CHICAGO--(BUSINESS WIRE)--Fitch Ratings has assigned the following ratings and Rating Outlooks to the GRACE 2014-GRCE Mortgage Trust commercial mortgage pass-through certificates:
--$520,598,000 class A 'AAAsf'; Outlook Stable;
--$594,676,000* class X-A 'AA-sf'; Outlook Stable;
--$74,078,000 class B 'AA-sf'; Outlook Stable;
--$51,324,000 class C 'A-sf'; Outlook Stable;
--$18,000,000 class D 'A-sf'; Outlook Stable;
--$96,000,000 class E 'BBB-sf'; Outlook Stable;
--$115,000,000 class F 'BB-sf'; Outlook Stable;
--$25,000,000 class G 'Bsf'; Outlook Stable.
* Interest-only class X-A is equal to the notional balance of class A and class B.
The certificates represent the beneficial ownership in the issuing entity, the primary asset of which is one loan having an aggregate principal balance of approximately $900 million as of the cutoff date and secured by the fee interest in the Grace Building, a 1.5 million sf office building located in the Grand Central submarket of Manhattan. As of March 2014 the property was 91.2% leased by 41 tenants, with major tenants including HBO (20.7% of NRA), Cooley LP (6.8%), Bain & Company (6.1%), Interpublic Group (6.1%) and Tahari ASL (3.9%). The loan was originated by German American Capital Corporation, Bank of America, National Association, and JPMorgan Chase Bank, National Association. Prior to closing, the special servicer was changed from Situs, LLC to Talmage, LLC (rated CLLSS3+ by Fitch).
KEY RATING DRIVERS
Trophy Office Collateral in Prime Manhattan Location: The Grace Building is a well-known class A office tower with iconic design located on Bryant Park, an excellent Manhattan location.
Credit Tenancy: As of March 2014, the property was 91.2% leased by 41 tenants, with six investment-grade rated tenants accounting for approximately 30.8% of the NRA, including Home Box Office (HBO; guaranteed by Time Warner Inc., rated 'BBB+' by Fitch) and Interpublic Group of Companies (rated 'BBB' by Fitch).
Increased Probability that HBO Will Vacate in 2018: Based on information provided at issuance, Fitch considers there an increased probability that HBO (20.7% of the NRA) will vacate their space when their lease expires in December 2018 as part of Time Warner moving to Hudson Yards.
Tenant Concentration and Rollover Risk: During the seven-year loan term 63.4% of the leased NRA rolls.
Leasing Momentum: Over the past year, the property manager has leased approximately 176,000 sf of new, expansion and renewal space with an average lease term of 10 years at an average gross rent of over $91 psf.
Institutional Sponsorship: The Grace Building is 49.9% owned by an affiliate of Trizec Properties, Inc. (controlled by a partnership of Brookfield Office Properties Inc.) and 50% owned by an affiliate of The Swig Company, LLC, who originally developed the property in 1971. The sponsors recently completed $34.5 million in renovations over the past four years including plaza renovations and modernization of the lobby and entrances. The sponsor expects to be able to continue to drive rents upward upon lease expirations.
RATING SENSITIVITIES
Fitch found that the property could withstand a 71.1% decline in value and an approximate 50% decrease in the issuer's net cash flow prior to experiencing $1 of loss to any 'AAAsf' rated class.
Fitch performed several stress scenarios in which the Fitch NCF was stressed. Fitch determined that a 53.9% reduction in Fitch's NCF would cause the notes to break even at a 1.0x DSCR, based on the actual debt service.
Fitch evaluated the sensitivity of the ratings for class A (rated 'AAAsf') and found that a 8% decline in Fitch NCF would result in a one category downgrade, while a 32% decline would result in a downgrade to below investment grade.
Key Rating Drivers and Rating Sensitivities are further described in the accompanying presale report. The presale report is available to all investors on Fitch's web site 'www.fitchratings.com'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (June 6, 2012);
--'Criteria for Analyzing Large Loans in U.S. Commercial Mortgage Transactions' (Sept. 20, 2013);
--'Criteria for Special-Purpose Vehicles in Structured Finance Transactions' (May 30, 2012).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748821
Criteria for Analyzing Large Loans in U.S. Commercial Mortgage Transactions
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=718468
Criteria for Special-Purpose Vehicles in Structured Finance Transactions - Effective 13 June 2011 to 30 May 2012
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=635249
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=834361
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.