A newly constructed San Francisco-area office campus that was built-to-suit for Facebook's virtual reality headquarters is the largest segment of an office-centric, $1.2 billion commercial mortgage securitization sponsored by Goldman Sachs.
A $120 million participation in a $750 million debt package for the 803,000 square-foot Burlingame Point complex accounts for 9.9% of the pool for the deal dubbed Benchmark 2021-B25, according to ratings agency presale reports.
Burlingame Point, a bay-front property 17 miles south of San Francisco, is to be fully occupied by Facebook under a triple-net lease obligation that the social-media giant will assume in May prior to a planned move-in this summer. (In addition, Facebook is investing $171 million into the space itself). Facebook plans it as the research and development headquarters of its Oculus virtual reality subsidiary business.
Burlingame is part of a 59.1% office-property concentration in the conduit deal, a share that Kroll Bond Rating Agency says represents a “significantly higher” proportion of office space among recently issued CMBS multi-borrower securitizations. Office properties have averaged around 35.6% of the asset type in 2021 conduit deals this year, Kroll noted.
While office sites and leases were not as greatly impacted by pandemic-related closings or restrictions as retail or hotel properties in the past year, the long-term impact from future declines in demand for corporate office space has concerned ratings firms.
“While offices have been generally insulated from short term cash flow disruption from COVID-19 owing to longer leases, medium to longer term prospects of the property type are uncertain as the trend to work-from-home becomes more prevalent, which could lead to reduced demand for the asset class,” Kroll’s April 12 report stated.
But the Benchmark deal will carry a projected 2.07x debt-to-service coverage ratio, according to Kroll, and “Class A” type properties like Burlingame make up three of the top 5 loans in the pool.
Another large loan ($90 million) is for an Amazon.com campus site in Seattle, Wash., the third-largest mortgage making up 7.4% of the pool’s outstanding aggregate loan balance.
The Benchmark deal includes 47 loans secured by 76 properties located in many primary-market metropolitan statistical areas, such as San Francisco, New York, Seattle and Houston.
The pool carries two loans that have been previously modified to help borrowers cope with revenue problems stemming from COVID-19 restrictions. A loan for the JW Marriott Nashville (Tenn.) was modified twice since April 2020, in which all monthly deposits for taxes, insurance and FF&E (furniture, fixtures & equipment) were paused until April 2021. The Benchmark trust holds $20 million of the $185 million whole loan.
The trust also has a $16 million loan participation in Live Nation Downtown LA that was amended to provide a rental-rate reduction to parent company Live Nation Worldwide. The Los Angeles live music theater has been closed since the pandemic outbreak in the U.S. and will not be allowed to reopen without California state government approval.
The Benchmark 2021-B25 trust will feature 29 classes of certificates, with 14 receiving principal and interest payments. Kroll, S&P Global Ratings and Fitch Ratings have assigned preliminary triple-A ratings to senior-note classes, while DBRS Morningstar is rating a portion of subordinate notes in the deal, with certificates specific to the loan for the Amazon.com Seattle building – with ratings ranging from AA (low) to B (high).
JPMorgan Securities, Citigroup Global Markets, Goldman and Deutsche Bank are underwriting the deal.
