Institute and Microsoft. Logan International Airport is located approximately 4.3 miles northeast of the Osborn Triangle Property and offers 40 airlines that fly non-stop to more than 100 domestic and international destinations. Furthermore, the Massachusetts Port Authority recently announced $1.0 billion worth of investments to further expand the airport’s international terminal, reconfigure other terminals and redesign its roadways.

 

According to the appraisal, the Osborn Triangle Property is located within the Boston metropolitan statistical area (the “Boston MSA”). As of 2018, the Boston MSA had an unemployment rate of approximately 3.3%, a median household income of approximately $85,800 and a population of approximately 2.0 million.

 

East Cambridge/Kendall Square comprises nearly 21.0 million SF of world-class office and laboratory space complemented by a dense cluster of apartments, shopping destinations and dining amenities in addition to 2.5 acres of landscaped open space. Notable developments in the immediate area include the Cambridgeside Galleria Mall, Canal Park, Riverview Office Park, Royal Sonesta Hotel and several high-rise residential condominium buildings. According to a third party research report, as of the fourth quarter of 2018, the East Cambridge submarket had approximately 7.4 million SF of laboratory space with approximately 1.4 million SF under construction. The average East Cambridge submarket vacancy in 2018 was approximately 0.2%. East Cambridge Class B NNN laboratory space had an average asking rents of $78.00 per SF, while Class A NNN laboratory space commanded nearly an $11 premium at $88.80 per SF. Recent leasing in the Cambridge office/laboratory submarket in the first quarter of 2019 includes more than 620,000 SF to tenants including Infinity Pharmaceuticals, Boston Microfluidics, BetterLesson, Syros Pharmaceuticals, Invaio Sciences, Ultragenyx Pharmaceutical, HiFiBiO Therapeutics and Casma Therapeutics.

 

In 2018, the Greater Boston area had approximately 20.3 million SF of laboratory space with an average vacancy rate of 4.9%. The laboratory submarkets across Greater Boston combined for 1.5 million SF of net absorption in 2018. 62 public companies with a combined market value of approximately $170.0 billion, the majority of them biotechnology firms are headquartered in Cambridge. Global pharmaceutical companies, including Takeda Pharmaceutical Co., Sanofi SA and Novartis AG, also have extensive research operations in the city. In the fourth quarter of 2018, tenants absorbed 468,000 SF of biotechnology-focused laboratory real estate in Greater Boston, with much of that growth occurring at the last of the Alexandria Center at Kendall Square buildings to be delivered. Bristol-Myers Squibb took occupancy of 208,000 SF, while Facebook moved into 133,000 SF and furthered a trend of traditional office users paying significant premiums for Kendall Square space, even when that space was developed for lab use.

 

As of the first quarter of 2019, the Cambridge – East office submarket contained approximately 9.4 million SF of office space, had a direct vacancy rate of 1.4% and average asking NNN rents of $94.52 per SF (compared to underwritten gross rent of $77.32 per SF at the Osborn Triangle Property) according to a third party research report. As of the same time period, according to the appraisal, the Cambridge – East laboratory submarket contained approximately 12.3 million SF of laboratory space, had a direct vacancy rate of 0.9% and average asking NNN rents of $94.75 per SF (compared to underwritten gross rent of $77.32 per SF at the Osborn Triangle Property) according to a third party research report. The appraisal surveyed a competitive set of rent comparables from six other class A/B office/laboratory buildings in the Kendall Square. Base rent across the approximately 670,007 SF of leases ranges from $76.00 to $95.00 per SF (highlighted in the chart below). The appraisal concluded office/laboratory market rent of $87.50 per SF and retail space market rent of $45.00 per SF. Based on the appraiser’s analysis and concluded market rent, the Osborn Triangle Property’s in-place rent is approximately 24.3% and 17.4% below market with respect to office/laboratory and retail space, respectively.

 

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LOAN #6: Osborn triangle

 

The following table presents certain information relating to comparable buildings for the Osborn Triangle Property:

 

Office Building Comparables(1)

 

Property Name

 

Lessee 

 

Lease Date 

 

NRA 

 

Lease Term 

 

Lease Type 

 

Rent PSF 

238 Main Street Bayer Jun-2021  62,500  12 Yrs. 7 Mos. NNN $ 95.00 
One Main Street IPSEN Jun-2019  31,750  10 Yrs. NNN $ 90.00 
301 Binney Street Cyclerion Therapeutics, Inc. Jun-2019  114,454  10 Yrs. 3 Mos. NNN $ 90.00 
301 Binney Street Generation Bio May-2019  71,462  10 Yrs. NNN $ 86.00 
301 Binney Street Ironwood Pharmaceuticals Apr-2019  108,108  5 Yrs. 9 Mos. NNN $ 79.31 
301 Binney Street Momenta Pharmaceuticals, Inc. Jan-2018  79,863  7 Yrs. 7 Mos. NNN $ 76.00 
100 Binney Street Bluebird Bio Apr-2019  18,295  10 Yrs. NNN $ 86.00 
100 Binney Street TCR2 Therapeutics, Inc. Apr-2018  22,890  7 Yrs. 4 Mos. NNN $ 76.00 
100 Binney Street Tango Therapeutics, Inc. Aug-2017  22,000  8 Yrs. 4 Mos. NNN $ 76.00 
45 & 75 Sidney Street Voyager Nov-2018  47,493  8 Yrs. NNN $ 83.00 
399 Binney Street Rubius Therapeutics, Inc. Nov-2018  48,192  8 Yrs. NNN $ 78.00 
399 Binney Street Relay Therapeutics Nov-2018  43,000  10 Yrs. NNN $80.00 
Total/Wtd. Average      670,007      $83.60 

 

 

(1)Source: Appraisal.

 

The Borrowers. The borrowers are 610 Main Street North Leasehold LLC, 610 Main Street South Leasehold LLC, 700 Main Street Leasehold LLC and 610-700 Main Garage Leasehold LLC, each a Massachusetts limited liability company and structured to be a single purpose entity with two independent directors. The borrowers are indirectly owned or controlled by a joint venture between affiliates of Harrison Street Real Estate Capital (“HSRE”), MIT Investment Management Company (“MITIMCo”) and Bulfinch Companies, Inc. (“Bulfinch”). Legal counsel to the borrowers delivered a non-consolidation opinion in connection with the origination of the Osborn Triangle Loan Combination. HSRE is a real estate investment management firm headquartered in Chicago, Illinois with approximately $18.3 billion in assets under management, and HSRE has raised more than approximately $13.0 billion in discretionary equity capital for its private and public real estate offerings. Bulfinch specializes in the acquisition, development, management and leasing of commercial properties in the Boston area. Bulfinch owns and manages approximately 3.0 million square feet of medical, biotech and office assets. MITIMCo supports a wide array of MIT’s academic and research activities through returns generated by investing the institute’s financial resources. Founded in 1861, MIT presently enrolls approximately 11,500 undergraduate and graduate students and employs approximately 12,600 people, including 1,000 professors, with 89 Nobel Laureates among current and former members of the MIT community.

 

Escrows. On each due date, the borrowers are required to fund the following reserves with respect to the Osborn Triangle Loan Combination: (i) a tax reserve in an amount equal to one-twelfth of the amount that the lender estimates will be necessary to pay taxes over the then succeeding 12-month period (such reserve has been conditionally waived so long as no event of default under the related loan documents has occurred and is continuing, and the borrowers have provided satisfactory evidence that taxes have been paid in accordance with the requirements of the Osborn Triangle Loan documents) and (ii) an insurance reserve in an amount equal to one-twelfth of the amount that the lender estimates will be necessary to cover premiums over the then succeeding 12-month period (such reserve has been conditionally waived so long as no event of default under the related loan documents has occurred and is continuing, and the borrowers maintain a blanket policy meeting the requirements of the Osborn Triangle Loan Combination documents). In addition, in the event the borrowers have elected to cure a Tenant Trigger (as defined below) by depositing the applicable cure deposit, the borrowers are required to fund a reserve for tenant improvements and/or leasing commissions in an amount equal to $3.625 per square foot for each month remaining in the applicable non-renewal or termination period under the related lease.

 

Lockbox and Cash Management. The Osborn Triangle Loan Combination documents require a hard lockbox and springing cash management. The borrowers were required at origination to deliver tenant direction letters to each existing tenant at the Osborn Triangle Property directing each tenant to remit its rent checks directly to the lender-controlled lockbox. The borrowers are also required to deliver a tenant direction letter to each future commercial tenant. So long as no Cash Sweep Event (as defined below) then exists, all funds deposited into the lockbox account are required to be transferred on each business day to or at the direction of the borrower. Upon the occurrence and during the continuance of a Cash Sweep Event, all funds in the lockbox account are required to be swept on each business day to a cash management account under the control of the lender to be applied and disbursed for payment of taxes, insurance premiums, operating expenses, debt service, reserves, and other amounts payable in accordance with the Osborn Triangle Loan Combination documents, and all excess cash flow funds remaining in the cash management account after the application of such funds in accordance with the Osborn Triangle Loan Combination documents are required to be held by the lender in an excess cash flow reserve account as additional collateral for

 

47

 

 

LOAN #6: Osborn triangle

 

the Osborn Triangle Loan Combination. Upon the occurrence and during the continuance of an event of default under the Osborn Triangle Loan Combination documents or any bankruptcy action of the borrowers or property manager, the lender may apply funds to the debt in such priority as it may determine.

 

A “Cash Sweep Event” will commence upon the occurrence of (i) an event of default, (ii) a bankruptcy action of any individual borrower of the property manager, (iii) the date the debt service coverage ratio is less than 1.25x based on the trailing three month period or (iv) either Pfizer or Novartis (A) failing to renew its lease 12 months prior to its lease expiration date, or (B) going “dark”, vacating, or abandoning its premises for a period of 90 consecutive days (excluding commercially reasonable periods in connection with a restoration of the Osborn Triangle Property) (each of (A) and (B), a “Tenant Trigger”), and will end, (a) with respect to clause (i), upon a cure of the event of default and the lender’s acceptance of such cure, (b) with respect to clause (ii) solely with respect to the property manager, the replacement of the property manager with a qualified manager under a replacement management agreement within 60 days, (c) with respect to clause (iii), if the debt service coverage ratio is at least 1.25x for two consecutive calendar quarters based on the trailing three month period and (d) with respect to clause (iv) with either (1) the replacement of Pfizer or Novartis, as applicable, with one or more replacements tenant(s) approved by the lender pursuant to one or more lease(s) for all or substantially all of the premises leased to Pfizer and/or Novartis or such less space, provided that the annual rental and other payments is in an amount sufficient to achieve a debt service coverage ratio of 1.25x for two consecutive calendar quarters or (2) at the borrowers’ election, the borrowers will have deposited cash or an acceptable letter of credit in an amount equal to $3.625 per SF per month for each month remaining in the non-renewal or termination period in the Pfizer lease or Novartis lease.

 

Property Management. The Osborn Triangle Property is managed by Jones Lang LaSalle Americas, Inc., a Maryland corporation. The borrowers may terminate the property manager and replace it with a qualified manager that meets the requirements of the Osborn Triangle Loan Combination documents. The lender has the right to require the borrowers to terminate the management agreement and replace the manager in accordance with the Osborn Triangle Loan Combination documents if (i) an event of default occurs and remains uncured under the Osborn Triangle Loan Combination, (ii) the manager becoming insolvent or a debtor in any bankruptcy or insolvency proceeding or (iii) there is an event of default of the manager under the management agreement beyond all applicable cure periods. The borrowers are permitted to terminate the existing management agreement and replace manager with a pre-approved Bulfinch manager, subject to delivery of a management agreement and collateral assignment of management each in the forms pre-approved by the lender and attached as exhibits to the mortgage loan agreement.

 

Current Mezzanine or Secured Subordinate Indebtedness. The Osborn Triangle Junior Non-Trust Note, with an outstanding principal balance as of the Cut-off Date of $145.0 million, accrues interest at a fixed rate of 3.79700% per annum. The Osborn Triangle Junior Non-Trust Note had a 120-month term and is interest only for the full term. For additional information, see“Description of the Mortgage Pool—The Loan Combinations—The Osborn Triangle Pari Passu-AB Loan Combination”in the Preliminary Prospectus.

 

Based on the total combined debt of $575.0 million, the Cut-off Date LTV Ratio, Maturity Date LTV Ratio, DSCR Based on Underwritten NCF and Debt Yield Based on Underwritten NOI are illustrated below:

 

Financial Information

 

 

Osborn Triangle Senior Notes

 

Osborn Triangle Loan Combination

Cut-off Date Balance$430,000,000 $575,000,000
Cut-off Date LTV Ratio37.1% 49.7%
Maturity Date LTV Ratio37.1% 49.7%
DSCR Based on Underwritten NCF3.12x 2.33x
Debt Yield Based on Underwritten NOI12.5% 9.3%

 

Future Mezzanine or Secured Subordinate Indebtedness. None, but the upper tier beneficial owners of the borrowers are permitted to pledge up to 75% of the direct or indirect equity interests in HSRE-Osborn Core Holding, LLC as part of a corporate financing, subject to satisfaction of certain terms and conditions in the Osborn Triangle Loan Combination documents including, without limitation: (i) the pledge is to an institutional investor meeting the requirements of the loan documents; (ii) at least 75% of the permitted pledge is secured by assets other than the Osborn Triangle Property or the direct or indirect interests in the Osborn Triangle Property; and (iii) the pledge will not result in a change in control of the borrowers.

 

Release of Collateral. The Osborn Triangle Loan Combination documents provide that the borrower may release either the 1 Portland Street and/or the 700 Main Street properties from the lien of the Osborn Triangle Loan Combination documents after July 1, 2021, subject to the satisfaction of certain terms and conditions including,

 

 

48

 

 

LOAN #6: Osborn triangle

 

without limitation (i) the payment of a release price equal to 110% of the allocated loan amount for such property, plus the payment of a yield maintenance premium (if applicable), (ii) the debt service coverage ratio (as calculated in the Osborn Triangle Loan Combination documents) for the properties then remaining subject to the lien of the Osborn Triangle Loan Combination documents based on the trailing 12 month period is equal to or greater than the greater of (a) 2.03x and (b) the debt service coverage ratio for all of the Osborn Triangle Property (including the property subject to the release) based on the trailing 12 month period, (iii) the remaining properties (after the release) will not be in violation of the condominium documents, the Master Lease documents, any leases or the then applicable laws, and the borrower continues to control the board of trustees of the condominium association and (iv) the borrower may not lease any space at the released property to an existing tenant unless either (a) the borrower has re-leased the space in the Osborn Triangle Property to a new tenant with an effective rent per square foot in an amount equal to or greater than the tenant that was relocated or (b) the lender consents to such relocation (which consent may not be unreasonably withheld, conditioned or delayed). The Osborn Triangle Loan Combination documents provide that if the loan-to-value ratio exceeds or would exceed 125% immediately after the release, no release will be permitted unless the principal balance of the Osborn Triangle Loan Combination is prepaid by an amount set forth in the Osborn Triangle Loan Combination documents or the borrower delivers a REMIC opinion. The borrower is not permitted to release the 610 Main Street North or parking garage properties.

 

Condominium and Master Lease Structure. The Osborn Triangle Property is subject to a condominium declaration, which divides the underlying property into four units, the 610 Main Street North unit, the 610 Main Street South unit (a/k/a/ 1 Portland Street), the 700 Main Street unit and the parking garage unit. The fee interests in the condominium units are owned by an affiliate of MIT, which is also the declarant under the condominium declaration. The fee owner of the units master leases each unit to the individual borrower, and the Osborn Triangle Loan Combination is secured by such leasehold interests. Pursuant to each master lease, the fee owner of the units has delegated the rights to exercise its rights and privileges in its capacity as the fee owner of the units under the condominium declaration to each borrower, and the individual borrowers control 100% of the condominium interests. The term of each of the master lease expires on May 15, 2084. The base rent under each ground lease was prepaid in full prior to the origination of the Osborn Triangle Loan Combination. Please see “Description of the Mortgage Pool—Statistical Characteristics of the Mortgage Loans—Leasehold Interests” in the Preliminary Prospectus for additional information.

 

Terrorism Insurance. The Osborn Triangle Loan Combination documents require that the “all-risk” insurance policy required to be maintained by the borrower provide coverage for terrorism in an amount equal to the original principal balance of the loan, plus business interruption coverage in an amount equal to 100% of the projected gross income for the applicable property (as reduced to reflect expenses not incurred during a period of restoration) until the expiration of 24 months, with a 6-month extended period of indemnity. The “all-risk” policy containing terrorism insurance is required to contain a deductible that is acceptable to the lender and is no greater than $25,000. However, if the Terrorism Risk Insurance Program Reauthorization Act of 2015 (TRIPRA) is no longer in effect, the borrower is not required to spend more than two times the then-current premium for a separate “all-risk” or equivalent policy (including business interruption coverage) for terrorism coverage (but is required to purchase the maximum coverage available for such amount). See “Risk Factors—Terrorism Insurance May Not Be Available for All Mortgaged Properties” in the Preliminary Prospectus.

 

49

 

 

LOAN #7: 10000 Santa Monica Boulevard

 

Mortgaged Property Information Mortgage Loan Information
Number of Mortgaged Properties1 Loan SellerJPMCB
Location (City/State)Los Angeles, California Cut-off Date Balance(2)$50,000,000
Property TypeMultifamily Cut-off Date Balance per Unit(1)$782,918.15
Size (Units)281 Percentage of Initial Pool Balance4.2%
Total Occupancy as of 4/9/201989.0% Number of Related Mortgage LoansNone
Owned Occupancy as of 4/9/2019 89.0% Type of SecurityFee Simple
Year Built2017 Mortgage Rate4.15000%
Appraised Value$553,000,000 Original Term to Maturity (Months)120
Appraisal Date3/25/2019 Original Amortization Term (Months)NAP
Borrower SponsorSonny Kahn, Russell Galbut and
Bruce Menin
 Original Interest Only Period (Months)120
Property ManagementCH Management Services, LLC First Payment Date6/6/2019
   Maturity Date5/6/2029
Underwritten Revenues$41,869,092   
Underwritten Expenses$20,152,705   
Underwritten Net Operating Income (NOI)$21,716,388 Escrows(3)
Underwritten Net Cash Flow (NCF) $21,660,188  UpfrontMonthly
Cut-off Date LTV Ratio(1)39.8% Taxes$890,641$222,660
Maturity Date LTV Ratio(1)39.8% Insurance$0$0
DSCR Based on Underwritten NOI / NCF(1)2.35x / 2.34x Replacement Reserve$0$6,814
Debt Yield Based on Underwritten NOI / NCF(1)9.9% / 9.8% TI/LC$0$0
   Other(4)$0$0
      
Sources and Uses
Sources$%Uses$%
Loan Combination$230,000,00065.7%Existing Debt$339,715,63397.1%
Subordinate Debt$120,000,00034.2Closing Costs1,738,8190.5
   Upfront Tax Reserves890,6410.3
   Return of Equity7,654,9072.2
Total Sources$350,000,000100.0%Total Uses$350,000,000100.0%
        
 
(1)Calculated based on the aggregate outstanding principal balance of the Senior Notes (as defined below).

(2)The Cut-off Date Balance of $50,000,000 represents the non-controlling notes A-3, A-4, and A-6, which are part of a loan combination evidenced by seven seniorpari passu notes and one subordinate promissory note having an aggregate outstanding principal balance as of the Cut-off Date of $350,000,000. See the “Loan Combination Summary” below for more information.

(3)See“—Escrows” below.

 

The Mortgage Loan. The mortgage loan (the “10000 Santa Monica Boulevard Loan”) is part of a loan combination (the “10000 Santa Monica Boulevard Loan Combination”) originated by Natixis Real Estate Capital LLC (“NREC”) evidenced by sevenpari passu senior promissory notes with an aggregate outstanding principal balance of $220.0 million (the “Senior Notes” or the “A Notes”), and one subordinate promissory note with an outstanding principal balance of $130.0 million (the “A-B Note” and, together with the A Notes, the “Notes”), encumbering the 10000 Santa Monica Boulevard Borrower’s fee simple interest in a 41-story, 281-unit, Class A high-rise residential tower located at 10000 Santa Monica Boulevard in Los Angeles, California (the “10000 Santa Monica Boulevard Property”). The 10000 Santa Monica Boulevard Loan is evidenced bythree of the Senior Notes, Note A-3 in the outstanding principal amount of $25.0 million, Note A-4 in the outstanding principal amount of $20.0 million and Note A-6 in the outstanding principal amount of $5.0 million,and represents approximately 4.2% of the Initial Pool Balance. The related companion loans (collectively, the “10000 Santa Monica Boulevard Companion Loans”) are evidenced by $170.0 million of Senior Notes (the “Non-Trust A Notes”) and the A-B Note (the “Non-Trust A-B Note” or, collectively with the Non-Trust A Notes, the “Non-Trust Notes”) and are expected to be contributed to one or more future securitizations. The 10000 Santa Monica Boulevard Loan Combination accrues interest at an interest rate of 4.15000%per annum. The 10000 Santa Monica Boulevard Borrower utilized proceeds of the 10000 Santa Monica Boulevard Loan Combination to pay off previously existing debt, fund reserves, pay closing costs and return equity to the 10000 Santa Monica Boulevard Borrower.

 

Loan Combination Summary

 

Note

 

Original Balance

 

Cut-off Date Balance

Note Holder

 

Controlling Piece

A-1 $100,000,000 $100,000,000NCMS 2019-10K No
A-2 $35,000,000 $35,000,000NREC No
A-3, A-4, A-6 $50,000,000 $50,000,000BMARK 2019-B12 No
A-5 $15,000,000 $15,000,000NREC No
A-7 $20,000,000 $20,000,000NREC No
A-B 

$130,000,000         

 

$130,000,000         

NCMS 2019-10K Yes
Total $350,000,000 $350,000,000   

 

The 10000 Santa Monica Boulevard Loan Combination had an initial term of 120 months and has a remaining term of 117 months as of the Cut-off Date. The 10000 Santa Monica Boulevard Loan Combination requires monthly payments of interest only for the entire term of the 10000 Santa Monica Boulevard Loan. The scheduled maturity date of the 10000 Santa Monica Boulevard Loan Combination is the due date in May 2029. The 10000 Santa Monica Boulevard Borrower generally has no right to prepay the 10000 Santa Monica Boulevard Loan Combination (except in certain instances of insured casualty or of condemnation); however, on or after February 6, 2029, the 10000 Santa Monica

 

50

 

 

LOAN #7: 10000 Santa Monica Boulevard

 

Boulevard Loan Combination is pre-payable in whole (but not in part), upon 30 days’ prior notice, without penalty. The 10000 Santa Monica Boulevard Borrower has the right to defease the 10000 Santa Monica Boulevard Loan Combination in whole on any payment date after the date that is two years from the closing date of the securitization trust established in connection with the securitization of the final Notes to be securitized (the “Defeasance Lockout Date”), if no event of default is continuing and, upon satisfaction of certain other conditions enumerated in the loan agreement.

 

The Mortgaged Property.Built in 2017, the 10000 Santa Monica Boulevard Property is a 41-story, 281 unit, Class A residential tower located at 10000 Santa Monica Boulevard in Los Angeles, California. As of April 9, 2019, the 10000 Santa Monica Boulevard Property was 89.0% occupied, with a weighted average contract rent of $13,013 per unit per month. The unit mix is comprised of six (2.1%) one-bedroom units, 258 (91.8%) two-bedroom units, 13 (4.6%) three-bedroom units, two (0.7%) four-bedroom units and two (0.7%) furnished penthouse units, totaling 468,123 SF of net rentable space.

 

The 10000 Santa Monica Boulevard Property is a modern all-glass structure composed of four crystalline quadrants crowned with an angled roof, maximizing the 10000 Santa Monica Boulevard Property’s expansive views of the Pacific Ocean, downtown Los Angeles and the Hollywood Hills and giving it a distinctive appearance in the Los Angeles skyline. The 10000 Santa Monica Boulevard Property’s abundant natural light and natural finishes combine to create seamless transitions between indoor and outdoor spaces and make the 10000 Santa Monica Boulevard Property a quintessential Los Angeles lifestyle property. The 10000 Santa Monica Boulevard Property’s grand entrance, featuring twelve-foot Ice Blue Yellow-Wood hedges along a private drive from Santa Monica Boulevard, offers an enclave of privacy from the busy urban environment surrounding the 10000 Santa Monica Boulevard Property. The 10000 Santa Monica Boulevard Property has won numerous awards, including Los Angeles Architectural Award of Excellence (2017) from the Los Angeles Business Council and the Los Angeles Business Journal’s 2017 Gold Award, Best Multi-Family Project.

 

The 10000 Santa Monica Boulevard Property features high-end amenities including over 75,000 SF of indoor and outdoor amenity spaces. Outdoor amenities include a private one-acre park, an outdoor heated pool with cabanas and poolside chaise lounges, an outdoor chef’s kitchen with large Viking grills, a fire pit, a lighted tennis court, an outdoor theatre and a 2,000 SF dog run. Culture and entertainment amenities include a curated art collection on all amenity floors, including a commissioned art installation in the main lobby by Jacob Hashimoto, works by noted Los Angeles photographer Jeffrey Milstein and a collection of post-modern and contemporary works by Aaron Wexler, Adam Katseff and Suzan Etkins. The 10000 Santa Monica Boulevard Property includes a resident lounge with a full-service bar, separate private dining room and catering kitchen, a private screening room featuring sophisticated projection equipment, a four-screen video wall, a game room with gaming console and Ultra HD television with Apple TV, two fully-equipped glass-enclosed boardrooms, an indoor 75-foot lap pool with towel service and pool runners, exercise rooms with industry-leading personal trainers, spa treatment facilities, a rooftop terrace (for penthouse suites only) and a kid’s studio. Unit amenities include 10-16’ ceiling heights, floor-to-ceiling windows with silent, motorized window blinds, wide-plank hardwood flooring, custom Italian cabinetry, quartz countertops, premium European appliances, walk-in closets, and Ecobee3 smart Wi-Fi thermostats with hands-free temperature controls.

 

The 10000 Santa Monica Boulevard Property features personalized services provided by professionally trained house staff. Technology services include CHARLEY, a robot butler available to deliver mini-bar items directly to each residence, and a proprietary “app” for various functionalities, such as guest access, package notifications, community updates, rent payment, maintenance requests and amenity and service reservations. The house staff includes a 24-hour white glove doorman, a concierge, a valet service, an on-call personal chauffer, personal attendants, a porter and a butler. In-house services include complimentary daily continental breakfast and cafe with full beverage menu in the lounge, a laundry and dry cleaning service, a private wait staff, personal shopping, housekeeping, a childcare service, car wash services, interior design consultants and a package delivery service.

 

The 10000 Santa Monica Boulevard Property received LEED Gold certification from the U.S. Green Building Council, the neighborhood’s first multifamily high-rise to achieve this certification. The 10000 Santa Monica Boulevard Property was made of materials with a combined recycled content of over 20%. Its irrigation system, rain harvesting tanks and native flora allow the 10000 Santa Monica Boulevard Property to use 50% less water than comparable buildings.

 

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LOAN #7: 10000 Santa Monica Boulevard

 

The following table presents certain information relating to historical leasing at the 10000 Santa Monica Boulevard Property:

 

Historical Leased %(1)

 

 

1Q 2017

2Q 2017

3Q 2017

4Q 2017

1Q 2018

2Q 2018

3Q 2018

4Q 2018

As of 4/9/2019

Owned Space14.5%39.9%56.2%68.8%79.5%83.4%87.5%89.7%89.0%
 
(1)Source: Historical Occupancy is the average of monthly physical occupancy as provided by the 10000 Santa Monica Boulevard Borrower. The development of the 10000 Santa Monica Boulevard Property was completed in early 2017 with lease-up commencing in January 2017.

 

Operating History and Underwritten Net Cash Flow. The following table presents certain information relating to the historical operating performance and the Underwritten Net Cash Flow at the 10000 Santa Monica Boulevard Property:

 

Cash Flow Analysis(1)

 

 20172018TTM 1/31/2019UnderwrittenUnderwritten $ per Unit
Base Rent$44,835,286$44,090,052$44,185,296$44,558,268$158,570.35
Gross Up Vacancy00000
Gross Potential Rent$44,835,286$44,090,052$44,185,296$44,558,268$158,570.35
Total Reimbursements105,520327,409318,331318,3311,132.85
Vacancy & Credit Loss & Concessions(28,006,280)(8,284,550)(7,622,593)(6,333,314)(22,538.48)
Total Rent$16,934,526$36,132,911$36,881,034$38,543,285$137,164.72
Other Income(2)1,312,2483,245,3023,325,8073,325,80711,835.61
Effective Gross Income$18,246,774$39,378,213$40,206,841$41,869,092$149,000.33
      
Real Estate Taxes$3,940,401$5,521,819$5,537,493$5,728,114$20,384.75
Insurance481,583541,888551,303622,5702,215.55
Management Fee559,6331,192,7521,217,5651,256,0734,470.01
Other Operating Expenses(5)10,703,00512,649,31912,691,87512,545,94844,647.50
Total Operating Expenses$15,684,622$19,905,778$19,998,236$20,152,705$71,717.81
      
Net Operating Income$2,562,152$19,472,435$20,208,605$21,716,388$77,282.52
Replacement Reserves00056,200200.00
Net Cash Flow$2,562,152$19,472,435$20,208,605$21,660,188$77,082.52
      
Occupancy(3)68.8%89.7%89.0%88.5% 
NOI Debt Yield(4)1.2%8.9%9.2%9.9% 
NCF DSCR(4)0.28x2.10x2.18x2.34x 
      
 
(1)Certain items such as straight line rent, interest expense, interest income, lease cancellation income, depreciation, amortization, debt service payments and any other non-recurring or non-operating items were excluded from the historical presentation and are not considered for the underwritten cash flow.

(2)Other Income includes RUBS, parking income, and late fees among others.

(3)2017 and 2018 based on Q4 of each respective year. TTM 1/31/2019 occupancy based on Underwritten Rent Roll dated April 9, 2019.

(4)NOI Debt Yield and DSCR calculations are based on the aggregate outstanding balance of the Senior Notes.

(5)Other Operating Expenses are inclusive of Club Services. The 10000 Santa Monica Boulevard Property’s rental rates and the associated value are dependent in part on the availability and maintenance of the amenity space; accordingly, the costs of providing Club Services were considered in underwriting operating expenses. Club Services were underwritten based on the Trailing 12 - January 2019.

 

Appraisal. According to the appraisal, the 10000 Santa Monica Boulevard Property had an “as-is” appraised value of $553,000,000 as of March 25, 2019.

 

Appraisal Approach(1)

Value

Discount Rate

Capitalization Rate(2)

Yield Capitalization$557,000,000N/A4.50%
Direct Capitalization$548,000,000N/A4.00%
 
(1)Based on the “as-is” appraised value.

(2)Represents the terminal cap rate.

 

Environmental Matters.Based on Phase I environmental report dated March 27, 2019, the environmental consultant did not identify evidence of any recognized environmental conditions or recommendations for further action at the 10000 Santa Monica Boulevard Property.

 

Market Overview and Competition. The 10000 Santa Monica Boulevard Property is located at the intersection of the Beverly Hills and Century City neighborhoods of Los Angeles, on the corner of Santa Monica Boulevard and Moreno Drive. Santa Monica Boulevard is one of the most trafficked east-west arterials through Los Angeles (22,200 cars per day near the 10000 Santa Monica Boulevard Property), connecting Santa Monica, West Los Angeles, Beverly Hills, West Hollywood and Hollywood. Nearby land is predominantly used for major high-rise office buildings, including the SunAmerica Tower, the Annenberg Foundation, Constellation Place (formerly MGM Tower) and 1900 Avenue of the Stars, with law firms, talent agencies and financial institutions making up the bulk of the tenancy. The 10000 Santa Monica Boulevard Property is within walking distance of some of the city’s premier employers, including

 

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LOAN #7: 10000 Santa Monica Boulevard

 

 O’Melveny & Myers LLP, Creative Artists Agency, Morgan Stanley & Co. LLC, Sidley Austin LLP, Wells Fargo Advisors, McKinsey & Company, Bain & Company, Inc., UBS Investment Bank, Bloomberg and Natixis. With the presence of Cedars-Sinai Medical Center, the medical field, especially cosmetic surgery, is an important local employer and user of office space.

 

According to a third-party market research report, the 2019 average household income within a one-, three-, and five-mile radius of the 10000 Santa Monica Boulevard Property is $157,431, $116,732 and $111,751, respectively. The 2019 estimated median owner-occupied housing values within a one-, three- and five-mile radius of the 10000 Santa Monica Boulevard Property are $1,038,347, $983,385 and $991,411, respectively.

 

According to a third-party market research report, the 10000 Santa Monica Boulevard Property is located in the Los Angeles multifamily market, which has one of the highest rates of renter households of any U.S. metropolitan area, with approximately half of all households renting their homes. The current vacancy rate in the Los Angeles metropolitan area is 3.8%, the lowest rate recorded since 2001. According to a third-party market research report, the 10000 Santa Monica Boulevard Property is located within the Beverly Hills Submarket. As of fourth quarter 2018, the submarket contained 37,844 units with a reported vacancy rate of 3.8%, reflecting a decrease from the year-end 2017 vacancy of 4.2%. The submarket reported a 2018 average effective rent of $2,906 per unit per month, increasing by 3.2% from year-end 2017. Through year 2018, the submarket delivered 222 units and absorbed 343 units. As of fourth quarter 2018, there were 1,670 units under construction in the Beverly Hills Submarket.

 

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LOAN #7: 10000 Santa Monica Boulevard

 

The following table presents certain information relating to the primary competition for the 10000 Santa Monica Boulevard Property:

 

Directly Competitive Buildings(1)

 

One-Bedroom – Rental Comparables    
Property NameProximity (Miles)Year BuiltAvg. Unit SizeAsking Rent/UnitAsking Rent/SF
8500 Burton3.220121,015$6,514$6.42
1221 Ocean Avenue8.619711,082$10,400$9.61
Wilshire Victoria1.920101,283$7,662$5.97
Circa LA9.22018798$3,365$4.22
Atelier12.92017715$3,130$4.38
Vision on Wilshire3.22018855$5,329$6.23
The Argyle House6.82018871$4,995$5.73
Columbia Square6.42016752$4,755$6.32
10000 Santa Monica Boulevard Property (6 Units)(2)N/A20171,126$9,000$8.00
      
Two-Bedroom – Rental Comparables    
Property NameProximity (Miles)Year BuiltAvg. Unit SizeAsking Rent/UnitAsking Rent/SF
8500 Burton3.220121,783$9,340$5.24
1221 Ocean Avenue8.619711,742$13,100$7.52
Wilshire Victoria1.920101,725$10,895$6.32
Circa LA9.220181,602 - 2,288$5,751 - $13,590$3.59 - $5.94
Atelier12.920171,126$5,630$5.00
Vision on Wilshire3.220181,448$8,148$5.63
The Argyle House6.820181,269$7,070$5.57
10000 Santa Monica Boulevard Property / Signature (241 Units)(2)N/A20171,599$11,514$7.20
10000 Santa Monica Boulevard Property / Estate (17 Units)(2)N/A20172,090$24,309$11.63
      
Three-Bedroom – Rental Comparables    
Property NameProximity (Miles)Year BuiltAvg. Unit SizeAsking Rent/UnitAsking Rent/SF
8500 Burton3.220124,000$40,000$10.00
1221 Ocean Avenue8.619711,679$27,100$16.14
Circa LA9.220182,900 - 3,842$17,590 - $23,515$6.07 - $6.12
10000 Santa Monica Boulevard Property / Signature (5 Units)(2)N/A20171,982$21,000$10.59
10000 Santa Monica Boulevard Property / Estate (8 Units)(2)N/A20172,072$24,676$11.91
      
Four-Bedroom and Penthouse     
Unit TypeProximity (Miles)Year BuiltAvg. Unit SizeAsking Rent/UnitAsking Rent/SF
10000 Santa Monica Boulevard Property / Four Bedroom (2 Units)(2)N/A20173,227$31,750$9.84
10000 Santa Monica Boulevard Property / Penthouse (2 Units)(2)N/A20173,755$57,750$15.38
 
(1)Source: Appraisal

(2)Avg. Unit Size, Asking Rent/Unit and Asking Rent/SF are based on April 9, 2019 underwritten rent roll.

 

The Borrower. The borrower for the 10000 Santa Monica Boulevard Loan Combination is SM 10000 Property, LLC, a Delaware limited liability company (the “10000 Santa Monica Boulevard Borrower”). The recourse carveout guarantors for the 10000 Santa Monica Boulevard Loan Combination are (i) Sonny Kahn, solely in his capacity as trustee of the SK Business Trust, a Florida Trust, (ii) Russell Galbut, solely in his capacity as trustee of the RF Business Trust, a Florida Trust, and (iii) Bruce A. Menin, solely in his capacity as trustee of the Menin 1998 Business Trust, a New York Trust. In the event that the trust for whom the applicable individual is acting as a trustee (each such individual, an “10000 Santa Monica Boulevard Individual Guarantor”) is voluntarily or involuntarily revoked, terminated or otherwise ceases to exist, then such 10000 Santa Monica Boulevard Individual Guarantor will be required to become a recourse carve-out guarantor and personally liable under the 10000 Santa Monica Boulevard Loan documents. See “Description of the Mortgage Pool – Non-Recourse Carveout Limitations” for additional information.

 

Escrows. The 10000 Santa Monica Boulevard Borrower deposited $890,641 with the escrow agent for upfront tax reserves.

 

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LOAN #7: 10000 Santa Monica Boulevard

 

The 10000 Santa Monica BoulevardBorroweris required to pay to lender on each payment date (i) 1/12th of the taxes and other charges that lender estimates will be payable during the next 12 months in order to accumulate with lender sufficient funds to pay all such taxes and other charges at least 30 days prior to their respective due dates and (ii) 1/12th of the insurance premiums that lender estimates will be payable for the renewal of the coverage afforded by the policies upon the expiration thereof in order to accumulate with lender sufficient funds to pay all such insurance premiums at least 30 days prior to the expiration of the policies.

 

However, provided that (i) no event of default is continuing and (ii) the 10000 Santa Monica BoulevardBorrowerhas provided lender with evidence reasonably satisfactory to the lender that any insurance required to bemaintained by the 10000 Santa Monica Boulevard Borroweris effected under a blanket policy reasonably acceptable to the lender, the 10000 Santa Monica BoulevardBorrowerwill not be required to make monthly deposits for insurance premiums.

 

The 10000 Santa Monica BoulevardBorroweris required to pay to lender on each payment date an amount initially equal to $6,814 (the “Capital Expense Monthly Deposit”) for replacements, capital expenditures and repairs required to be made to the10000 Santa Monica Boulevard Property during the calendar year. The amount of funds in the capital expense reserve at any given time may not (1) exceed $250,000 in the aggregate and (2) be less than $81,711 in the aggregate.

 

Lockbox and Cash Management.The 10000 Santa Monica Boulevard Loan Combination is structured with a soft lockbox and in-place cash management. At origination, the 10000 Santa Monica BoulevardBorrowerestablished an eligible account (the “Lockbox Account”) into which income from the10000 Santa Monica Boulevard Property is required to be deposited. The 10000 Santa Monica BoulevardBorroweris required (and is required to cause the 10000 Santa Monica Boulevard Manager (as defined below)) to, deposit all amounts received by the 10000 Santa Monica BoulevardBorroweror 10000 Santa Monica Boulevard Manager constituting rents into the Lockbox Account within two business days after receipt. The lender has been granted a first priority security interest in the Lockbox Account (except for any funds collected by the 10000 Santa Monica BoulevardBorrowerfor and on behalf of the private club operating at the 10000 Santa Monica Boulevard Property while no event of default is continuing and the Club Lease (as defined below) is in effect). Notwithstanding the foregoing, to the extent the club collects any revenues on behalf of the 10000 Santa Monica Boulevard Borrower for services at the 10000 Santa Monica Boulevard Property (such as housekeeping and laundry services), the 10000 Santa Monica Boulevard Loan Combination documents provide that such amounts may be held by the club until a monthly reconciliation is made between the 10000 Santa Monica Boulevard Borrower and the club operator. Following any such reconciliation, the club operator is required to deliver such amounts to the Lockbox Account.

 

On each business day, all funds on deposit in the Lockbox Account (except for the required minimum balance) are required to be transferred to an eligible account established by lender (the “Cash Management Account”) and applied in accordance with the priority of payments set forth below. The lender has been granted a first priority security interest in the Cash Management Account (except for any funds collected by the 10000 Santa Monica BoulevardBorrowerfor and on behalf of the club while no event of default is continuing and the Club Lease is in effect).

 

On each payment date, all funds on deposit in the Cash Management Account are required to be applied in accordance with the 10000 Santa Monica Boulevard Loan Combination documents. To the extent there is a Cash Sweep Period (as defined below) continuing, all amounts following payment of debt service, required reserves and operating expenses are required to be held in an excess cash flow account as additional collateral for the 10000 Santa Monica Boulevard Loan Combination (unless the Cash Sweep Period is caused solely by a Debt Yield Trigger Event, in which case the lender is required to apply such funds to the monthly deposits for taxes and insurance to the extent not otherwise funded). All funds on deposit in the Cash Management Account during an event of default may be applied by lender in such order and priority as lender determines.

 

A “Cash Sweep Period” will (i) commence upon the occurrence of (a) an event of default, (b) any bankruptcy action of the 10000 Santa Monica BoulevardBorroweror 10000 Santa Monica Boulevard Manager; (c) a Debt Yield Trigger Event (as defined below), (d) a Club Revenues Trigger Event (as defined below), or (e) a Short-Term Lease Excess Event (as defined below); and will (ii) end upon (a) with respect to an event of default, such event of default no longer continuing, (b) with respect to a bankruptcy action of the 10000 Santa Monica Boulevard Manager, if such bankruptcy action is involuntary, such action is discharged or dismissed, or if the 10000 Santa Monica BoulevardBorrowerreplaces the 10000 Santa Monica Boulevard Manager with a qualified manager in accordance with the 10000 Santa Monica Boulevard Loan Combination documents, (c) with respect to a Debt Yield Trigger Event, the achievement of a debt yield of at least 5.75% for two consecutive calendar quarters based on the trailing 12 months, (d) with respect to a Club Revenues Trigger Event, the achievement of a Club Revenues Debt Yield of 5.30% or higher for two

 

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LOAN #7: 10000 Santa Monica Boulevard

 

consecutive calendar quarters based upon the trailing twelve month period, or (e) with respect to a Short-Term Lease Excess Event, the aggregate of annualized actual in place rents under short-term leases and month-to-month leases is less than 22% of the aggregate annualized actual in place rents from the10000 Santa Monica Boulevard Property as of the first day of each of two consecutive calendar quarters.

 

A “Debt Yield Trigger Event” means a debt yield of less than 5.75% on any date of determination for the calendar quarter immediately preceding the date of such determination, based upon the trailing twelve month period immediately preceding such date of determination, as determined by the lender in its sole but good faith discretion.

 

A “Club Revenues Trigger Event” means a debt yield (recalculated on a pro-forma basis by adding to the numerator an amount equal to the positive or negative club net operating income during the trailing twelve (12) month period) (the “Club Revenues Debt Yield”) of less than 5.30% on any date of determination for the calendar quarter immediately preceding the date of such determination, based upon the trailing 12-month period immediately preceding such date of determination, as determined by the lender in its sole but good faith discretion.

 

A “Short-Term Lease Excess Event” means the occurrence of each of the following: (1) the aggregate of annualized actual in place rents under short-term leases (i.e., leases with an initial term of less than six months) and month-to-month leases (i.e., leases with an initial term of greater than six months that has expired, with the tenant remaining in occupancy on a month-to-month basis) exceeds 22% of the aggregate annualized actual in place rents from the10000 Santa Monica Boulevard Property as of the first day of any calendar quarter, (2) the 10000 Santa Monica BoulevardBorrowerenters into at least one short-term lease on or after such first day of such calendar quarter, and (3) the aggregate of annualized actual in place rents under short-term leases and month-to-month leases again exceeds 22% of the aggregate annualized actual in place rents from the10000 Santa Monica Boulevard Property as of the first day of the next succeeding calendar quarter.

 

Property Management. The10000 Santa Monica Boulevard Property is managed by CH Management Services, LLC (the “10000 Santa Monica BoulevardManager”), an affiliate of the10000 Santa Monica Boulevard Borrower, under a management agreement which commenced on January 16, 2019 (the “Management Agreement”), and will continue until terminated by the 10000 Santa Monica BoulevardBorroweror the 10000 Santa Monica Boulevard Manager in its sole and absolute discretion. The management fee is 3.0% of gross revenues from the 10000 Santa Monica Boulevard Property. The parking garage is also managed by a sponsor affiliate, CH Parking, LLC, who, per the parking management agreement, receives a management fee of $2,500 per month. The lender may require the10000 Santa Monica BoulevardBorrower to terminate the Management Agreement and replace the10000 Santa Monica BoulevardManager in accordance with the terms of the 10000 Santa Monica Boulevard Loan documents pursuant to a replacement Management Agreement, if (a) an event of default under the 10000 Santa Monica Boulevard Loan documents has occurred and remains uncured, (b) the10000 Santa Monica BoulevardManager becomes insolvent or a debtor in any bankruptcy or insolvency proceeding (unless, in the case of an involuntary bankruptcy filing only that was not consented to by the10000 Santa Monica BoulevardManager, if such petition is not dismissed within 60 days of filing), (c) a material default by the10000 Santa Monica BoulevardManager occurs under the Management Agreement and continues beyond applicable cure periods or (d) a change in control of the10000 Santa Monica BoulevardManager.

 

Club Lease. The amenity space at the10000 Santa Monica Boulevard Property is operated by an affiliate of the10000 Santa Monica BoulevardBorrower, pursuant to a lease between the 10000 Santa Monica Boulevard Borrower and such affiliate (the “Club Lease”). The initial term of the Club Lease expires on December 31, 2019, and automatically renews on a year-to-year basis unless either party elects not to renew. The operating lessee also holds the liquor license for the 10000 Santa Monica Boulevard Property. The 10000 Santa Monica Boulevard Borrower has assigned its rights under the Club Lease to lender, and the operating lessee has subordinated its rights arising from the Club Lease to the lender’s security interests under the loan documents. Upon foreclosure, lender can terminate the Club Lease and the operating lessee has agreed to attorn to the lender (or other purchaser in foreclosure). In addition, there is a cooperation agreement between the 10000 Santa Monica Boulevard Borrower, the operating lessee and lender by which the liquor license can be more easily transferred to the lender. The amenity space currently operates at a loss exceeding $100,000 per month.

 

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LOAN #7: 10000 Santa Monica Boulevard

 

Current Mezzanine or Subordinate Indebtedness. Concurrently with the funding of the 10000 Santa Monica Boulevard Loan, NREC funded a subordinate loan in the amount of $130.0 million, evidenced by the non-Trust A/B note (the “Non-Trust A/B Note”), to the 10000 Santa Monica Boulevard Borrower. The Non-Trust A-B Note was securitized in the NCMS 2019-10K transaction. The Non-Trust A-B Note carries an interest rate of 4.15000%per annumand is co-terminus with the 10000 Santa Monica Boulevard Loan. The 10000 Santa Monica Boulevard Combination Loan is subject to a co-lender agreement. Based on the total combined debt of $350.0 million, the Cut-off Date LTV Ratio, Maturity Date LTV Ratio, DSCR Based on Underwritten NCF and Debt Yield Based on Underwritten NOI are illustrated below:

 

Financial Information

 

 

10000 Santa Monica Boulevard Senior Notes

10000 Santa Monica Boulevard Loan Combination

Cut-off Date Balance$220,000,000$350,000,000
Cut-off Date LTV Ratio39.8%63.3%
Maturity Date LTV Ratio39.8%63.3%
DSCR Based on Underwritten NCF2.34x1.47x
Debt Yield Based on Underwritten NOI9.9%6.2%

 

Future Mezzanine or Subordinate Indebtedness. Not permitted.

 

Release of Collateral.Not permitted.

 

Terrorism Insurance.The 10000 Santa Monica Boulevard Borrower, at its sole cost, is required to obtain and maintain comprehensive “all-risk” or “special form” insurance that includes, but is not limited to, loss caused by any type of windstorm or hail on the improvements and the personal property, in an amount equal to 100% of the actual replacement value (exclusive of costs of excavations, foundations, underground utilities and footings) with a waiver of depreciation, with a deductible that may not exceed $50,000. The 10000 Santa Monica Boulevard Loan Combination documents also require business income insurance on an actual loss sustained basis with no time limitation, commencing at the time of casualty, together with a 12-month extended period of indemnity. The property and business income insurance described above are required to cover losses resulting from perils and acts of terrorism on terms (including amounts) consistent with those required under the 10000 Santa Monica Boulevard Loan Combination documents. See “Risk Factors—Terrorism Insurance May Not Be Available for All Mortgaged Properties” in the Preliminary Prospectus.

 

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LOAN #8: 3 COLUMBUS CIRCLE

 

Mortgaged Property Information Mortgage Loan Information
Number of Mortgaged Properties1 Loan Seller JPMCB
Location (City/State)New York, New York Cut-off Date Balance(2) $50,000,000
Property TypeOffice Cut-off Date Balance per SF(1) $650.11
Size (SF)753,713 Percentage of Initial Pool Balance 4.2%
Total Occupancy as of 1/1/201997.2% Number of Related Mortgage LoansNone
Owned Occupancy as of 1/1/201997.2% Type of Security Fee Simple
Year Built / Latest Renovation1927 / 2010-2013 Mortgage Rate 3.91400%
Appraised Value$1,080,000,000 Original Term to Maturity (Months) 120
Appraisal Date1/1/2019 Original Amortization Term (Months)NAP
Borrower SponsorJoseph Moinian Original Interest Only Term (Months)120
Property ManagementColumbus Property Management LLC First Payment Date 4/11/2019
   Maturity Date3/11/2029
    
    
Underwritten Revenues$79,416,007  
Underwritten Expenses$18,918,555 Escrows(3)
Underwritten Net Operating Income (NOI)$60,497,452  UpfrontMonthly
Underwritten Net Cash Flow (NCF)$56,594,080 Taxes$0$0
Cut-off Date LTV Ratio(1)45.4% Insurance$0$0
Maturity Date LTV Ratio(1)45.4% Replacement Reserve$0$0
DSCR Based on Underwritten NOI / NCF(1)3.11x / 2.91x TI/LC$0$0
Debt Yield Based on Underwritten NOI / NCF(1)12.3% / 11.5% Other(4)$2,668,685$0
        
Sources and Uses
Sources$%  Uses      $%
Senior Notes Amount$490,000,00080.5%Loan Payoff(5)$371,671,99261.1%
Subordinate Debt Amount105,000,00017.2   Young & Rubicam Condo Purchase(6)215,600,00035.4    
Principal’s New Cash Contribution13,763,7112.3   Closing Costs18,823,0343.1    
   Upfront Reserves2,668,6850.4    
Total Sources$608,763,711100.0%Total Uses$608,763,711100.0%

 

 

(1)Calculated based on the aggregate outstanding principal balance as of the Cut-off Date of the 3 Columbus Circle SeniorPari PassuNotes (as defined below).

(2)The Cut-off Date Balance of $50,000,000 represents the non-controlling notes A-1-2-B and A-1-7. The related companion loans are evidenced by the controlling note B-1 ($51,450,000), which has been contributed to the BMARK 2019-B10 transaction and 14 non-controlling notes ($493,550,000). Information on the non-controlling notes is described in the “Loan Combination Summary” below.

(3)See“—Escrows” below.

(4)Upfront Other Reserve includes (i) approximately $1,820,891 for outstanding tenant improvements and leasing commissions in connection with three leases and (ii) approximately $847,794 for free rent in connection with four leases.

(5)Includes approximately $21.7 million in defeasance costs.

(6)In conjunction with loan closing, The Moinian Group executed a sale leaseback of floors three through eight to Young & Rubicam, Inc. For additional information, see “—The Mortgaged Property” herein.

 

The Mortgage Loan. The mortgage loan (the “3 Columbus Circle Loan”) is part of a loan combination (the “3 Columbus Circle Loan Combination”) evidenced by fifteenpari passu notes (collectively, the “3 Columbus Circle SeniorPari PassuNotes”) with an aggregate principal balance as of the Cut-off Date of $490,000,000 and two subordinate notes (collectively, the “3 Columbus Circle Junior Non-Trust Notes”) with an aggregate principal balance as of the Cut-off Date of $105,000,000. The 3 Columbus Circle Junior Non-Trust Notes are subordinate to the 3 Columbus Circle SeniorPari Passu Notes as and to the extent described in “Description of the Mortgage Pool—The Loan Combinations—The 3 Columbus Circle Pari Passu-AB Loan Combination” in the Preliminary Prospectus. The aggregate outstanding principal balance as of the Cut-off Date of all notes evidencing the 3 Columbus Circle Loan Combination is $595,000,000. The 3 Columbus Circle Loan Combination is secured by a first mortgage encumbering the borrower’s fee simple interest in 21 condominium units in a 26-story, 753,713 square foot Class A office building located on Broadway between West 57th and 58th Streets in New York, New York (the “3 Columbus Circle Property”). The 3 Columbus Circle Loan, which is evidenced by the non-controlling notes A-1-2-B and A-1-7, has an outstanding aggregate principal balance as of the Cut-off Date of $50,000,000 and represents approximately 4.2% of the Initial Pool Balance. The related companion loans, are evidenced by the thirteen seniorpari passu notes which have an aggregate outstanding principal balance as of the Cut-off Date of $440,000,000, as detailed in the Loan Combination Summary table below. The 3 Columbus Circle Loan Combination, which accrues interest at an interest rate of 3.91400%per annum, was originated by JPMorgan Chase Bank, National Association (“JPMCB”) on March 12, 2019, had an original principal balance of $595,000,000 and has an outstanding principal balance as of the Cut-off Date of $595,000,000. Notes A-2-1, A-2-2, A-2-3, A-2-4, A-2-5-A, A-2-5-B and B-2 were sold to Deutsche Bank AG, New York Branch and then subsequently assigned to German American Capital Corporation (“GACC”) on March 13, 2019. Additionally, Note A-1-3 was sold to Deutsche Bank AG, New York Branch and then subsequently assigned to GACC in connection with the BMARK 2019-B11 transaction. The proceeds of the 3 Columbus Circle Loan Combination along with the principal’s new cash contribution were primarily used to refinance prior debt secured the 3 Columbus Circle Property, repurchase Young & Rubicam’s condominium interest, pay origination costs and fund upfront reserves.

 

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Loan Combination Summary

 

Note Original Balance Cut-off Date Balance Note Holder Controlling Piece
Note A-1-1 $50,000,000 $50,000,000 Benchmark 2019-B10 No
Note A-1-2-A 50,000,000 50,000,000 JPMCC 2019-COR5 No
Note A-1-2-B 25,000,000 25,000,000 Benchmark 2019-B12 No
Note A-1-3 75,000,000 75,000,000 Benchmark 2019-B11 No
Note A-1-4 40,000,000 40,000,000 JPMCB(1) No
Note A-1-5 50,000,000 50,000,000 CS(1) No
Note A-1-6 35,000,000 35,000,000 JPMCB(1) No
Note A-1-7 25,000,000 25,000,000 Benchmark 2019-B12 No
Note A-1-8 17,500,000 17,500,000 JPMCB(1) No
Note A-2-1 25,000,000 25,000,000 Benchmark 2019-B10 No
Note A-2-2 25,000,000 25,000,000 CF 2019-C1 No
Note A-2-3 25,000,000 25,000,000 CF 2019-C1 No
Note A-2-4 25,000,000 25,000,000 Benchmark 2019-B11 No
Note A-2-5-A 12,500,000 12,500,000 DBNY(1) No
Note A-2-5-B 10,000,000 10,000,000 CCRE(1) No
Note B-1 51,450,000 51,450,000 Benchmark 2019-B10 Yes
Note B-2 

53,550,000

 

53,550,000

 Benchmark 2019-B10 No
Total / Wtd. Avg. $595,000,000 $595,000,000    

 

 

(1)Expected to be contributed to one or more future securitization transactions.

 

The 3 Columbus Circle Loan Combination had an initial term of 120 months, has a remaining term of 115 months as of the Cut-off Date and requires monthly payments of interest only for the term of the 3 Columbus Circle Loan Combination. The scheduled maturity date of the 3 Columbus Circle Loan Combination is the due date in March 2029. Provided no event of default has occurred and is continuing, at any time after the earlier to occur of (i) April 11, 2022 and (ii) the second anniversary of the last securitization of a note comprising part of the 3 Columbus Circle Loan Combination, the 3 Columbus Circle Loan Combination may be defeased with certain direct full faith and credit obligations of the United States of America or other obligations which are “government securities” permitted under the 3 Columbus Circle Loan Combination documents. Voluntary prepayment of the 3 Columbus Circle Loan Combination is permitted on or after the due date in November 2028 without payment of any prepayment premium.

 

The Mortgaged Property. The 3 Columbus Circle Property is a Class A, 26-story, 753,713 square foot office building with ground floor retail located in the Midtown neighborhood of Manhattan, New York. The 3 Columbus Circle Property occupies the entire city block bounded by Broadway, Eighth Avenue, West 57th Street and West 58th Street, and features panoramic views of Central Park, the Hudson River and New York City. The 3 Columbus Circle Property serves as the national headquarters for its largest tenant, Young & Rubicam, Inc. (“Young & Rubicam”) (49.8% of net rentable area; rated BBB+/BBB by Fitch and S&P), and approximately 72.0% and 78.8% of net rentable area and underwritten base rent, respectively, is leased to investment grade tenants, including Nordstrom’s first men’s store in Manhattan, CVS Pharmacy, Chase Bank, Versace and AT&T.

 

The 3 Columbus Circle Property’s bottom five floors were originally constructed in 1904 and underwent a 22-story expansion by Shreve, Lamb and Harmon in 1927, the architectural firm behind the Empire State Building. From 2010 to 2013, the 3 Columbus Circle Property underwent an approximately $82.5 million building-wide renovation, including an approximately $44.0 million energy-efficient glass façade surrounding the building’s original foundation. In addition to the façade, the lobby received an approximately $1.0 million expansion and renovation that widened the existing entrance on Broadway and replaced the existing lobby walls with 12-foot glass walls. The retail space received approximately $3.0 million in capital improvements, including floor-to-ceiling windows and fully redesigned restrooms. The 3 Columbus Circle Property features modern building systems, 12 passenger elevators, a loading dock and office terraces on multiple floors. The 3 Columbus Circle Property has earned Energy Star designation and LEED Silver certification.

 

The Moinian Group (“Moinian”) acquired the 3 Columbus Circle Property in 2004 for approximately $250 million. In 2011, when the building was 33.3% occupied, Moinian sold a 48.9% interest in the building to SL Green, and together, the companies began an extensive multi-year redevelopment plan to reposition the building to a Class A asset. In 2012, while the redevelopment was underway, a 214,372 square foot condominium interest which covers floors three to eight was sold to Young & Rubicam for approximately $143.6 million. Renovations were completed in 2013 and the 3 Columbus Circle Property was leased up to 97.2% as of January 1, 2019. In 2018, Moinian repurchased SL Green’s interest in the 3 Columbus Circle Property for $227.5 million and, in conjunction with the closing of the 3 Columbus Circle Loan Combination, Moinian repurchased Young & Rubicam’s condominium interest

 

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for $215.6 million. In conjunction with repurchase of the Young & Rubicam condominium interest, a new lease to Young & Rubicam was simultaneously executed with an initial base rent of $76.00 per square foot and a lease expiration of July 2033.

 

As of January 1, 2019, the 3 Columbus Circle Property was 97.2% leased to a diversified roster of 40 tenants, including a mix of 32 office tenants, five telecom tenants and three investment grade rated retail tenants. The 3 Columbus Circle Property’s ten largest tenants occupy approximately 610,518 square feet (81.0% of net rentable area) and have a weighted average remaining lease term of approximately 13.0 years.

 

The largest tenant, Young & Rubicam (375,236 square feet; 49.8% of NRA; 39.9% of Underwritten Base Rent), a subsidiary of WPP (LSE: WPP) (rated BBB+/BBB by Fitch and S&P), is a marketing and communications company specializing in advertising, digital and social media, sales promotion, direct marketing and brand identity consulting. Young & Rubicam’s clients include a variety of companies including Campbell’s Soup Company, Colgate-Palmolive, Virgin Atlantic, Revlon, LG and Land Rover. Founded in 1923 and headquartered at the 3 Columbus Circle Property, Young & Rubicam has more than 190 offices in 95 countries. WPP is a global company in communications, commerce and technology services with over 150 subsidiaries. As of 2017, WPP reported £15.3 billion in revenue. Young & Rubicam has been in occupancy of the 3 Columbus Circle Property since 2012 and currently occupies floors 9, 10, 11, 18 and 19 through August 2033 and floors three through eight through July 2033, both with two ten-year renewal options.

 

The second largest tenant, Emerge 212 3CC LLC (57,359 square feet; 7.6% of NRA; 4.7% of Underwritten Base Rent) (“Emerge212”), a subsidiary of SL Green Realty Corp. (NYSE: SLG) (rated Baa3/BBB/BBB- by Moody’s, Fitch and S&P), was founded in 1999 and is an operator of full-service office suites. Emerge212 provides fully-furnished, privately leased, flexible office space, providing tenants the ability to grow and contract along with business needs. In addition to office space, tenants receive full-service amenities such as cafe areas, charging stations, conference rooms and event space. Emerge212 is located exclusively in New York with locations at 3 Columbus Circle, 125 Park Avenue and 1185 Avenue of the Americas. SL Green Realty Corp. is a self-managed real estate investment trust and a large commercial landlord in New York City. As of 2017, SL Green Corp. reported approximately $1.5 billion in total revenue and approximately $14.0 billion in total assets. Emerge212 has been a tenant at the property since 2013, currently occupies floors 15 and 16 through November 2027 and licenses its space as shared workspace.

 

The third largest tenant, Nordstrom (46,991 square feet; 6.2% of NRA; 19.6% of U/W Base Rent) (rated Baa1/BBB+/BBB+ by Moody’s, Fitch and S&P) (NYSE: JWN), is one of the nation’s largest upscale apparel and shoe retailers, serving customers through multiple retail channels, discount stores, boutiques, catalogs and the Internet. The store at the 3 Columbus Circle Property serves as Nordstrom’s first men’s store and its first store in Manhattan. Nordstrom is expected to open its flagship women’s store across the street at Central Park Tower in fall 2019. In addition to its online business which reaches 96 countries, Nordstrom operates 379 U.S. stores in 40 states, as well as six Nordstrom stores in Canada. As of fiscal year ended February 3, 2018, Nordstrom reported approximately $15.1 billion in net sales and approximately $8.1 billion in total assets. Nordstrom occupies the largest retail space on the ground floor, as well as space on the second floor, through October 2039 and has two ten-year renewal options.

 

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The following table presents certain information relating to the tenants at the 3 Columbus Circle Property:

 

Ten Largest Owned Tenants by Tenant GLA(1)

 

Tenant Name

Type 

Credit Rating (Fitch/MIS/S&P)(2)

Tenant GLA

% of Owned GLA

UW Base Rent(3)

% of Total UW Base Rent(3)

UW Base Rent $ per SF(3)

Lease
Expiration

Renewal /
Extension
Options

Young & Rubicam, Inc.(4)OfficeBBB+/NR/BBB375,23649.8%$27,040,36639.9%$72.067/31/20332, 10-Year
Emerge 212 3CC LLCOfficeBBB/Baa3/BBB-57,3597.6%3,154,7454.7%$55.0011/30/2027None
Nordstrom(5)RetailBBB+/Baa1/BBB+46,9916.2%13,258,51819.6%$282.1510/31/20392, 10-Year
Jazz at Lincoln Center, Inc.OfficeNR/NR/NR30,6534.1%1,593,9562.4%$52.004/30/20281, 5-Year
Josephson(6)OfficeNR/NR/NR22,7423.0%2,274,2003.4%$100.0012/31/20321, 5-Year
Versace USA, Inc.OfficeBBB-/NR/BBB-21,3422.8%1,600,6502.4%$75.007/31/20251, 5-Year
CVS Caremark PharmacyRetailNR/Baa2/BBB21,1592.8%4,087,9196.0%$193.207/31/20281, 10-Year
Trustees of Columbia(7)OfficeNR/Aaa/AAA14,1621.9%1,101,3231.6%$77.778/31/2025None
Cohen and Company LLCOfficeNR/NR/NR11,1661.5%926,7781.4%$83.002/28/20291, 5-Year
Laura & John Arnold(8)OfficeNR/NR/NR9,7081.3%543,6480.8%$56.007/31/2025None
Total Major Office and Retail  610,51881.0%$55,582,10282.0%$91.04  
Other Occupied Office and Retail(9)  121,64616.1%12,090,37017.8%$99.39  
Total Occupied Office and Retail  732,16497.1%$67,672,47299.9%$92.43  
Telecom  2180.1%71,5100.1%$328.03  
Total Occupied  732,38297.2%$67,743,982 100.0%$92.50  
Vacant(10)  21,3312.8%     
Total  753,713100.0%     

 

 

(1)Based on the underwritten rent roll dated January 1, 2019.

(2)In certain instances, ratings provided are those of the parent company of the entity shown, whether or not the parent company guarantees the lease.

(3)UW Base Rent, % of Total UW Base Rent and UW Base Rent $ per SF includes rent steps through January 2020 and average rent over the loan term for investment grade tenants, including Young & Rubicam, Inc., Emerge 212 3CC LLC, Nordstrom, CVS Caremark Pharmacy, Chase Bank, Trustees of Columbia and AT&T Corp.

(4)Young & Rubicam, Inc. leases 375,236 square feet, of which (i) 214,372 square feet is leased for $76.00 per square foot and is set to expire July 2033, (ii) 124,760 square feet is leased for $68.60 per square foot and is set to expire August 2033, (iii) 34,634 square feet is leased for $62.00 per square foot and is set to expire in August 2033 and (iv) 1,300 square feet is leased for $32.50 per square foot and is set to expire in August 2033.

(5)Nordstrom leases 46,991 square feet, of which (i) 43,018 square feet is leased for $241.25 per square foot and (ii) 3,973 square feet is leased for $725.00 per square foot.

(6)Josephson is an affiliate of the borrowers and its leased space serves as headquarters for affiliates of the borrowers.

(7)Trustees of Columbia leases 14,162 square feet, of which (i) 6,031 square feet is leased for $76.53 per square foot, (ii) 5,020 square feet is leased for $78.79 per square foot and (iii) 3,111 square feet is leased for $78.51 per square foot.

(8)Laura & John Arnold has the right to cancel its lease at the end of any month occurring between March 1, 2020 and March 1, 2023, with no less than nine months’ prior notice and the payment of a termination fee.

(9)Other Occupied Office and Retail is inclusive of a 2,831 square foot management office with no attributable underwritten base rent. Subleases account for 20,015 square feet (2.7% of net rentable area).

(10)Vacant space includes 21,231 square feet of office space and 100 square feet of storage space.

 

The following table presents certain information relating to the lease rollover schedule at the 3 Columbus Circle Property, based on initial lease expiration dates:

 

Lease Expiration Schedule(1)(2)

 

Year Ending December 31 Expiring Owned GLA % of Owned GLA Cumulative % of Owned GLA UW Base Rent 

% of Total UW Base Rent(2)

 

UW Base Rent $ per SF(2) 

 # of Expiring Leases
MTM 0 0.0% 0.0% $0 0.0% $0.00 0
2019 0 0.0% 0.0% 0 0.0% $0.00 0
2020 18,655 2.5% 2.5% 1,463,746 2.2% $78.46 5
2021 19,013 2.5% 5.0% 1,584,749 2.3% $83.35 5
2022 7,861 1.0% 6.0% 686,928 1.0% $87.38 3
2023 18,327 2.4% 8.5% 1,483,170 2.2% $80.93 5
2024 14,518 1.9% 10.4% 1,201,163 1.8% $82.74 3
2025 60,820 8.1% 18.5% 4,494,341 6.6% $73.90 5
2026 6,190 0.8% 19.3% 520,827 0.8% $84.14 1
2027 57,359 7.6% 26.9% 3,154,745 4.7% $55.00 1
2028 57,235 7.6% 34.5% 6,142,196 9.1% $107.32 3
2029 & Thereafter(3) 472,404 62.7% 97.2% 47,012,117 69.4% $99.52 13
Vacant 21,331 2.8    100.0% 0 

0.0%

 $0.00 0
Total / Wtd. Avg. 753,713 100.0%   $67,743,982 100.0% $89.88 44

 

 

(1)Based on the underwritten rent roll dated January 1, 2019.

(2)Certain tenants may have termination or contraction options (which may become exercisable prior to the originally stated expiration date of the tenant lease) that are not considered in the above Lease Rollover Schedule.

(3)2029 & Thereafter is inclusive of a 2,831 square foot management office and a 3,021 square foot storage space that have no underwritten rent.

 

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The following table presents certain information relating to historical leasing at the 3 Columbus Circle Property:

 

Historical Leased%(1)

 

    2016 2017 2018 

As of 1/1/2019(2)

3 Columbus Circle  98.4%  91.9%  98.0% 97.2%

 

 

(1)Historical occupancies are as of December 31 of each respective year.

(2)Based on the underwritten rent roll dated January 1, 2019.

 

Operating History and Underwritten Net Cash Flow. The following table presents certain information relating to the historical operating performance and the Underwritten Net Cash Flow at the 3 Columbus Circle Property:

 

Cash Flow Analysis(1)

 

  2016 2017 2018 Underwritten Underwritten
$ per SF
Base Rent(2) $41,873,116 $43,763,738 $48,360,889 $67,743,982 $89.88
Straight Line Rent(2) 0 0 0 4,169,665 5.53
Vacant Income 0 0 0 1,977,018 2.62
Gross Potential Rent $41,873,116 $43,763,738 $48,360,889 $73,890,665 $98.04
           
Total Reimbursements $2,954,447 $3,436,707 $4,969,121 $7,102,216 $9.42
Total Other Income(3) 5,333,639 3,752,429 3,994,225 10,130 0.01
Vacancy & Credit Loss 0 0 0 (1,587,003) (2.11)
Effective Gross Income $50,161,202 $50,952,874 $57,324,235 $79,416,007 $105.37
           
Real Estate Taxes $7,501,806 $8,502,456 $9,456,522 $10,108,056 $13.41
Insurance 261,571 279,400 340,532 401,028 0.53
Management Fee 200,000 200,000 200,000 1,000,000 1.33
Other Operating Expenses 7,005,275 7,272,268 7,236,146 7,409,471 9.83
Total Operating Expenses $14,968,652 $16,254,125 $17,233,200 $18,918,555 $25.10
           
Net Operating Income(4) $35,192,550 $34,698,749 $40,091,035 $60,497,452 $80.27
TI/LC 0 0 0 3,752,630 4.98
Capital Expenditures 0 0 0 150,743 0.20
Net Cash Flow $35,192,550 $34,698,749 $40,091,035 $56,594,080 $75.09
           
Occupancy 98.4% 91.9% 98.0% 97.2%(5)  
NOI Debt Yield(6) 7.2% 7.1% 8.2% 12.3%  
NCF DSCR(6) 1.81x 1.78x 2.06x 2.91x  

 

 

(1)Certain items such as straight line rent, interest expense, interest income, lease cancellation income, depreciation, amortization, debt service payments and any other non-recurring or non-operating items were excluded from the historical presentation and are not considered for the underwritten cash flow.

(2)Underwritten Base Rent is inclusive of rent steps through January 2020 and straight line rent for investment grade tenants over the loan term, accounting for approximately $4.2 million in Underwritten Base Rent. Historic base rent does not include rent from Young & Rubicam.

(3)Total Other Income from 2016 to 2018 included a condominium charge to Young & Rubicam for its share in building expenses. Underwritten Base Rent and Total Reimbursements reflects Young & Rubicam paying reimbursements under its lease.

(4)The increase in Underwritten Net Operating Income from 2018 Net Operating Income is primarily attributable to (i) an additional 214,372 square feet lease executed with Young & Rubicam on floors three through eight, accounting for approximately $16.3 million in underwritten base rent and (ii) rent steps through January 2020.

(5)Based on the underwritten rent roll dated January 1, 2019.

(6)Metrics are calculated based on the 3 Columbus Circle SeniorPari PassuNotes.

 

Appraisal.According to the appraisal, the 3 Columbus Circle Property had an “as-is” appraised value of $1,080,000,000 as of January 1, 2019.

 

Property Appraisal Approach Value Discount Rate Capitalization Rate
3 Columbus Circle Discounted Cash Flow Approach $1,080,000,000 6.50% 5.00%(1)

 

 

(1)Represents the terminal capitalization rate.

 

Environmental Matters. Based on a Phase I environmental report dated January 22, 2019, the environmental consultant did not identify evidence of any recognized environmental conditions or recommendations for further action at the 3 Columbus Circle Property.

 

Market Overview and Competition. The 3 Columbus Circle Property is located in the Midtown West office submarket, proximate to other prominent buildings in Columbus Circle including the former Time Warner Center and the Museum of Arts and Design. Nordstrom’s women’s store is expected to open in 2019 across the street at Central Park Tower. The Columbus Circle neighborhood benefits from nearby attractions including Central Park, Rockefeller Center, Radio City Music Hall, Lincoln Center for the Performing Arts and the Museum of Modern Art. In particular, the 3 Columbus Circle Property benefits from its location on Broadway, which is a major artery connecting the southern tip of Manhattan to Upper Manhattan. The 3 Columbus Circle Property’s frontage along Broadway, 8th Avenue, West

 

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 57th Street and West 58th Street provides its retail tenants with access to the pedestrian traffic in the area. The 3 Columbus Circle Property is accessible by public and vehicular transportation including three subway lines within one block, New York Penn Station within an eight minute drive and LaGuardia Airport within a 21 minute drive.

 

The 3 Columbus Circle Property is located in Manhattan, New York, in the Midtown West submarket within the greater Midtown office market. The Midtown West submarket contains approximately 31.0 million square feet of office inventory and is bordered by 72nd Street to the north, 42nd Street to the south, Seventh Avenue to the east and the Hudson River to the west. New York City’s largest employers include a diverse group of multinational corporations representing a variety of industries including healthcare, financial services, retail and education. Fifty-eight of the nation’s Fortune 500 corporations are headquartered in the New York Region including Verizon, J.P. Morgan Chase, Citigroup, IBM, MetLife, PepsiCo, American International Group, Morgan Stanley, New York Life Insurance, Goldman Sachs Group, TIAA, American Express and Time Warner.

 

As of the fourth quarter of 2018, the greater Midtown Class A office market consisted of approximately 181.1 million square feet of office space with an overall market vacancy of 9.3% and average asking rents of approximately $75.03 per square foot. The Midtown West Class A submarket totaled approximately 24.5 million square feet with average vacancy of 6.9% and average market asking rents of $76.87 per square foot. The overall Midtown office market achieved 23.7 million square feet in leasing activity in 2018 with overall and direct absorption levels totaling 7.3 million square feet and 8.1 million square feet, respectively.

 

The appraisal identified seven directly competitive Class A office rent comparables in the Midtown West submarket. Comparable buildings were built between 1950 and 2009 and range in size from 242,505 square feet to 790,000 square feet. Direct asking rents at the comparable properties ranged between $65.00 and $108.00 per square foot with a weighted average of approximately $82.47 per square foot. The 3 Columbus Circle Property’s in-place weighted average office rent is $71.11 per square foot, which compares favorably to the appraisal’s concluded office market rent, ranging between $77.00 and $100.00 per square foot, as demonstrated in the table below.

 

Summary of Appraisal’s Concluded Office Market Rent(1)

 

Floor(s)

 

Appraisal’s Concluded Office
Market Rent PSF

3, 5-15 $77.00
4 $80.00
16-18 $85.00
19, 23-24 $93.00
20-22 $90.00
25-26 $100.00

 

 

(1)Source: Appraisal.

 

The following table presents certain information relating to comparable buildings for the 3 Columbus Circle Property:

 

Office Building Comparables(1)

 

Property Name

 

NRA

 

Direct Available SF

 

Sublease Available SF

 

% Occupied

 

Direct Asking Rent Low

 

Direct Asking Rent High

40 West 57th Street 604,936 10,900 2,715 98.2%  $87.00  $87.00 
1740 Broadway 412,704 0 0 100.0%  N/A  N/A 
810 Seventh Avenue 603,000 76,678 22,437 87.3%  $65.00  $75.00 
888 Seventh Avenue 790,000 0 19,500 100.0%  N/A  N/A 
1350 Avenue of the Americas 424,000 65,099 6,783 84.7%  $78.00  $95.00 
1370 Avenue of the Americas 339,000 50,362 11,636 85.1%  $75.00  $108.00 
1755 Broadway 242,505 0 0 100.0%  N/A  N/A 
Total/Wtd. Average 3,416,145 203,039 63,071 94.1%  $76.27  $88.66 

 

 

(1)Source: Appraisal.

 

The Borrower. The borrowers are 3 Columbus Circle LLC – Series A, 3 Columbus Circle LLC – Series B (each a “series” of 3 Columbus Circle LLC formed under the Delaware General Corporation Law) and 3 Columbus Circle LLC, a Delaware limited liability company. Each company is structured to be a single purpose bankruptcy-remote entity with 3 Columbus Circle LLC having two independent directors in its organizational structure. Two of the borrowers, 3 Columbus Circle LLC – Series A and 3 Columbus Circle LLC – Series B, own a portion of the 3 Columbus Circle Property as tenants-in-common. For additional information, please see “Description of the Mortgage Pool—Statistical

 

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 Characteristics of the Mortgage Loans—Tenancies-in-Common or Diversified Ownership” in the Preliminary Prospectus.

 

The borrower sponsor and nonrecourse carve-out guarantor is Joseph Moinian, the key principal of Moinian. Founded in 1982, Moinian is a private real estate acquisition, ownership, development and management company. Joseph Moinian is the nonrecourse carve-out guarantor for the 3 Columbus Circle Loan Combination. Moinian has acquired commercial properties throughout the country, focusing on major cities such as New York, Chicago, Dallas and Los Angeles. Moinian develops, owns and operates properties across every asset category, including office, hotel, retail, condos and rental apartments. Notable New York City investments include the Oskar, The Sky, 17 Battery North & South and 535-545 Fifth Avenue, with a portfolio of more than 20.0 million square feet.

 

Escrows.At loan origination, the borrowers deposited (i) approximately $1,820,891 into an outstanding tenant improvements and leasing commission reserve in connection with three leases and (ii) approximately $847,794 into a free rent reserve in connection with four leases.

 

On each due date, the borrower is required to fund the following reserves with respect to the 3 Columbus Circle Loan Combination: (i) a tax reserve in an amount equal to one-twelfth of the amount that the lender estimates will be necessary to pay taxes over the then succeeding 12-month period (such reserve has been conditionally waived so long as the borrower has provided satisfactory evidence that taxes have been paid meeting the requirements of the 3 Columbus Circle Loan documents) and (ii) an insurance reserve in an amount equal to one-twelfth of the amount that the lender estimates will be necessary to cover premiums over the then succeeding 12-month period (such reserve has been conditionally waived so long as the borrower maintains a blanket policy meeting the requirements of the 3 Columbus Circle Loan documents).

 

During the continuance of a Cash Sweep Event (as defined below), the borrowers are required to deposit into a replacement reserve, on a monthly basis, an amount equal to $12,500 for replacement reserves (approximately $0.20 per square foot annually), subject to a cap of $1,000,000 (approximately $1.33 per square foot).

 

During the continuance of a Cash Sweep Event, the borrowers are required to deposit into a TI/LC reserve, on a monthly basis, an amount equal to $62,900 for tenant improvement and leasing commission obligations (approximately $1.00 per square foot annually), subject to a cap of $5,000,000 (approximately $6.63 per square foot).

 

During the continuance of a Cash Sweep Event caused by a Tenant Trigger (as defined below), the borrowers are required to deposit into a Young & Rubicam reserve an amount equal to all excess cash flow in the cash management account to cover expenses anticipated to be incurred in connection with re-leasing the Young & Rubicam space, subject to a cap of $40,000,000 (approximately $106.60 per square foot of Young & Rubicam space).

 

Lockbox and Cash Management. The 3 Columbus Circle Loan Combination is structured with a hard lockbox and in place cash management. The borrowers were required at origination to deliver tenant direction letters instructing all tenants to deposit rents into a lockbox account controlled by the lender. All funds in the lockbox account are required to be swept each business day into a cash management account controlled by the lender and disbursed on each payment date in accordance with the loan documents. All funds on deposit in the cash management account following the occurrence and during the continuance of a Cash Sweep Event following payment of debt service, required reserves and operating expenses are required to be deposited into the Young & Rubicam reserve or, to the extent the Cash Sweep Event is caused by a DSCR Trigger Event (as defined below), into the excess cash flow reserve, and in each case to be held and disbursed in accordance with the terms of the loan documents. During the continuance of an event of default, the lender may apply such funds in such order and priority as the lender determines. The lender has been granted a first priority security interest in the cash management account.

 

A “Cash Sweep Event” means the occurrence and continuation of (i) an event of default, (ii) any bankruptcy action of the borrowers or property manager, (iii) a DSCR Trigger Event or (iv) a Tenant Trigger.

 

A Cash Sweep Event may be cured in accordance with the following conditions: with respect to a Cash Sweep Event caused solely by (a) clause (i) above, the acceptance of a cure by the lender of the related event of default, (b) clause (ii) above if borrowers have replaced the manager with a qualified manager under a replacement management agreement within 90 days in accordance with the loan documents, (c) clause (iii) above, a DSCR Cure Event (as defined below) has taken place, (d) clause (iv) above, if the Cash Sweep Event is caused solely by the occurrence of (x) a Tenant BK Trigger (as defined below), Young & Rubicam or its parent company affirming the Young & Rubicam lease in the applicable bankruptcy proceeding, (y) a Tenant Vacancy Trigger (as defined below), the replacement of Young & Rubicam with an acceptable replacement tenant pursuant to lease(s) approved in accordance with the terms of the loan documents and such tenant has accepted possession of its premises under the lease(s), with all tenant

 

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LOAN #8: 3 COLUMBUS CIRCLE

 

improvement costs and free rent amounts reserved with the lender, or (z) any Tenant Trigger, upon the satisfaction of the Tenant Escrow Requirement (as defined below) (in which case, the borrowers are deemed to have cured any existing Tenant Trigger immediately upon such date). Each cure is also subject to the following conditions: (1) no other event of default may have occurred and be continuing; and (2) the borrowers pay the lender’s reasonable expenses in connection with such cure. Notwithstanding the foregoing, in no event will the borrowers have the right to cure a Cash Sweep Event occurring from a borrower bankruptcy.

 

DSCR Trigger Event” means the debt service coverage ratio on the 3 Columbus Circle Loan Combination (as calculated in the loan documents) based on the trailing three-month period immediately preceding the date of determination is less than 1.30x.

 

DSCR Cure Event” means the debt service coverage ratio on the 3 Columbus Circle Loan Combination (as calculated in the loan documents), based on the trailing three-month period immediately preceding the date of determination, is at least 1.30x for two consecutive quarters.

 

Tenant Trigger” means either (i) a bankruptcy or certain insolvency actions of Young & Rubicam or its parent company (a “Tenant BK Trigger”) or (ii) if Young & Rubicam vacates, abandons or “goes dark” in 85% or more of its leased space (and no sub-tenant is then in occupancy of any of the space) (a “Tenant Vacancy Trigger”).

 

Tenant Escrow Requirement” means the balance of the Young & Rubicam reserve has reached the cap of $40,000,000.

 

Property Management. The 3 Columbus Circle Property is managed by Columbus Property Management LLC, a New York limited liability company and an affiliate of the borrowers.

 

Current Mezzanine or Secured Subordinate Indebtedness. The 3 Columbus Circle Junior Non-Trust Notes, with an aggregate outstanding principal balance as of the Cut-off Date of $105.0 million, accrue interest at a fixed rate of 3.91400% per annum. The 3 Columbus Circle Junior Non-Trust Notes each had a 120-month term and are interest only for the full term. For additional information, see“Description of the Mortgage Pool—The Loan Combination—The 3 Columbus Circle Pari Passu-AB Loan Combination”in the Preliminary Prospectus.

 

Based on the total combined debt of $595.0 million, the Cut-off Date LTV Ratio, Maturity Date LTV Ratio, DSCR Based on Underwritten NCF and Debt Yield Based on Underwritten NOI are illustrated below:

  

Financial Information
     
  

3 Columbus Circle Senior Notes

 

3 Columbus Circle Loan Combination

Cut-off Date Balance $490,000,000 $595,000,000
Cut-off Date LTV Ratio 45.4% 55.1%
Maturity Date LTV Ratio 45.4% 55.1%
DSCR Based on Underwritten NCF 2.91x 2.40x
Debt Yield Based on Underwritten NOI 12.3% 10.2%

 

Future Mezzanine or Secured Subordinate Indebtedness. None.

 

Release of Collateral. Not permitted.

 

Terrorism Insurance. The 3 Columbus Circle Loan Combination documents require that the “all-risk” insurance policy required to be maintained by the borrower provide coverage for terrorism in an amount equal to the original principal balance of the loan (with a replacement cost endorsement), plus business interruption coverage in an amount equal to 100% of the projected gross income for the applicable property until the completion of restoration or the expiration of 24 months, with a 6-month extended period of indemnity. The “all-risk” policy containing terrorism insurance is required to contain a deductible that is acceptable to the lender and is no greater than $100,000. However, if the Terrorism Risk Insurance Program Reauthorization Act of 2015 (TRIPRA) is no longer in effect, the borrower is not required to spend more than two times the then-current premium for a separate “all-risk” or equivalent policy (including business interruption coverage) for terrorism coverage (but is required to purchase the maximum coverage available for such amount). See “Risk Factors—Terrorism Insurance May Not Be Available for All Mortgaged Properties”in the Preliminary Prospectus.

 

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LOAN #9: 250 livingston

 

Mortgaged Property Information Mortgage Loan Information
Number of Mortgaged Properties1 Loan Seller CREFI
Location (City/State)Brooklyn, New York Cut-off Date Balance(3) $50,000,000
Property TypeMixed Use Cut-off Date Principal Balance per SF(2)$337.56
Size (SF)(1)370,305 Percentage of Initial Pool Balance 4.2%
Total Occupancy as of 4/1/2019(1)100.0% Number of Related Mortgage Loans None
Owned Occupancy as of 4/1/2019(1)100.0% Type of Security Fee Simple
Year Built / Latest Renovation1910 / 2013 Mortgage Rate 3.63000%
Appraised Value$210,000,000 Original Term to Maturity (Months) 120
Borrower SponsorClipper Realty L.P. and Clipper Realty Inc. Original Amortization Term (Months) NAP
Property ManagementSelf-Managed Original Interest Only Period (Months)120
    
    
Underwritten Revenues$16,032,086  
Underwritten Expenses$4,309,444 Escrows(4)
Underwritten Net Operating Income (NOI)$11,722,642  UpfrontMonthly
Underwritten Net Cash Flow (NCF)$11,638,292 Taxes$148,101$148,101
Cut-off Date LTV Ratio(2)59.5% Insurance$0$0
Maturity Date LTV Ratio(2)59.5% Replacement Reserve$0$0
DSCR Based on Underwritten NOI / NCF(2)2.55x / 2.53x TI/LC$0$0
Debt Yield Based on Underwritten NOI / NCF(2)9.4% / 9.3% Other$5,376,645$0
      
 Sources and Uses   
Sources$%Uses$%
Loan Combination$125,000,000100.0%Loan Payoff$75,143,43860.1%
   Principal Equity Distribution41,116,48832.9
   Reserves5,524,7464.4
   Origination Costs3,215,3282.6
      
Total Sources$125,000,000100.0%Total Uses$125,000,000100.0%
                 
 
(1)The 250 Livingston Property (as defined below) is comprised of 343,486 SF of commercial space and 26,819 SF of residential space consisting of 36 units. Total Occupancy and Owned Occupancy as of 4/1/2019 are 100.0% for the commercial space and 94.4% based on units for the residential space.

(2)Calculated based on the aggregate outstanding principal balance as of the Cut-off Date of the 250 Livingston Loan Combination (as defined below). See“—The Mortgage Loan”below.

(3)The Cut-off Date Balance of $50,000,000 represents the non-controlling note A-2, which is part of a larger Loan Combination evidenced by twopari passu notes having an aggregate outstanding principal balance as of the Cut-off Date of $125,000,000. The related companion loan, which is evidenced by the controlling note A-1 ($75,000,000) and was contributed to GSMS 2019-GC40 transaction. See“—The Mortgage Loan”below.

(4)See“—Escrows” below.

 

The Mortgage Loan. The 250 Livingston mortgage loan (the “250 Livingston Loan”) is part of a loan combination (the “250 Livingston Loan Combination”) evidenced by twopari passu notes that are secured by a first mortgage encumbering the borrower’s fee simple interest in a 370,305 SF mixed use building located in Brooklyn, New York (the “250 Livingston Property”). The 250 Livingston Loan, which is evidenced by the non-controlling note A-2, has an outstanding principal balance as of the Cut-off Date of $50,000,000 and represents approximately 4.2% of the Initial Pool Balance. The related companion loan is evidenced by the controlling note A-1 ($75,000,000) which was contributed to the GSMS 2019-GC40 transaction. The 250 Livingston Loan Combination, which accrues interest at an interest rate of 3.63000%per annum, was originated by CREFI on May 31, 2019, had an aggregate original principal balance of $125,000,000 and has an aggregate outstanding principal balance as of the Cut-off Date of $125,000,000. The proceeds of the 250 Livingston Loan Combination were primarily used to refinance prior debt secured by the 250 Livingston Property, return equity to the borrower sponsor, pay origination costs and fund upfront reserves. The 250 Livingston Property was previously securitized in the GSMS 2013-GC12 transaction.

 

The table below summarizes the promissory notes that comprise the 250 Livingston Loan Combination. The relationship between the holders of the 250 Livingston Loan Combination is governed by a co-lender agreement as described under “Description of the Mortgage Pool–The Loan Combinations–The Outside Serviced Pari Passu Loan Combinations” in the Preliminary Prospectus.

 

NoteOriginal BalanceCut-off Date Balance Note HolderControlling Piece
A-2$50,000,000$50,000,000 BMARK 2019-B12No
A-1$75,000,000$75,000,000 GSMS 2019-GC40Yes
Total / Wtd. Avg.$125,000,000$125,000,000   

 

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LOAN #9: 250 livingston

 

The 250 Livingston Loan Combination had an initial term of 120 months, has a remaining term of 118 months as of the Cut-off Date and requires monthly payments of interest only for the term of the 250 Livingston Loan Combination. The scheduled maturity date of the 250 Livingston Loan Combination is the due date in June 2029. Provided no event of default has occurred and is continuing, at any time after the earlier to occur of (i) May 31, 2023 and (ii) the second anniversary of the closing date of the last securitization of a note comprising part of the 250 Livingston Loan Combination, the 250 Livingston Loan Combination may be defeased with certain direct full faith and credit obligations of the United States of America or other obligations which are “government securities” permitted under the 250 Livingston Loan Combination documents.

 

Voluntary prepayment of the 250 Livingston Loan Combination is permitted on or after the due date in March 2029 without payment of any prepayment premium.

 

The Mortgaged Property. The 250 Livingston Property is a 12-story mixed use building located in downtown Brooklyn between Bond Street and Hoyt Street. The 250 Livingston Property contains 343,486 SF of office and ground level retail space on floors 1-8 (which collectively account for 91.8% of underwritten EGI) and 36 residential units (26,819 SF of space and accounting for 8.2% of underwritten EGI) on floors 9-12. The 250 Livingston Property was originally constructed in 1910 and has been owned and operated by the borrower sponsor, Clipper Realty Inc., since the firm’s acquisition in 2002. The residential floors were converted to their current use in stages between 2003 and 2013 and consist of 14 studio apartment units and 22 one-bedroom apartment units. The studio units average approximately 736 SF and underwritten monthly base rent of $3,037 per unit while the one-bedroom units average approximately 751 SF and underwritten monthly base rent of $3,178. The City of New York occupies approximately 99.7% of the commercial space at the 250 Livingston Property with the remaining 0.3% of the commercial space (990 SF) occupied by a deli tenant. As of the underwritten rent roll dated April 1, 2019, the multifamily and commercial portions of the 250 Livingston Property were 94.4% and 100.0% leased, respectively.

 

The sole office tenant, The City of New York (99.7% of commercial NRA; 99.4% of underwritten commercial base rent; rated AA/Aa1/AA by Fitch, Moody’s and S&P), currently occupies 342,496 SF of office space under two leases with expiration dates of August 22, 2020. On or around May 8, 2019, The City of New York executed a new lease for said space (i.e. to succeed the existing leases) which will go into effect on the later to occur of August 23, 2020 or on the date that all of the borrower’s work in connection with the tenant’s initial occupancy of the premises is substantially completed (the “Commencement Date”), and will expire on the day before the tenth anniversary of such Commencement Date. The borrower advised that this work is expected to be completed by the end of the year. We cannot assure you that this work will be completed as expected or at all. The City of New York has the option to terminate the aforementioned new lease with 18 months’ notice on (i) the 5th anniversary of the Commencement Date upon payment of a termination fee in an amount equal to all rent payable through the termination date on the later of (a) 30 days after the tenant’s receipt from the borrower of an invoice and (b) the termination date or (ii) the 7th anniversary of the Commencement Date upon payment of a $16,434,979.15 termination fee. The City of New York has been in occupancy at the 250 Livingston Property since 1977 and has continued to expand its space into its current footprint of 342,496 SF. The City of New York’s space at the 250 Livingston Property is utilized by the New York City Human Resources Administration (floors 1-7) and the New York City Department of Environmental Protection (floor 8).

 

The following table presents certain information relating to the commercial and retail tenants at the 250 Livingston Property:

 

Largest Owned Commercial Tenants by Underwritten Base Rent(1)

 

Tenant Name

Credit Rating
(Fitch/MIS/S&P)(2)

Tenant GLA

% of Owned GLA

UW Base Rent(3)

% of Total UW
Base Rent(3)

UW Base
Rent $
per SF(3)

Lease
Expiration

Renewal /
Extension
Options

The City of New York(4)AA / Aa1 / AA342,49699.7%$15,174,39499.4%$44.318/22/2030(5)NAP
Metro Finest DeliNR / NR / NR

990   

0.3       

87,677   

0.6      

$88.56   

5/31/20301, 5-year option
Total / Wtd. Avg. 343,486100.0%$15,262,071100.0%$44.43  

 

 
(1)Based on the underwritten rent roll dated as of April 1, 2019.

(2)Certain ratings are those of the parent company whether or not the parent guarantees the lease.

(3)UW Base Rent, % of Total UW Base Rent and UW Base Rent $ per SF represent the straight-line average rent for The City of New York tenant through the maturity date of the 250 Livingston Loan Combination and include $1,719 of contractual rent steps through June 2019 related to Metro Finest Deli.

(4)The City of New York has the option to terminate its lease with 18 months’ notice on (i) the 5th anniversary of the Commencement Date upon payment of a termination fee in an amount equal to all rent payable through the termination date on the later of (a) 30 days after the tenant’s receipt from the borrower of an invoice and (b) the termination date or (ii) the 7th anniversary of the Commencement Date upon payment of a $16,434,979.15 termination fee.

(5)To succeed the two current leases (with expiration dates, of August 22, 2020) covering The City of New York’s office space in the 250 Livingston Property. The City of New York executed a new lease which will go into effect on the Commencement Date (the later to occur of August 23, 2020 or on the date that all of the borrower’s work in connection with the tenant’s initial occupancy of the premises is substantially completed). The City of New York’s new lease expires 10 years after the Commencement Date.

 

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LOAN #9: 250 livingston

 

The following table presents certain information relating to the multifamily units and rent at the 250 Livingston Property:

 

Multifamily Unit Mix(1)

 

Unit Type

# of Units

% of Units

Occupied Units

% Occupied

Average Unit Size (SF)

In-Place Average Rent per Month

Studio1438.9%1285.7%736$3,037
One Bedroom

22

61.1

22

100.0%

751

3,178

Total / Average36100.0%3494.4%745$3,128

 

 
(1)Based on the underwritten rent roll dated April 1, 2019.

 

The following table presents certain information relating to the commercial lease rollover schedule at the 250 Livingston Property, based on initial lease expiration dates:

 

Lease Expiration Schedule(1)

 

Year Ending

December 31

 

Expiring

Owned GLA

 

% of Owned GLA

 

Cumulative % of Owned GLA

 

UW Base Rent(2)

 

% of Total UW Base Rent(2)

 

UW Base Rent $ per SF(2)

 

# of Expiring Tenants

MTM 0  0.0% 0.0% $0  0.0% $0.00  0 
2019 0  0.0  0.0% 0  0.0  0.00  0 
2020 0  0.0  0.0% 0  0.0  0.00  0 
2021 0  0.0  0.0% 0  0.0  0.00  0 
2022 0  0.0  0.0% 0  0.0  0.00  0 
2023 0  0.0  0.0% 0  0.0  0.00  0 
2024 0  0.0  0.0% 0  0.0  0.00  0 
2025 0  0.0  0.0% 0  0.0  0.00  0 
2026 0  0.0  0.0% 0  0.0  0.00  0 
2027 0  0.0  0.0% 0  0.0  0.00  0 
2028 0  0.0  0.0% 0  0.0  0.00  0 
2029 0  0.0  0.0% 0  0.0  0.00  0 
2030 & Thereafter 343,486  100.0  100.0% 15,262,071  100.0% 44.43  2 
Vacant 0  0.0  100.0% 0  0.0  0.00  0 
Total / Wtd. Avg. 343,486  100.0%    $15,262,071  100.0% $44.43  2 

 

 
(1)Certain tenants may have lease termination options that are exercisable prior to the originally stated expiration date of the subject lease and that are not considered in the Lease Expiration Schedule.

(2)UW Base Rent, % of Total UW Base Rent and UW Base Rent $ per SF represent the straight-line average rent for The City of New York tenant through the maturity date of the 250 Livingston Loan Combination and include $1,719 of contractual rent steps through June 2019 related to the Metro Finest Deli.

 

The following table presents certain information relating to historical leasing at the 250 Livingston Property:

 

Historical Leased%(1)

 

  

2016

 

2017

 

2018

 

As of 4/1/2019(2)

Commercial Owned Space 100.0% 100.0% 100.0% 100.0%
Residential Owned Space 90.4% 90.9% 90.5% 94.4%
 
 
(1)As provided by the borrower, which represents occupancy as of September 30 for the indicated year, unless otherwise specified.

(2)Based on the underwritten rent roll dated April 1, 2019

 

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LOAN #9: 250 livingston

 

Operating History and Underwritten Net Cash Flow. The following table presents certain information relating to the historical operating performance and the Underwritten Net Cash Flow at the 250 Livingston Property:

 

Cash Flow Analysis(1)

 

  2016 2017 2018 TTM 3/31/2019 Underwritten 

Underwritten

$ per SF

Base Rent - Apartments $1,198,879  $1,323,038  $1,144,960  $1,160,521  $1,276,328  $3.45 
Potential Income from Vacant Units 0  0  0  0  80,984  0.22 
Gross Potential Income - Apartments $1,198,879  $1,323,038  $1,144,960  $1,160,521  $1,357,312  $3.67 
Vacancy & Credit Loss(2) 0  0  0  0  (80,984) (0.22)
Other Income - Apartments 103,680  86,405  48,729  43,040  43,040  0.12 
EGI - Apartments $1,302,559  $1,409,443  $1,193,689  $1,203,561  $1,319,368  $3.56 
                   
Commercial Rental Income(3)(4) $5,680,659  $8,262,064  $8,264,304  $8,246,503  $15,262,071  $41.21 
City of New York Parking Rent 208,333  225,000  225,000  225,000  225,000  0.61 
Expense Reimbursements 1,309,563  1,418,187  1,538,792  1,576,234  0  0.00 
Gross Potential Income - Commercial $7,198,555  $9,905,251  $10,028,096  $10,047,737  $15,487,071  $41.82 
Vacancy & Credit Loss(2) 0  0  0  0  (774,354) (2.09)
EGI – Commercial $7,198,555  $9,905,251  $10,028,096  $10,047,737  $14,712,718  $39.73 
                   
Total Effective Gross Income $8,501,114  $11,314,694  $11,221,785  $11,251,298  $16,032,086  $43.29 
                   
Real Estate Taxes $1,485,201  $1,579,909  $1,663,471  $1,693,890  $1,975,173  $5.33 
Insurance 133,173  129,447  116,099  118,740  108,713  0.29 
Management Fee 255,033  339,441  336,654  337,539  480,963  1.30 
Other Operating Expenses 1,632,674  1,655,205  1,759,336  1,711,747  1,744,596  4.71 
Total Operating Expenses $3,506,081  $3,704,002  $3,875,560  $3,861,916  $4,309,444  $11.64 
                   
Net Operating Income(4) $4,995,033  $7,610,692  $7,346,225  $7,389,382  $11,722,642  $31.66 
TI/LC 0  0  0  0  0  0.00 
Capital Expenditures 0  0  0  0  84,350  0.23 
Net Cash Flow $4,995,033  $7,610,692  $7,346,225  $7,389,382  $11,638,292  $31.43 
                   
Occupancy(5) 100.0% 100.0% 100.0% 100.0% 100.0%   
NOI Debt Yield 4.0% 6.1% 5.9% 5.9% 9.4%   
NCF DSCR 1.09x 1.65x 1.60x 1.61x 2.53x   

 

 
(1)Interest income, lease cancellation income, depreciation, amortization, debt service payments and any other non-recurring or non-operating items were excluded from the historical presentation and are not considered for the underwritten cash flow.

(2)Vacancy & Credit Loss is underwritten to the current, economic vacancy of 6.0%.

(3)Commercial Rental Income represents the straight-line average rent for The City of New York tenant through the maturity date of the 250 Livingston Loan Combination and includes $1,719 of contractual rent steps through June 2019 related to the Metro Finest Deli.

(4)The increase from TTM 3/31/2019 Net Operating Income to Underwritten Net Operating Income is primarily attributable to the increase in The City of New York’s rent in connection with its newly executed 10-year lease. Commercial Rental Income is comprised of the current rent that The City of New York is paying ($8,150,060) and the straight line average rent over the loan term ($7,024,334).

(5)Occupancy represents only the commercial rent roll’s occupancy, as apartment income account for less than 10% of effective gross income.

 

Appraisal. According to the appraisal, the 250 Livingston Property had an “as-is” appraised value of $210,000,000 as of April 16, 2019.

 

Appraisal Approach

Value

Discount Rate

Capitalization Rate

Income Capitalization Approach$210,000,0007.00%(1)6.00%(2)

 

 
(1)Represents the internal rate of return.

(2)Represents the terminal capitalization rate.

 

Environmental Matters. Based on a Phase I environmental report dated November 9, 2018, the environmental consultant did not identify evidence of any recognized environmental conditions or recommendations for further action at the 250 Livingston Property other than the continued implementation of the current asbestos operations and maintenance program.

 

Market Overview and Competition. The 250 Livingston Property is located in Brooklyn, New York, within the Brooklyn office market. Located on Livingston Street between Bond and Hoyt Streets, the 250 Livingston Property is situated north of the Boerum Hill neighborhood. According to the appraisal as of the fourth quarter of 2018, the Brooklyn office market contained approximately 29.8 million SF with an overall direct vacancy of 13.5% and average

 

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LOAN #9: 250 livingston

 

 direct asking rents of $43.24 per SF. The 250 Livingston Property is more specifically located within the Downtown Brooklyn office submarket. According to the appraisal as of the fourth quarter of 2018, the Downtown Brooklyn office submarket contained approximately 12.4 million SF with an overall direct vacancy rate of 6.7% and average direct asking rents of $56.01 per SF.

 

The 250 Livingston Property is located approximately five blocks north of the A, C, F, N and R subway lines at the Jay Street - Metrotech station and within close proximity to the No. 2 and 3 subway lines at the Hoyt Street - Fulton Street station. The 250 Livingston Property is also located several blocks northeast of the Atlantic Terminal transit station, which is the third largest transportation hub in New York City. The Brooklyn and Manhattan Bridge ramps are each less than 10 blocks to the northwest of the 250 Livingston Property and the 250 Livingston Property is also within close proximity to the Brooklyn-Queens Expressway.

 

The following table presents certain information relating to comparable office buildings for the 250 Livingston Property:

 

Office Building Comparables(1)

 

Property Name NRA (SF) Direct Available SF Sublease Available SF Direct Occupancy (%) Direct Asking Rent PSF (Low) Direct Asking Rent PSF (High)
250 Livingston(2) 343,486  0  0  100.0% NAP NAP
44 Court Street 120,000  922  0  99.2% $42.00 $42.00
32 Court Street 115,586  0  0  100.0% NAP NAP
50 Court Street 110,000  13,213  0  88.0% $40.00 $45.00
486-496 Fulton Street 237,463  0  0  100.0% NAP NAP
368-370 Jay Street 345,639  0  0  100.0% NAP NAP
210 Joralemon Street 383,442  0  0  100.0% NAP NAP
141 Livingston Street 185,000  0  0  100.0% NAP NAP
240-252 Livingston Street 325,041  0  0  100.0% NAP NAP
175 Remsen Street 115,000  0  2,577  100.0% NAP NAP
41 Flatbush Avenue 270,000  242,992  0  10.0% $40.00 $55.00
30 Flatbush Avenue 235,000  0  0  100.0% NAP NAP
25 Elm Place 159,457  0  0  100.0% NAP NAP
26 Court Street 293,137  2,090  0  99.3% $50.00 $50.00
186 Joralemon Street 75,000  2,650  0  96.5% $50.00 $50.00
180 Livingston Street 257,000  0  0  100.0% NAP NAP
177 Livingston Street 114,108  0  0  100.0% NAP NAP
191 Joralemon Street 138,000  0  0  100.0% NAP NAP
130 Livingston Street 407,533  0  0  100.0% NAP NAP
189 Montague Street 85,644  0  0  100.0% NAP NAP
195 Montague Street 211,391  31,883  0  84.9% $45.00 $55.00
Total (excluding 250 Livingston) 4,138,441  293,750  2,577        
Average (excluding 250 Livingston) 209,172  14,688  129  93.0% $40.00 $55.00

 

 
(1)Source: Appraisal.

(2)Based on the underwritten rent roll dated April 1, 2019, excludes the 26,819 SF of residential space at the 250 Livingston Property and includes 990 SF of retail space.

 

The Borrower. The borrower, 250 Livingston Owner LLC, a Delaware limited liability company and a recycled single purpose entity, is 100% owned by Berkshire Equity LLC which is approximately 40.4% owned by its managing member, Clipper Realty L.P., a Delaware limited partnership. Legal counsel to the borrower delivered a non-consolidation opinion in connection with the origination of the 250 Livingston Loan Combination. Clipper Realty L.P. is approximately 96.1% owned by its general partner, Clipper Realty Inc., a Maryland corporation and public REIT, and approximately 3.9% owned by various limited partners. The non-recourse carve-out guarantors are Clipper Realty Inc. and Clipper Realty L.P. Clipper Realty Inc. is a real estate investment trust that is headquartered in Brooklyn, New York. Clipper Realty Inc. specializes in acquiring, owning, repositioning, operating and managing various asset types.

 

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Escrows. On the origination date of the 250 Livingston Loan Combination, the borrower funded a reserve of $148,101 for real estate taxes and $5,376,645 for a gap rent reserve. On each due date commencing with the due date occurring in July 2019 through and including the due date occurring in August 2020, the lender is required to deposit a portion of the gap rent reserve funds equal to $413,588 into an account designated by the borrower (unless a 250 Livingston Trigger Period (as defined below) is then ongoing, in which case said amount will be deposited into the lockbox account). If the borrower fails to deliver evidence to the lender on or before August 30, 2020 that the New ST Lease Commencement Conditions (as defined below) have been satisfied, then on the due date in September 2020 and each due date thereafter until the lender receives evidence that the New ST Lease Commencement Conditions have been satisfied, the borrower will be required to deposit an amount equal to the positive difference (as determined by the lender in its sole, but good faith, discretion) between: (x) the full amount of rent which would have been paid pursuant to the New ST Lease (as defined below) during the applicable month assuming the New ST Lease Commencement Conditions had been satisfied prior to the date of said deposit and (y) the amount that the lender anticipates will actually be received pursuant to the Existing ST Lease (as defined below) for the applicable month (each such deposit, a “Gap Rent True-Up Deposit”).

 

An “Existing ST Lease” means (individually and/or collectively, as the context requires) each of (i) that certain Agreement of Lease, dated as of January 1, 1997 by and between the borrower as successor-in-interest to NPMM Realty, Inc., as landlord, and The City of New York and (ii) that certain Agreement of Lease, dated as of July 1, 1999 by and between Livingston Acquisition, LLC, as landlord, and The City of New York, as tenant.

 

A “New ST Lease” means that certain Agreement of Lease, dated as of May 8, 2019 by and between the borrower, as landlord, and The City of New York, as tenant.

 

The “New ST Lease Commencement Conditions” means: (i) all Unfunded Obligations (as defined below) with respect to the New ST Lease have been completed in a manner acceptable to the lender (in its reasonable discretion), (ii) the Commencement Date (as defined above) has occurred, (iii) the tenant under the New ST Lease has commenced the payment of full unabated rent pursuant to the New ST Lease and (iv) no Specified Tenant Trigger Period (as defined below) is ongoing.

 

Additionally, on each monthly due date, the borrower is required to fund the following reserves with respect to the 250 Livingston Loan Combination: (i) a tax reserve in an amount equal to one-twelfth of the amount that the lender estimates (initially $148,101) will be necessary to pay taxes over the then succeeding 12-month period, (ii) an insurance reserve in an amount equal to one-twelfth of the amount that the lender estimates will be necessary to cover premiums over the then succeeding 12-month period; however, such reserve has been conditionally waived so long as the borrower maintains a blanket policy meeting the requirements of the 250 Livingston Loan Combination documents and (iii) during the continuance of a 250 Livingston Trigger Period (as defined below), replacement reserves in an amount equal to $7,029.

 

The borrower also covenanted under the 250 Livingston Loan Combination documents to (i) complete the façade work and the replacement of the roof (the “Immediate Repairs”) within 12 months from the origination date and (ii) complete and/or pay for certain tenant improvements pursuant to the New ST Lease (the “Unfunded Obligations”) as and when the same are required. If an event of default occurs and is continuing and/or if the borrower breaches the requirement to pay the Unfunded Obligations or perform the Immediate Repairs, the borrower will be required, within five days after the lender requests the same, to deliver cash (to be held as security for completion of the Unfunded Obligations, Immediate Repairs and security for payment of the debt under the 250 Livingston Loan Combination) in the amount that the lender determines (in its reasonable discretion) is necessary to complete the Unfunded Obligations and outstanding Immediate Repairs (the “Guaranteed Reserve Deposit”). At origination of the 250 Livingston Loan Combination, the borrower and the guarantor personally guaranteed the obligation to make a Guaranteed Reserve Deposit and the obligation to make a Gap Rent True-Up Deposit.

 

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Lockbox and CashManagement. The 250 Livingston Loan Combination is structured with a springing lockbox and springing cash management. The 250 Livingston Loan Combination documents require that, upon the occurrence and during the continuance of a 250 Livingston Trigger Period, the borrower is required to direct all tenants to deposit rents directly to a lender-controlled lockbox account. In addition, the borrower is required to cause all rents received by the borrower or the property manager with respect to the 250 Livingston Property to be deposited into such lockbox account immediately following receipt. On each business day during the continuance of a 250 Livingston Trigger Period, all amounts in the lockbox account are required to be remitted to a lender-controlled cash management account to be applied and disbursed in accordance with the 250 Livingston Loan Combination documents and all excess cash flow funds remaining in the cash management account after the application of such funds in accordance with the 250 Livingston Loan Combination documents are required to be held by the lender in an excess cash flow reserve account as additional collateral for the 250 Livingston Loan Combination. Upon an event of default under the 250 Livingston Loan Combination documents, the lender will apply funds to the debt in such priority as it may determine.

 

A “250 Livingston Trigger Period” means a period commencing upon the earliest to occur of (i) an event of default, (ii) the debt yield being less than 7.0%, and (iii) a Specified Tenant Trigger Period (as defined below), and expiring upon (a) with respect to clause (i) above, the cure of such event of default, (b) with respect to clause (ii) above, the date that the debt yield is equal to or greater than 7.25% for two consecutive calendar quarters, and (c) with respect to clause (iii) above, such Specified Tenant Trigger Period ceasing to exist.

 

A “Specified Tenant” means, as applicable, (i) The City of New York, (ii) any other tenant leasing all or a portion of the applicable Specified Tenant space and any guarantors of the related Specified Tenant lease.

 

A “Specified Tenant Termination Exercise Event” means the Specified Tenant pursuant to the New ST Lease has given written notice that it intends to exercise the termination right set forth in the New ST Lease.

 

A “Specified Tenant Trigger Period” will (A) commence upon the first to occur of (i) a Specified Tenant being in a monetary or material non-monetary default under the applicable Specified Tenant lease beyond all applicable notice and cure periods set forth in the Specified Tenant lease, (ii) a Specified Tenant failing to be in actual, physical possession of the Specified Tenant space and open for business, (iii) the Specified Tenant giving notice that it is terminating its lease for all or any portion of the Specified Tenant space, (iv) any termination or cancellation of any Specified Tenant lease (including, without limitation, rejection in any bankruptcy or similar insolvency proceeding) and/or any Specified Tenant lease failing to otherwise be in full force and effect, (v) any bankruptcy or similar insolvency of a Specified Tenant, (vi) a Specified Tenant failing to extend or renew the applicable Specified Tenant lease on or prior to the applicable Specified Tenant extension deadline in accordance with the applicable terms and conditions of the applicable Specified Tenant lease and the 250 Livingston Loan Combination documents for the applicable Specified Tenant renewal term and (vii) to the extent a Specified Tenant Termination Exercise Event has occurred, the date that is 18 months prior to the date the New ST Lease will terminate in connection with said Specified Tenant Termination Exercise Event, and (B) expire upon the first to occur of (i) the satisfaction of the Specified Tenant cure conditions under the 250 Livingston Loan Combination documents, or (ii) the borrower leasing either the entire Specified Tenant space or a portion thereof in accordance with the applicable terms and conditions of the 250 Livingston Loan Combination documents, the applicable tenant under the lease being in actual physical of and open to the public for business in, the space demised under its lease and paying the full, unabated amount of the rent due under its lease.

 

Property Management. The 250 Livingston Property is self-managed by the borrower.

 

Mezzanine or Secured Subordinate Indebtedness.Not permitted.

 

Release of Collateral. Not permitted.

 

Terrorism Insurance. The 250 Livingston Loan Combination documents require that the “all-risk” insurance policy required to be maintained by the borrower provide coverage for terrorism in an amount equal to the full replacement cost of the 250 Livingston Property, plus business interruption coverage in an amount equal to 100% of the projected gross income for the 250 Livingston Property until the completion of restoration or the expiration of 18 months, with a six-month extended period of indemnity. The “all-risk” policy containing terrorism insurance is required to contain a deductible that is no greater than $25,000. See “Risk Factors—Terrorism Insurance May Not Be Available for All Mortgaged Properties” in the Preliminary Prospectus.

 

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Mortgaged Property Information Mortgage Loan Information
Number of Mortgaged Properties1 Loan Seller(4) JPMCB
Location (City/State)Las Vegas, Nevada Cut-off Date Balance(5) $50,000,000
Property TypeRetail Cut-off Date Balance per SF $1,000.14
Size (SF)(1)759,891 Percentage of Initial Pool Balance 4.2%
Total Occupancy as of 5/31/2019(1)94.0% Number of Related Mortgage Loans None
Owned Occupancy as of 5/31/2019(1)94.0% Type of Security Fee Simple/Leasehold
Year Built / Latest Renovation1999 / 2007 Mortgage Rate(6) 3.74080%
Appraised Value(2)$1,640,000,000 Original Term to Maturity (Months) 120
Appraisal Date4/03/2019 Original Amortization Term (Months) NAP
Borrower SponsorsGrand Canal Shoppes Holdings, LLC Original Interest Only Period (Months) 120
   First Payment Date 8/1/2019
Property ManagementBrookfield Properties Retail Inc. Maturity Date 7/1/2029
      
Underwritten Revenues$104,029,334    
Underwritten Expenses$31,007,624 Escrows(7)
Underwritten Net Operating Income (NOI)$73,021,709  UpfrontMonthly
Underwritten Net Cash Flow (NCF)$70,997,903 Taxes$0$0
Cut-off Date LTV Ratio(3)46.3% Insurance$0$0
Maturity Date LTV Ratio(3)46.3% Replacement Reserve$0$0
DSCR Based on Underwritten NOI / NCF(3)2.53x / 2.46x TI/LC$0$0
Debt Yield Based on Underwritten NOI / NCF(3)9.6% / 9.3% Other(8)$13,527,940$0
      
Sources and Uses
Sources$% Uses$%
Senior Loan Combination Amount(4)$760,000,00077.9% Existing CMBS Mortgage Loan Payoff$627,284,452 64.3%
Subordinate Companion Loan Amount215,000,00022.1    Upfront Reserves13,527,9401.4
    Closing Costs1,143,0410.1
    Return of Equity333,044,56734.2  
Total Sources$975,000,000100.0% Total Uses$975,000,000100.0%

 

 
(1)Size (SF) excludes the 84,743 SF space currently leased to Barneys New York. Though initially included in the collateral, the borrowers have the right to obtain release of such space with no related prepayment of the Grand Canal Shoppes Loan Combination, subject to certain conditions in the loan documents. As such, no value, underwritten rental income or square footage has been attributed to this space.

(2)Appraised Value represents the Hypothetical “As-Is” Value which is exclusive of value associated with the Barneys New York space, which may be released from the collateral upon lease expiration in January 2020. See “Release of Collateral” below.

(3)Calculated based on the aggregate outstanding principal balance of the Grand Canal Shoppes SeniorPari Passu Notes (as defined below). See “—The Mortgage Loan” below.

(4)The Grand Canal Shoppes Loan Combination (as defined below) was co-originated by MSBNA (as defined below), JPMCB (as defined below), WFB (as defined below) and GS (as defined below).

(5)The Grand Canal Shoppes Loan (as defined below) is part of a loan combination comprised of (i) 23 seniorpari passunotes, with an aggregate outstanding principal balance as of the Cut-off Date of approximately $760.0 million and (ii) one subordinate note, with an aggregate outstanding principal balance as of the Cut-off Date of $215.0 million.

(6)Reflects the Grand Canal Shopped SeniorPari Passu Loans only. The Grand Canal Shoppes Subordinate Companion Loan accrues interest at the rate of 6.25% per annum.

(7)See “Escrows” below.

(8)Other Escrows represents (i) $12,309,694 reserved for outstanding tenant obligations associated with 33 tenants and (ii) $1,218,246 reserved for gap rent associated with five tenants.

 

The Mortgage Loan.The mortgage loan (the“Grand Canal Shoppes Loan”) is part of a loan combination (the “Grand Canal Shoppes Loan Combination”) evidenced by 24 notes comprised of (i) 23 seniorpari passu notes (collectively, the “Grand Canal Shoppes SeniorPari Passu Notes”) with an aggregate principal balance as of the Cut-off Date of $760,000,000 and (ii) one subordinate note (the “Grand Canal Shoppes Subordinate Companion Loan”) with a principal balance as of the Cut-off Date of $215,000,000. The Grand Canal Shoppes Subordinate Companion Loan is subordinate to the Grand Canal Shoppes SeniorPari PassuNotes as and to the extent described in “Description of the Mortgage Pool—The Loan Combinations—The Grand Canal Shoppes Pari Passu-AB Loan Combination” in the Preliminary Prospectus. The aggregate outstanding principal balance as of the Cut-off Date of all notes evidencing the Grand Canal Shoppes Loan Combination is $975,000,000. The Grand Canal Shoppes Loan Combination is secured by a first priority fee and leasehold mortgage encumbering a 759,891 SF specialty retail center located in Las Vegas, Nevada (the “Grand Canal Shoppes Property. The Grand Canal Shoppes Loan, which is evidenced by the non-controlling note A-3-1, has an outstanding balance as of the Cut-Off Date of $50,000,000 and represents approximately [ ]% of Initial Pool Balance. The related senior companion loans are evidenced by 22 seniorpari passu notes (collectively, theGrand Canal ShoppesPari Passu Companion Loans”), which have an aggregate outstanding principal balance as of the Cut-off Date of $710,000,000, and the Grand Canal Shoppes Subordinate Companion Loan as detailed in the Loan Combination Summary table below. The Grand Canal Shoppes Loan Combination was co-originated by Morgan Stanley Bank, N.A. (“MSBNA”), JP Morgan Chase Bank, National Association (“JPMCB”), Wells Fargo Bank, N.A. (“WFB”) and Goldman Sachs Bank USA (“GS”) on June 3, 2019. The Grand Canal Shoppes SeniorPari PassuNotes have an interest rate of 3.74080%per annumand the Grand Canal Shoppes Subordinate Companion Loan has an interest rate of 6.25000%per annum.The Grand Canal Shoppes Borrowers (as defined below) utilized the proceeds of the Grand Canal Shoppes Loan Combination to pay off existing debt, fund reserves, return equity to the borrower sponsor and pay origination costs.

 

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Loan Combination Summary

 

Note Original Balance Cut-off Date Balance Note Holder Controlling Piece
A-1-1, A-1-6 $70,000,000  $70,000,000  MSC 2019-H7 No
A-1-2 $50,000,000  $50,000,000  MSBNA No
A-1-3 $40,000,000  $40,000,000  MSBNA No
A-1-4 $40,000,000  $40,000,000  MSBNA No
A-1-5 $13,846,154  $13,846,154  MSBNA No
A-1-7 $10,000,000  $10,000,000  MSBNA No
A-1-8 $10,000,000  $10,000,000  MSBNA No
A-2-1 $50,000,000  $50,000,000  WFB No
A-2-2 $50,000,000  $50,000,000  WFB No
A-2-3 $40,000,000  $40,000,000  WFB No
A-2-4 $25,000,000  $25,000,000  WFB No
A-2-5 $10,384,615  $10,384,615  WFB No
A-3-1 $50,000,000  $50,000,000  Benchmark 2019-B12 No
A-3-2 $50,000,000  $50,000,000  JPMCB No
A-3-3 $40,000,000  $40,000,000  JPMCB No
A-3-4 $25,000,000  $25,000,000  JPMCB No
A-3-5 $10,384,615  $10,384,615  JPMCB No
A-4-1 $50,000,000  $50,000,000  GS No
A-4-2 $50,000,000  $50,000,000  GS No
A-4-3 $40,000,000  $40,000,000  GS No
A-4-4 $25,000,000  $25,000,000  GS No
A-4-5 $10,384,615  $10,384,615  GS No
B-1 $215,000,000  $215,000,000  Third party holder Yes(1)
Total $975,000,000  $975,000,000     

 

 
(1)The holder of the Grand Canal Shoppes Subordinate Companion Loan will have the right to appoint the special servicer of the Grand Canal Shoppes Loan Combination and to direct certain decisions with respect to the Grand Canal Shoppes Loan Combination, unless a control appraisal event exists under the related co-lender agreement. The Grand Canal Shoppes Loan Combination will be serviced pursuant to the pooling and servicing agreement for the MSC 2019-H7 securitization.

 

The Grand Canal Shoppes Loan Combination had an initial term of 120 months, has a remaining term of 119 months as of the Cut-off Date and requires monthly payments of interest only for the term of the Grand Canal Shoppes Loan Combination. The scheduled maturity date of the Grand Canal Shoppes Loan Combination is the due date in July 2029. Provided no event of default has occurred and is continuing, at any time after the earlier to occur of (i) July 1, 2022 and (ii) the second anniversary of the last securitization of a note comprising part of the Grand Canal Shoppes Loan Combination, the Grand Canal Shoppes Loan Combination may be defeased with certain direct full faith and credit obligations of the United States of America or other obligations which are “government securities” permitted under the Grand Canal Shoppes Loan Combination documents. Voluntary prepayment of the Grand Canal Shoppes Loan Combination is permitted on or after the due date in March 2029 without payment of any prepayment premium.

 

The Mortgaged Property.The Grand Canal Shoppes Property is a 759,891 SF specialty retail center that predominantly comprises the first-, second-, and third-levels of the Venetian Hotel and Casino (the “Venetian”) and Palazzo Resort and Casino (the “Palazzo”). The Grand Canal Shoppes Property opened in 1999, with an expansion completed in conjunction with the construction of The Palazzo in 2007, and is anchored by an 84,743 SF, three level Barneys New York, currently slated to close by January 2020. Barneys New York will be part of the collateral for the Grand Canal Shoppes Loan Combination as of the origination date; however, the Borrowers (as defined below) have the right to obtain a free release of the Barneys Parcel (as defined below) subject to certain conditions in the loan documents. At origination, no value or rental income was attributed to the Barneys Parcel.

 

The Grand Canal Shoppes Property is situated across 21.1 acres of land along the central portion of Las Vegas Boulevard (“The Strip”). The Grand Canal Shoppes Property is a premier shopping, entertainment and dining venue in Las Vegas featuring a unique Venetian-inspired setting with luxury retailers and restaurant concepts. Attractions include a gondola ride through the canals of the Grand Canal Shoppes Property (operated by Emporio D’Gondola), as well as showroom/theater space for live performances.

 

The Venetian and the Palazzo Resort are luxury hotels and casino resorts situated within the southeast quadrant of Las Vegas Boulevard and Sands Avenue. The Venetian and the Palazzo are owned and operated by Las Vegas Sands. The overall resort complex is the largest on The Strip and includes a combined 7,117 rooms and 225,000 SF of gaming space, none of which are collateral for the Grand Canal Shoppes Loan Combination. The Grand Canal Shoppes Property is physically connected to the Venetian and the Palazzo, which combine to create a large hotel and resort complex with over 7,000 hotel rooms, 2.3 million SF of meeting space,one million SF of retail space and more than 30 restaurants. In addition, the Grand Canal Shoppes Property is within walking distance to over 140,000 hotel rooms.

 

The Grand Canal Shoppes Property is currently 94.0% leased as of May 31, 2019. The Grand Canal Shoppes Property generated $427.6 million in gross sales with comparable in-line and food court sales of $1,182 PSF as of the trailing twelve month period ending February 2019. The Grand Canal Shoppes Property generates over 60% of its top

 

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line revenue from food and entertainment offerings, including restaurants such as Tao Asian Bistro, featuring a night and beach club, Grand Lux Café, Sushi Samba, Delmonico Steakhouse, Cut by Wolfgang Puck, Smith & Wollensky, Verdugo West Brewery, Xiang Tian Xia Chinese Hot Pot and Recital Karaoke, among others. Noteworthy luxury retailers at the Grand Canal Shoppes Property include Louis Vuitton, Salvatore Ferragamo, Fendi and Jimmy Choo.

 

From 2015 through January 2019, capital expenditures, inclusive of development capital and landlord work, of approximately $20.3 million ($26.70 PSF) were invested in the Grand Canal Shoppes Property. In addition, there is a planned renovation and redevelopment of the common areas within the shopping areas above The Palazzo. Ownership is budgeting approximately $12.0 million to improve lighting and finishes, in an attempt to maintain existing and attract new tenants to this portion of the Grand Canal Shoppes Property. According to management, renovations are expected to begin in September 2019. Additionally, in conjunction with the development of a 27,422 SF international food hall, certain renovations, new finishes and lighting are expected to be completed in 2020. Such renovation and redevelopment, as well as development of the new food hall, are not required by or reserved for under the Grand Canal Shoppes Loan documents, and we cannot assure you that any such renovation, redevelopment, or food hall development will be completed.

 

The Grand Canal Shoppes Property is anchored by 18 major tenants which combined generate approximately $140.3 million in annual sales as of the trailing twelve month period ending February 2019. Since 2015, the Grand Canal Shoppes Property’s sales performance has steadily increased year-over-year, growing 21.4% over this period. Furthermore, since 2015 comparable in-line and food court sales have consistently exceeded $1,080 PSF and have reached $1,182 PSF as of the trailing twelve month period ending February 2019.

 

A portion of the Grand Canal Shoppes Property, consisting of the first floor of Barneys New York and the ground floor space, is ground leased by Venetian Casino Resort, LLC, an affiliate of Las Vegas Sands Corporation, to the Borrowers. The ground floor space consists of restaurants and retail shops contained in the Venetian and the Palazzo. The ground lease for the casino level of the Venetian portion of the Grand Canal Shoppes Property, between Venetian Casino Resort, LLC and the Grand Canal Shoppes Borrower (as defined below), expires in 2093, while the ground lease for the casino level of the Palazzo portion of the Grand Canal Shoppes Property, between Venetian Casino Resort, LLC and the Shoppes at the Palazzo Borrower (as defined below), expires in 2097. The annual rents for each of the foregoing ground leases is $1 and each of the Borrowers has the option to purchase the premises for $1 on each applicable expiration date.

 

The Shoppes at the Palazzo Borrower also ground leases a certain air rights parcel (the “Walgreens Air Rights Space”), pursuant to a certain commercial lease (the “Walgreens Air Rights Lease”) between the Shoppes at the Palazzo Borrower, as lessee, and CAP II-Buccaneer, LLC, as lessor. The Walgreens Air Rights Lease requires an annual rent payment of $600,000 for lease years one through seven, with annual escalation based on the Consumer Price Index (not to exceed 2%), and expires in 2064 with one 40-year extension option. The Walgreens Air Rights Space is currently occupied by Buddy V’s Ristorante and Carlo’s Bakery (12,839 SF, 1.5% of underwritten base rent). The Venetian subleases a portion of the air rights parcel from the Shoppes at the Palazzo Borrower pursuant to a separate sublease. The Venetian is responsible under its sublease for an amount equal to 80.68% of the ground rent under the Walgreens Air Rights Lease. The remaining collateral, except for the Walgreens air rights lease space, is owned in fee. A portion of the fee is located at the ground level (the retail annex), with the majority fee located on levels 2 and 3. The collateral is vertically subdivided (i.e., the fee ownership is solely of the designated space on the ground level and levels 2 and 3). A reciprocal easement agreement governs the relationship among the owners of the Grand Canal Shoppes Property, and the owners of other interests in the complex that includes the Venetian and the Palazzo.

 

The following table presents certain information relating to the major tenants (of which, certain tenants may have co-tenancy provisions) at the Grand Canal Shoppes:

 

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Largest Tenants Based on Underwritten Base Rent(1)

 

Tenant Name 

Credit Rating (Fitch/MIS/S&P)(2)

 Tenant GLA % of GLA 

UW Base
Rent(3)

 

% of Total UW Base Rent(3)

 

UW Base Rent
$ per SF(3)

 

Tenant Sales $ per SF(4)

 Lease Expiration Renewal / Extension Options
Venetian Casino Resort(5) BBB-/NR/BBB- 81,105  10.7% $4,598,023  6.9% $56.69   NAV  5/31/2029 NAP
Emporio D’Gondola(6) NR/NR/NR 922  0.1% $4,051,692  6.0% $4,394.46   NAV  5/31/2029 NAP
Regis Galerie(7) NR/NR/NR 28,099  3.7% $2,367,955  3.5% $84.27  $249  5/31/2025 NAP
Sephora NR/NR/A+ 10,074  1.3% $2,299,995  3.4% $228.31   NAV  7/31/2021 NAP
Welcome to Las Vegas(8) NR/NR/NR 14,234  1.9% $2,000,502  3.0% $140.54  $465  12/31/2020 NAP
TAO(9) NR/NR/NR 49,441  6.5% $1,576,386  2.4% $31.88  $723  1/31/2025 NAP
Grand Lux Cafe NR/NR/NR 19,100  2.5% $1,463,633  2.2% $76.63  $1,151  12/31/2029 NAP
CUT By Wolfgang Puck NR/NR/NR 12,247  1.6% $1,261,441  1.9% $103.00  $1,157  5/31/2028 NAP
Mercato Della Pescheria NR/NR/NR 16,479  2.2% $1,131,448  1.7% $68.66  $556  11/30/2025 NAP
Bellusso Jewelry NR/NR/NR 2,999  0.4% $1,068,964  1.6% $356.44  $2,725  11/30/2022 NAP
Golden Gai NR/NR/NR 12,820  1.7% $1,034,959  1.5% $80.73  NAV  12/31/2029 NAP
Peter Lik Gallery NR/NR/NR 4,394  0.6% $979,686  1.5% $222.96  $878  8/31/2021 NAP
Smith & Wollensky NR/NR/NR 14,751  1.9% $942,502  1.4% $63.89  NAV  6/30/2028 NAP
Michael Kors BBB-/NR/BBB- 4,066  0.5% $917,907  1.4% $225.75  $803  1/31/2026 NAP
Recital Karaoke NR/NR/NR 14,062  1.9% $897,999  1.3% $63.86  NAV  2/28/2029 NAP
Largest Tenant Totals   284,793  37.5% $26,593,092  39.7% $93.38        
Remaining Tenants   429,835  56.6% $40,441,789  60.3% $94.09        
Occupied Total   714,628  94.0% $67,034,881  100.0% $93.80        
Vacant Spaces   45,263  6.0%                
Totals / Wtd. Avg. All Tenants 759,891  100.0%                

 

 
(1)Information is based on the underwritten rent roll dated May 31, 2019.

(2)Certain ratings are those of the parent company whether or not the parent guarantees the lease.

(3)UW Base Rent, % of Total UW Base Rent and UW Base Rent $ per SF reflect the following: (a) in-place leases based on the May 2019 rent roll and (b) contractual rent steps of $2,184,628 through May 31, 2020.

(4)Tenant Sales $ per SF are as of February 2029.

(5)Venetian Casino Resort has (i) 34,088 SF expiring on July, 31, 2025, (ii) 38,920 SF expiring on May 31, 2029, (iii) 8,096 SF expiring on September 30, 2033and (iv) 1 SF expiring on December 31, 2019 that generates $60,991 in underwritten base rent.

(6)Operates the gondola attraction at the Grand Canal Shoppes Property.

(7)Regis Galerie has (i) 8,406 SFexpiring on December 31, 2020, (ii) 4,654 SF expiring on February 29, 2020, (iii) 15,039 SF expiring on May 31, 2025.

(8)TheWelcome to Las Vegas tenant has an additional lease that is expected to commence February 2020. Welcome to Las Vegas has (i) 10,239 SF expiring on December 31, 2020 and (ii) 3,995 SF expiring on January 31, 2030.

(9)TAO has (i) 1,088 SF expiring on January 31 2020, (ii) 39,553 SF expiring on January 31, 2025 and (iii) 8,800 SF expiring May 31, 2029.

 

The following table presents certain information relating to the lease rollover schedule at the Grand Canal Shoppes Property based on initial lease expiration dates:

 

Lease Expiration Schedule(1)(2)

 

Year Ending December 31 Expiring Owned GLA % of Owned GLA Cumulative % of Owned GLA 

UW Base Rent(3)

 % of Total UW Base Rent UW Base Rent $ per SF # of Expiring
Leases
 MTM(4) 2,080  0.3% 0.3% $0  0.0% $0.00  2 
2019 39,567  5.2  5.5  2,436,560  3.6  $61.58  17 
2020 80,052  10.5  16.0  4,475,224  6.7  $55.90  25 
2021 28,634  3.8  19.8  5,748,002  8.6  $200.74  16 
2022 35,084  4.6  24.4  4,683,674  7.0  $133.50  13 
2023 41,038  5.4  29.8  5,490,655  8.2  $133.79  20 
2024 60,412  8.0  37.8  6,381,261  9.5  $105.63  22 
2025 146,378  19.3  57.0  10,519,793  15.7  $71.87  20 
2026 29,721  3.9  60.9  2,751,933  4.1  $92.59  9 
2027 6,142  0.8  61.7  859,431  1.3  $139.93  3 
2028 48,011  6.3  68.1  4,940,574  7.4  $102.91  9 
2029 185,418  24.4  92.5  18,048,649  26.9  $97.34  27 
2030 & Thereafter 12,091  1.6  94.0  699,125  1.0  $57.82  2 
Vacant 45,263  6.0  100.0% 

NAP

  

NAP

  

NAP

  

NAP

 
Total / Wtd. Avg. 759,891  100.0%    $67,034,881  100.0% $93.80  185 

 

 
(1)Information is based on the underwritten rent roll.

(2)Certain tenants may have lease termination options that are exercisable prior to the originally stated expiration date of the subject lease and that are not considered in the lease rollover schedule.

(3)UW Base Rent reflects the following: (a) in-place leases based on the May 2019 rent roll and (b) contractual rent steps of $2,184,628 through May 31, 2020.

(4)MTM is inclusive of two storage units for specific tenants located across the Grand Canal Shoppes Property.

 

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The following tables presents certain information relating to historical occupancy and estimated tenant sales at the Grand Canal Shoppes Property:

 

Historical Occupancy

 

 

2014

2015

2016

2017

2018

Current(1)

The Venetian Occupancy (%)95.1%92.6%98.3%95.7%99.1%97.1%
The Palazzo Occupancy (%)88.2%89.5%86.2%88.4%83.0%86.2%
Total Occupancy (%)92.6%91.5%93.9%93.0%93.3%94.0%

 

 
(1)Current occupancy is based on the May 31, 2019 underwritten rent roll.

 

Historical In-line Sales(1)

 

 

2015

2016

2017

2018

TTM February 2019 Sales

TTM February 2019 Sales PSF

Anchor/Major Sales(2)$129,599,970$129,282,829$130,862,228$138,705,093$140,317,346$1,046
Comparable In-Line Sales$200,973,916$207,912,708$223,524,143$244,916,086$244,795,176$1,154
Comparable Food Court Sales$17,055,210$19,744,070$21,275,466$23,538,795$23,688,945$1,580

 

 
(1)Information as provided by the borrower sponsor and only includes tenants reporting sales.

(2)Anchor/Major Sales excludes all sales associated with Barney’s New York.

 

Operating History and Underwritten Net Cash Flow. The following table presents certain information relating to the historical operating performance and the Underwritten Net Cash Flow at the Grand Canal Shoppes Property:

 

Cash Flow Analysis

 

  2016 2017 2018 TTM 3/31/2019 Underwritten Underwritten
$ per SF
Base Rent(1) $68,255,204  $67,507,328  $66,471,558  $66,941,590  $64,850,253  $85.34 
Rent Steps 0  0  0  0  2,184,628  2.87 
Total Recoveries 31,633,869  27,875,777  25,766,223  25,166,107  26,539,087  34.92 
Other Income(2) 12,765,993  12,203,223  10,872,872  10,365,738  10,455,366  13.76 
Effective Gross Income $112,655,066  $107,586,327  $103,110,653  $102,473,435  $104,029,334  $136.90 
                   
Real Estate Taxes $1,952,631  $1,995,183  $2,076,447  $2,102,023  $2,102,023  $2.77 
Insurance 268,881  248,826  253,530  260,040  260,040  0.34 
Other Operating Expenses(3) 31,074,924  30,916,371  29,454,203  28,645,562  28,645,562  37.70 
Total Operating Expenses $33,296,436  $33,160,381  $31,784,180  $31,007,624  $31,007,624  $40.81 
                   
Net Operating Income(1) $79,358,630  $74,425,947  $71,326,473  $71,465,811  $73,021,709  $96.09 
Capital Expenditures 0  0  0  0  0  0.00 
TI/LC 0  0  0  0  2,023,806  2.66 
Net Cash Flow $79,358,630  $74,425,947  $71,326,473  $71,465,811  $70,997,903  $93.43 
                   
Occupancy(4) 93.9% 93.0% 93.3% 93.9% 94.0%   
NOI Debt Yield(5) 10.4% 9.8% 9.4% 9.4% 9.6%   
NCF DSCR(5) 2.75x 2.58x 2.47x 2.48x 2.46x   

 

 
(1)UW Base Rent reflects the following: (a) in-place leases based on the March 2019 rent roll and (b) contractual rent steps of $2,184,628 through May 31, 2020. UW Base Rent excludes any rent associated with the Barneys New York space. The increase in UW Base Rent and Net Operating Income from TTM 3/31/2019 is due to recent leasing activity.

(2)Other Income includes vending income, enterprise income, advertising revenue sponsorship income, specialty leasing income, overage rent and percent in lieu.

(3)Other Operating Expenses includes the applicable portion of Walgreens ground/air rights lease rent, which equates to $133,475 (19.32% of the annual ground lease payment) was underwritten. The Venetian is responsible under its sublease for the remaining 80.68% of the ground rent under the Walgreens lease.

(4)2016, 2017 and 2018 based on Q4 of each respective year. Underwritten Occupancy is based on the underwritten rent roll dated May 31, 2019.

(5)Debt service coverage ratios and debt yields are based on the Grand Canal ShoppesPari Passu Companion Loans and exclude the Grand Canal Shoppes Subordinate Companion Loan.

 

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Appraisal.According to the appraisal, the Grand Canal Shoppes Property had a Hypothetical “As-Is” appraised value of $1,640,000,000 as of April 3, 2019.

 

Appraisal Approach

Hypothetical “As-Is” Value(1)

Discount Rate

Capitalization Rate

Income Capitalization Approach$1,640,000,0006.25% 4.34%

 

 
(1)The Hypothetical “As-Is” Appraised Value of $1,640,000,000 is exclusive of any value associated with the Barney’s New York space, which is expected to close in January 2020.

 

Environmental Matters.Based on a Phase I environmental report dated May 15, 2019, the environmental consultant did not identify evidence of any recognized environmental conditions or recommendations for further action at the Grand Canal Shoppes Property.

 

Market Overview and Competition. The Grand Canal Shoppes Property is located in Las Vegas, Nevada along The Strip. The Grand Canal Shoppes Property’s tenant mix of retail, restaurants and entertainment offerings benefits from Las Vegas’s significant number of tourists, convention center attendees and residents. The Grand Canal Shoppes Property is adjacent to the Sands Expo Convention Center, a 1.8 million SF meeting and convention center. Additionally, Las Vegas has various developments in process that are expected to be completed in 2020 and beyond. The most notable of these developments are the MSG Sphere, an 18,000 seat performance venue being developed by Madison Square Garden and Las Vegas Sands, which will be located just east of the Grand Canal Shoppes Property and the redevelopment of the Las Vegas Convention Center District, which will include 1.4 million SF of expansion space. Additionally, the construction of a 65,000 seat Las Vegas Stadium is already under development, which will be the new home of the NFL’s Oakland Raiders, as well as a live entertainment and convention venue. We cannot assure you as to whether or when such developments will be completed.

 

Primary access to the Grand Canal Shoppes Property is provided via Interstate 15, the region’s primary north-south route, situated approximately one mile west of the Grand Canal Shoppes Property. The Grand Canal Shoppes Property is located approximately 3 miles north of the McCarran International Airport and has direct access to Citizen Area Transit, which has over 41 routes running throughout the region. According to the appraisal, approximately 42.1 million visitors traveled to Las Vegas in 2018, of which approximately 6.5 million were associated with convention center activity. According to the appraisal, the estimated 2018 population within a five-, seven- and ten-mile radius of the Grand Canal Shoppes Property was 410,151, 911,414 and 1,661,641, respectively. The estimated 2018 average household income within a five-, seven- and ten-mile radius was $54,257, $60,146 and $70,983, respectively.

 

The Grand Canal Shoppes Property is located in the Southeast submarket of the Las Vegas retail market. According to the appraisal, as of the fourth quarter of 2018, the Las Vegas retail market had inventory of approximately 29.9 million SF, the vacancy rate was approximately 13.4% and average asking rents were approximately $22.34 PSF. According to the appraisal, as of the fourth quarter of 2018, the Southeast submarket had inventory of approximately 5.1 million SF, the vacancy rate was approximately 14.5% and average asking rents were approximately $19.41 PSF. As of May 31, 2019, the Grand Canal Shoppes Property has an in-place asking rents of $93.80 PSF, which is slightly below the appraiser concluded market rent of $98.23 PSF for the space at the Grand Canal Shoppes Property.

 

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The following table presents certain information relating to the primary competition for the Grand Canal Shoppes Property:

 

Competitive Set(1)

 

 Distance to Subject (mi.)Property TypeYear Built/ RenovatedTotal GLATotal Occupancy(2)Sales per SF(3)Anchors & Jr. Anchors
Grand Canal ShoppesN/ASpecialty Retail1999/2007759,89194.0%$1,182TAO Nightclub, Theater, Grand Lux Café, Mercato Della Pescheria, TAO Asian Bistro, Recital Karaoke, Madame Tussaud Las Vegas, Verdugo West Brewery, Golden Gai
Primary Competition       
Forum Shops at Caesars0.5Fashion/Specialty1992/1997,2004650,00099%$1,400-$1,700Upscale/themed retail project at Caesars with 1-2 levels
Wynn Las Vegas Retail0.3Fashion/Specialty2005/2008150,00095%$2,000-$3,000Upscale retail areas located within The Wynn Las Vegas and Wynn Encore
The Shops at Crystals1.1Fashion/Specialty2009/NAP360,00094%$1,200-$1,400Upscale specialty retail center with 3-levels on Las Vegas Strip part of City Center
Miracle Mile Shops1.0Fashion/Specialty2000/2008,2016494,00093%$825-$875Mid-Tier specialty retail center with 1 and 2 stories at Planet Hollywood
Fashion Show Mall(4)0.3Super-Regional Center1981/Various1,875,40095%$825-$875Neiman Marcus, Dillard’s, Macy’s, Saks, Forever 21, Nordstrom, Dick’s Sporting Goods
Secondary Competition      
The Ling Promenade0.4Fashion/Specialty2014/NAP268,00093%---Retail and entertainment specialty center including a number of restaurants and performance venues
Bellagio Shops0.8Fashion/Specialty1998/NAP---100%---Upscale shopping area located within Bellagio Resort and Casino
The Showcase1.6Specialty Retail1997/2003,2009347,28197%---Coca-Cola, Ross, Hard Rock, M&M's, Adidas
Las Vegas Premium Outlets3.5Outlet Center2003/NAP676,113100%$1,400-$1,600Last Call Neiman Marcus, Off 5th Saks 5th Avenue, Nike

 

 
(1)Source: Appraisal.

(2)Occupancy as of May 31, 2019.

(3)Comparable in-line sales shown as of February 28, 2019.

(4)Owned by an affiliate of the Borrowers.

 

The Borrower. The borrowers are Grand Canal Shops II, LLC (the “Grand Canal Shoppes Borrower”) and The Shoppes at the Palazzo, LLC (the “Shoppes at the Palazzo Borrower”; and together with the Grand Canal Shoppes Borrower, the “Borrowers”), each organized as a Delaware limited liability company and each structured to be bankruptcy remote with two independent directors. The borrower sponsor is Grand Canal Shoppes Holdings, LLC and the nonrecourse carveout guarantor is BPR Nimbus LLC (the“Grand Canal Shoppes Guarantor”), an affiliate of Brookfield Properties REIT Inc. Brookfield Properties REIT Inc. ranks among the largest retail real estate companies in the United States. Its portfolio of mall properties spans the nation, encompassing 170 locations across 42 states and representing over 146 million SF of retail space. The company is focused on managing, leasing and redeveloping retail properties. Nuveen Real Estate is the investment management arm of Teachers Insurance and Annuity Association. Nuveen Real Estate manages various funds and mandates, across both public and private investments, and spanning both debt and equity and has over 80 years of real estate investing experience and more than 500 employees located across over 20 cities throughout the United States, Europe and Asia Pacific.

 

Escrows.At loan origination, the Borrowers were required to deposit $1,218,246 for outstanding gap rents and $12,309,694 for outstanding tenant improvements and leasing commission’s obligations, including among other tenants: $1,177,693 for Recital Karaoke, $1,472,330 for Verdugo West Brewery, $967,269 for Golden Gai, $63,000 for CUT By Wolfgang Puck, $882,000 for Smith & Wollensky and $20,000 for Once.

 

Real Estate Taxes and Insurance Reserves – During the continuance of a Cash Management Period (as defined below), the Grand Canal Shoppes Borrowers are required to reserve monthly 1/12th of the estimated annual property taxes and 1/12th of the estimated annual insurance premiums. The monthly insurance reserve requirement is also waived if the Grand Canal Shoppes Borrowers provide the lender with evidence that (a) the insurance policies required to be maintained by the Borrowers are maintained pursuant to blanket policies that comply with the requirements of the Grand Canal Shoppes Loan Combination documents and (b) the insurance premiums payable in connection with such policies have been prepaid for not less than one year in advance (or, for the period of coverage under the policies as to which certificates are delivered at closing, such period, if less than one year).

 

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Replacements Reserve – During the continuance of a Cash Management Period, the Borrowers are required to reserve monthly $16,122 for a replacement reserve. However, the Borrowers will not be required to make any portion of the monthly recurring replacement deposit if the amount then on deposit in the recurring replacement reserve is equal to or exceeds $386,928.

 

TI/LC Reserve – During the continuance of a Cash Management Period, the Borrowers are required to reserve monthly an amount equal to $96,731 for a TI/LC reserve. However, the Borrowers will not be required to make any portion of the monthly TI/LC reserve deposit if the amount then on deposit in the TI/LC reserve is equal to or exceeds $2,321,544.

 

Ground Rent Reserve – During the continuance of a Cash Management Period, the Borrowers are required to reserve monthly 1/12th of the annual amounts due by each of the Borrowers, as applicable, under the ground leases.

 

Lockbox and Cash Management.The Grand Canal Shoppes Loan Combination is structured with a hard lockbox and springing cash management. The Borrowers are required to direct each tenant of the Grand Canal Shoppes Property to deposit all funds (other than Non-Core Income (as defined below)) directly into the lockbox account, and to deposit any funds received by the Borrowers and property manager, notwithstanding such direction, into the lockbox account within two business days of receipt. Within two business days of written notification of the commencement of a Cash Management Period, the Borrowers are required to establish a lender-controlled cash management account with a cash management bank, into which all funds in the lockbox account will be required to be deposited periodically so long as a Cash Management Period is continuing. So long as a Cash Management Period is continuing, funds in the cash management account are required to be applied (i) to make deposits into the real estate taxes and insurance reserves (if then required) as described above under “Escrows”, (ii) to make deposits into the ground rent reserve as described above under “Escrows” (iii) to pay debt service on the Grand Canal Shoppes Loan Combination, (iv) provided no event of default under the Grand Canal Shoppes Loan Combination is continuing as to which the lender has initiated an enforcement action, to pay operating expenses set forth in the annual budget (which is required to be approved by the lender) and extraordinary operating or capital expenses reasonably approved by the lender, (v) to make deposits into the recurring replacement reserve and the TI/LC reserve, as described above under “Escrows,” (vi) in the event a Cash Sweep Period is continuing, to deposit any excess amount remaining in the lockbox account into an excess cash flow account to be held by the lender as additional security for the Grand Canal Shoppes Loan Combination during the continuance of the Cash Sweep Period and (vii) if no Cash Sweep Period and no event of default under the Grand Canal Shoppes Loan Combination are continuing, all funds in the lockbox account are required to be disbursed to the Borrowers.

 

A “Cash Sweep Period” will commence upon the occurrence of (i) an event of default under the Grand Canal Shoppes Loan Combination and ending if such event of default is cured or waived; (ii) the determination that the debt yield is less than 6.0% as of the end of any calendar year and ending upon the date that the debt yield is equal to or in excess of 6.0% for two consecutive calendar quarters.

 

A “Cash Management Period” will commence upon the occurrence of (i) an event of default under the Grand Canal Shoppes Loan Combination and ending if such event of default is cured or waived or (ii) the determination that the debt yield is less than 6.5% as of the end of any calendar year and ending upon the date that the debt yield is equal to or in excess 6.5% for two consecutive calendar quarters.

 

Non-Core Income” means (i) certain de minimis amounts of rents received directly by the Borrowers from miscellaneous revenue items such as holiday photos and change retrieved from fountains (but excluding rent from Seasonal Leases) and (ii) certain rents generated pursuant to multi-property sponsorship and advertising programs which are directly attributable to the Grand Canal Shoppes Property.

 

Seasonal Leases” means leases and/or license agreements having a maximum term of one year or less.

 

Property Management. The Grand Canal Shoppes property is managed by Brookfield Properties Retail Inc.

 

Current Mezzanine or Secured Subordinate Indebtedness. Concurrently with the funding of the Grand Canal Shoppes Loan, JPMCB, MSBNA, WFB, and GS funded a subordinate loan in the amount of $215.0 million, evidenced by the Grand Canal Shoppes Subordinate Companion Loan. The Grand Canal Shoppes Subordinate Companion Loan carries an interest rate of 6.25000% per annum and is co-terminus with the Grand Canal Shoppes SeniorPari Passu Companion Loans. The Grand Canal Shoppes Loan is subject to an intercreditor agreement. Based on the total combined debt of $975.0 million, the Cut-off Date LTV Ratio, Maturity Date LTV Ration, DSCR based on underwritten NCF and Debt Yield based on UW NOI are illustrated below.

 

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Financial Summary

 

 

Grand Canal Shoppes SeniorPari Passu Loans

 

Grand Canal Shoppes Loan Combination

Cut-off Date Balance$760,000,000 $975,000,000
Cut-off Date LTV Ratio(1)46.30% 59.50%
Maturity Date LTV Ratio(1)46.30% 59.50%
DSCR Based on Underwritten NCF2.46x 1.67x
Debt Yield Based on Underwritten NOI9.60% 7.50%

 

 
(1)The Cut-Off Date LTV Ratio and Maturity Date LTV Ratio are based on the Hypothetical “As-Is” Appraised Value of $1,640,000,000 which is exclusive of any value associated with the Barney’s New York space, which is expected to close in January 2020.

 

Future Mezzanine or Subordinate Indebtedness.Not permitted.

 

Release of Collateral. The Borrowers may obtain the release of a portion of the Grand Canal Shoppes Property comprised of the approximately 84,743 SF, three level space currently demised to Barneys New York (the“Barneys Parcel”) pursuant to a lease, which is expected to expire on January 31, 2020, upon a bona fide third-party sale to a third party not affiliated with the Borrowers or the Grand Canal Shoppes Guarantor, provided that, among other things, and in accordance with the Grand Canal Shoppes Loan Combination documents: (i) no event of default has occurred and is continuing, (ii) the lender has received reasonably satisfactory evidence that all portions of the Barneys Parcel owned by the Borrowers in fee simple have been legally subdivided from all portions of the Grand Canal Shoppes Property remaining after the release, (iii) upon request by the lender, the Borrowers delivered a legal opinion stating that the release does not constitute a “significant modification” of the Grand Canal Shoppes Loan Combination under Section 1001 of the Internal Revenue Code of 1986 or otherwise cause a tax to be imposed on a “prohibited transaction” by any REMIC Trust, (iv) following such release, the LTV (as determined by the lender in its sole discretion using only the portion of the remaining Grand Canal Shoppes Property which constitutes acceptable real estate collateral under the Code for a REMIC Trust) is equal to or less than 125% (provided that the Borrowers may prepay the “qualified amount” as that term is defined in the Internal Revenue Service Revenue Procedure 2010-30, as the same may be amended, modified or supplemented from time to time, in order to meet the foregoing loan-to-value ratio). From and after the release of the Barneys Parcel, without the prior consent of the lender, neither the Borrowers nor any of their affiliates may solicit, cause or facilitate the relocation of any existing tenant at the Grand Canal Shoppes Property to the Barneys Parcel.

 

Terrorism Insurance. The Grand Canal Shoppes Loan Combination documents require that the comprehensive “special perils” insurance policy required to be maintained by the Borrowers provide coverage in an amount equal to the “full replacement cost” of the Grand Canal Shoppes Property. The Grand Canal Shoppes Loan Combination documents also require business income insurance covering no less than the 24-month period commencing at the time of casualty, together with a 12-month extended period of indemnity. Notwithstanding the foregoing, for so long as the Terrorism Risk Insurance Act of 2002, as extended and modified by the Terrorism Risk Insurance Program Reauthorization Act of 2007 and by the Terrorism Risk Insurance Program Reauthorization Act of 2015 (“TRIPRA”) is in effect (including any extensions thereof or if another federal governmental program is in effect relating to “acts of terrorism” which provides substantially similar protections as TRIPRA), and covers both domestic and foreign acts of terrorism, the lender is required to accept terrorism insurance which insures against “covered acts” as defined by TRIPRA (or such other program); provided, however, that the Borrowers will not be obligated to pay terrorism insurance premiums in excess of two times the premium for the “special perils” and business income coverage (excluding any effect of earthquake insurance or terrorism insurance components of such policies) and allocable to the Grand Canal Shoppes Property based on market rates in any policy year, and if the cost of coverage exceeds such cap, the Borrowers are required to purchase the maximum amount of terrorism insurance available with funds equal to the cap. See“Risk Factors—Terrorism Insurance May Not Be Available for All Mortgaged Properties” in the Preliminary Prospectus.

 

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