FWP 1 n897_prets-x1.htm FREE WRITING PROSPECTUS

    FREE WRITING PROSPECTUS
    FILED PURSUANT TO RULE 433
    REGISTRATION FILE NO.: 333-207132-11
     

 

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 MARCH 20, 2017
MAY BE AMENDED OR SUPPLEMENTED PRIOR TO TIME OF SALE

 

STATEMENT REGARDING THIS FREE WRITING PROSPECTUS

  

The depositor has filed a registration statement (including a prospectus) with the SEC (SEC File No. 333-207132) for the offering to which this communication 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., or any other underwriter or dealer participating in this offering will arrange to send to you the prospectus if you request it by calling toll-free 1-800-831-9146.

 

The securities offered by these collateral materials (“Materials”) will be described in greater detail in the prospectus expected to be dated in March 2017 (the “Preliminary Prospectus”) that will be included as part of our registration statement (SEC File No. 333-207132). 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 subject to change. Information in these Materials regarding the securities and the mortgage loans backing any securities discussed in these Materials supersedes all prior information regarding such securities and mortgage loans and will be superseded by any subsequent information delivered prior to the time of sale.

 

The Securities May Not Be a Suitable Investment for You

 

The securities offered by these Materials are not suitable investments for all investors. In particular, you should not purchase any class of securities unless you understand and are able to bear the prepayment, credit, liquidity and market risks associated with that class of securities. For those reasons and for the reasons set forth under the heading “Risk Factors” in the Preliminary Prospectus, the yield to maturity and the aggregate amount and timing of distributions on the offered securities will be subject to material variability from period to period and give rise to the potential for significant loss over the life of those securities. The interaction of these factors and their effects are impossible to predict and are likely to change from time to time. As a result, an investment in the offered securities involves substantial risks and uncertainties and should be considered only by sophisticated institutional investors with substantial investment experience with similar types of securities and who have conducted appropriate due diligence on the mortgage loans and the securities. Potential investors are advised and encouraged to review the Preliminary Prospectus in full and to consult with their legal, tax, accounting and other advisors prior to making any investment in the offered securities described in these Materials.

 

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.

 

1

 

 

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.

 

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LOAN #1: Mack-cali short hills office portfolio

 

Mortgaged Property Information   Mortgage Loan Information
Number of Mortgaged Properties 3   Loan Seller   CREFI
Location (City/State) Short Hills, New Jersey   Cut-off Date Balance(3)   $74,700,000
Property Type Office   Cut-off Date Balance per SF(2)   $217.59
Size (SF) 572,168   Percentage of Initial Pool Balance   7.3%
Total Occupancy as of 10/27/2016 100.0%   Number of Related Mortgage Loans   None
Owned Occupancy as of 10/27/2016 100.0%   Type of Security   Fee Simple
Year Built / Latest Renovation(1) Various / Various   Mortgage Rate   4.06000%
Appraised Value $276,000,000   Original Term to Maturity (Months)   120
Appraisal Date 2/2/2017   Original Amortization Term (Months)   NAP
Borrower Sponsor Mack-Cali Realty Corporation   Original Interest Only Period (Months)   120
Property Management Mack-Cali Realty, L.P.   First Payment Date   5/1/2017
      Maturity Date   4/1/2027
           
Underwritten Revenues $25,918,065        
Underwritten Expenses $7,994,593   Escrows
Underwritten Net Operating Income (NOI) $17,923,472     Upfront Monthly
Underwritten Net Cash Flow (NCF) $16,809,470   Taxes $0 $0(4)
Cut-off Date LTV Ratio(2) 45.1%   Insurance $0 $0(4)
Maturity Date LTV Ratio(2) 45.1%   Replacement Reserve $0 $0(4)
DSCR Based on Underwritten NOI / NCF(2) 3.50x / 3.28x   TI/LC $0 $0(4)
Debt Yield Based on Underwritten NOI / NCF(2) 14.4% / 13.5%   Other(5) $4,373,922 $0

  

Sources and Uses
Sources      $        %      Uses        $       %     
Loan Combination Amount $124,500,000 48.9% Purchase Price $245,000,000 96.3%
Principal’s New Cash Contribution 124,031,334 48.8    Closing Costs $4,971,107 2.0
Other Sources(6) 5,813,695 2.3  Reserves $4,373,922 1.7
           
Total Sources $254,345,029 100.0% Total Uses $254,345,029 100.0%

 

 

(1)See chart below under “—The Mortgaged Properties”.

(2)Calculated based on the aggregate outstanding principal balance of the Mack-Cali Short Hills Office Portfolio Loan Combination (as defined below).

(3)The Mack-Cali Short Hills Office Portfolio Loan (as defined below) has a Cut-off Date Balance of $74,700,000 and represents the controlling note A-1 and the non-controlling note A-2 of the $124,500,000 Mack-Cali Short Hills Office Portfolio Loan Combination, which is evidenced by four pari passu notes and was co-originated by Citi Real Estate Funding Inc. and Goldman Sachs Mortgage Company. The related companion loans are evidenced by the non-controlling note A-3 and note A-4, which have an aggregate outstanding principal balance as of the Cut-off Date of $49,800,000, are currently held by Goldman Sachs Mortgage Company and are expected to be contributed to one or more future commercial mortgage securitization transactions. See “—The Mortgage Loan” below.

(4)The borrowers will be required to fund a reserve in the event a Mack-Cali Short Hills Office Portfolio Trigger Period (as defined below) is continuing or the debt yield is less than 10.5%. See “–Escrows” below.

(5)Upfront Other reserve represents: (i) $3,520,668 for the unfunded obligations reserve, (ii) $513,838 related to common area maintenance overcharges to Dun & Bradstreet at the 103 JFK Parkway building that occurred in 2015 and 2016, (iii) $326,011 for capital expenses to repair the parking garage at the 101 JFK Parkway and 103 JFK Parkway buildings and (iv) $13,405 for deferred maintenance. See “–Escrows” below.

(6)Other Sources consists primarily of $3,520,668 of seller funds contributed to the outstanding landlord obligations reserve and other miscellaneous seller credits and rent related account transfers.

 

The Mortgage Loan. The mortgage loan (the “Mack-Cali Short Hills Office Portfolio Loan”) is part of a loan combination (the “Mack-Cali Short Hills Office Portfolio Loan Combination”) evidenced by four pari passu notes that are together secured by a first mortgage encumbering the borrowers’ fee simple interest in three office buildings, totaling 572,168 SF located in Short Hills, New Jersey (the “Mack-Cali Short Hills Office Portfolio Properties”). The Mack-Cali Short Hills Office Portfolio Loan, which is evidenced by the controlling note A-1 and the non-controlling note A-2, had an aggregate original principal balance of $74,700,000, has an aggregate outstanding principal balance as of the Cut-off Date of $74,700,000 and represents approximately 7.3% of the Initial Pool Balance. The related companion loans, which are evidenced by the non-controlling note A-3 and note A-4, had an aggregate original principal balance of $49,800,000, have an aggregate outstanding principal balance as of the Cut-off Date of $49,800,000, are currently held by Goldman Sachs Mortgage Company and are expected to be contributed to one or more future commercial mortgage securitization transactions. The Mack-Cali Short Hills Office Portfolio Loan Combination, which accrues interest at an interest rate of 4.06000% per annum, was co-originated by Citi Real Estate Funding Inc. and Goldman Sachs Mortgage Company on March 6, 2017, had an original principal balance of $124,500,000 and has an outstanding principal balance as of the Cut-off Date of $124,500,000. The proceeds of the Mack-Cali Short Hills Office Portfolio Loan Combination were primarily used to acquire the Mack-Cali Short Hills Office Portfolio Properties, fund reserves and pay origination costs.

 

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LOAN #1: Mack-cali short hills office portfolio

 

The Mack-Cali Short Hills Office Portfolio Loan Combination had an initial term of 120 months and has a remaining term of 120 months as of the Cut-off Date. The Mack-Cali Short Hills Office Portfolio Loan Combination requires monthly payments of interest only for the term of the Mack-Cali Short Hills Office Portfolio Loan Combination. The scheduled maturity date of the Mack-Cali Short Hills Office Portfolio Loan Combination is the due date in April 2027. At any time after the earlier of the fourth anniversary of the origination of the Mack-Cali Short Hills Office Portfolio Loan Combination and the second anniversary of the securitization of the last portion of the Mack-Cali Short Hills Office Portfolio Loan Combination, the Mack-Cali Short Hills Office 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 Mack-Cali Short Hills Office Portfolio Loan documents. Voluntary prepayment of the Mack-Cali Short Hills Office Portfolio Loan Combination is permitted on or after the due date occurring in January 2027 without payment of any prepayment premium. In the event of a casualty or condemnation for which application of proceeds do not pay off the entire debt, the borrowers can prepay the full debt without payment of any prepayment premium.

 

The Mortgaged Properties. The Mack-Cali Short Hills Office Portfolio Properties are three Class A office buildings totaling 572,168 SF, located in Short Hills, New Jersey. The Mack-Cali Short Hills Office Portfolio Properties consist of three separate buildings on two parcels ranging in size from 123,001 SF to 259,096 SF. The building located at 51 John F. Kennedy Parkway (“51 JFK Parkway”) consists of five floors, the building located at 101 John F. Kennedy Parkway (“101 JFK Parkway”) consists of six floors and the building located at 103 John F. Kennedy Parkway (“103 JFK Parkway”) consists of four floors. The Mack-Cali Short Hills Office Portfolio Properties were constructed between 1980 and 1988 and are 100.0% occupied as of October 27, 2016. The Mack-Cali Short Hills Office Portfolio Properties have an overall weighted-average occupancy rate of 96.1% since 2006. Each of the Mack-Cali Short Hills Office Portfolio Properties features on-site management, a glass atrium lobby, conferencing facilities, dry cleaning, a fitness center and a food court.

 

The following table presents certain information relating to the Mack-Cali Short Hills Office Portfolio Properties:

 

Portfolio Summary

 

Property Name

 

Year Built / Renovated

 

Building GLA

 

Parking Spaces

 

Occupancy(1) 

 

Allocated Cut-off Date Loan Amount

 

% Allocated Cut-off Date Loan Amount 

 

Appraised Value

 

UW Gross Rent $ per SF

 

UW NCF

51 JFK Parkway  1988 / NAP  259,096  995  100.0%  70,000,000  56.2%  $150,000,000  $53.55  $8,964,662
101 JFK Parkway  1980 / 2003  190,071  760  100.0%  33,500,000  26.9     $76,000,000  $39.28  $4,559,847
103 JFK Parkway  1980 / 2003 

123,001

 

533

 

100.0%

 

21,000,000

 

16.9   

 

$50,000,000

 

$40.18

 

$3,284,961 

Total / Wtd. Avg.     572,168  2,288  100.0%  124,500,000  100.0%  $276,000,000  $45.93  $16,809,470

 

 

(1)Underwritten occupancy as of October 27, 2016.

 

The largest tenant at the Mack-Cali Short Hills Office Portfolio Properties is Dun & Bradstreet which occupies 192,281 SF of space between the 101 JFK Parkway and 103 JFK Parkway buildings through March 2023. Dun & Bradstreet is a business services company, headquartered at the Mack-Cali Short Hills Office Portfolio Properties that transforms commercial data into insight and analytics for their customers to rely on in order to make business decisions. Dun & Bradstreet initially executed a 10-year lease to occupy 100% of the 103 JFK Parkway building in October 2002 through September 2012. Since executing its initial lease at the 103 JFK Parkway building, Dun & Bradstreet has extended that lease twice through March 2023 and executed an additional lease for 69,280 SF at the 101 JFK Parkway building, also through March 2023.

 

The second largest tenant at the Mack-Cali Short Hills Office Portfolio Properties is KPMG which occupies 66,606 SF of space in the 51 JFK Parkway building through March 2024. KPMG is a professional services firm and one of the “Big Four” accounting firms, employing more than 189,000 people in 152 countries across their three service lines of audit, tax and advisory. The third largest tenant at the Mack-Cali Short Hills Office Portfolio Properties is Investors Bank which occupies 56,360 SF of space in the 101 JFK Parkway building through November 2019. Investors Bank is a full-service community bank with over $23 billion in assets and a network of over 150 retail branches. Two investment grade tenants, Merrill Lynch and Wells Fargo Advisors, make up the remainder of the five largest tenants based on underwritten base rent, occupying 33,363 SF through October 2021 and 32,108 SF through July 2024, respectively. See the table below for Merrill Lynch and Wells Fargo Advisors credit ratings.

 

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LOAN #1: Mack-cali short hills office portfolio

 

The following table presents certain information relating to the major tenants at the Mack-Cali Short Hills Office Portfolio Properties:

 

Ten Largest Tenants Based on Underwritten Base Rent

 

Tenant Name

 

Credit Rating (Fitch/MIS/S&P)(1)

 

Tenant
GLA
 

 

% of Owned GLA

 

UW Base Rent

 

% of Total
UW Base
Rent
 

 

UW Base
Rent $
per SF
 

 

Lease Expiration

 

Renewal /
Extensions Options

Dun & Bradstreet  NR / NR / NR  192,281  33.6%  $7,412,320  29.4%  $38.55  3/31/2023  2, 5-year options
KPMG(2)  NR / NR / NR  66,606  11.6     3,243,304  12.9    $48.69  3/31/2024  2, 5-year options
Investors Bank  NR / NR / NR  56,360  9.9     1,895,307  7.5  $33.63  11/30/2019  2, 5-year options
Merrill Lynch  A / Baa1 / BBB+  33,363  5.8     1,878,741  7.4  $56.31  10/31/2021  2, 5-year options
Wells Fargo Advisors(3)  AA- / A2 / A  32,108  5.6     1,660,701  6.6  $51.72  7/31/2024  2, 5-year options
Franklin Mutual Advisors  NR / NR / NR  30,202  5.3     1,238,282  4.9  $41.00  9/30/2020  1, 5-year option
RGN Short Hills LLC  NR / NR / NR  20,395  3.6     1,121,725  4.4  $55.00  8/31/2026  1, 5-year option
DLA Piper(4)  NR / NR / NR  21,164  3.7     1,058,200  4.2  $50.00  8/31/2024  1, 5-year option
Energy Capital  NR / NR / NR  19,791  3.5     1,019,237  4.0  $51.50  4/30/2021  1, 5-year option
Dentons US LLP  NR / NR / NR 

18,950

 

3.3   

 

739,050

 

2.9

 

$39.00

  10/31/2020  1, 5-year option
Ten Largest Owned Tenants     491,220  85.9%  $21,266,867  84.3%  $43.29      
Remaining Owned Tenants     80,948  14.1     3,962,591  15.7    $48.95      
Vacant Spaces (Owned Space)    

0

 

0.0   

 

0

 

0.0

 

  $0.00

      
Total / Wtd. Avg. All Owned Tenants  572,168  100.0%  $25,229,458  100.0%  $44.09      
                         

 

 

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

(2)KPMG has the right to reduce up to 20.0% of their space any time after September 30, 2018 upon 12 months’ notice.

(3)Wells Fargo Advisors has a one-time right on July 31, 2023 to terminate their lease.

(4)DLA Piper has a one-time right on June 9, 2020 to terminate their lease.

 

The following table presents certain information relating to the lease rollover schedule at the Mack-Cali Short Hills Office 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

 

% of Total
UW Base Rent
 

 

UW Base Rent $
per SF(3)
 

 

# of Expiring
Tenants
 

MTM  0  0.0%  0.0%  $0  0.0%  $0.00  0
2017  0  0.0     0.0%  0  0.0     $0.00  0
2018  7,942  1.4     1.4%  433,589  1.7     $54.59  3
2019  73,230  12.8     14.2%  2,587,535  10.3     $35.33  3
2020  63,363  11.1     25.3%  2,704,939  10.7     $42.69  4
2021  71,064  12.4     37.7%  3,802,166  15.1     $53.50  4
2022  13,934  2.4     40.1%  695,889  2.8     $49.94  1
2023  192,281  33.6     73.7%  7,412,320  29.4     $38.55  1
2024  129,959  22.7     96.4%  6,471,296  25.6     $49.79  4
2025  0  0.0     96.4%  0  0.0     $0.00  0
2026  20,395  3.6     100.0%  1,121,725  4.4     $55.00  1
2027  0  0.0     100.0%  0  0.0     $0.00  0
2028 & Thereafter  0  0.0     100.0%  0  0.0     $0.00  0
Vacant  0  0.0     100.0%  0  0.0     $0.00  0
Total / Wtd. Avg. 

572,168

 

100.0%

    

$25,229,458

 

100.0%

 

$44.09

 

21

 

 

(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)Underwritten Base Rent includes contractual rent increases through January 1, 2018 and the present value of scheduled rent increases through the end of the lease term for credit tenants.

 

The following table presents certain information relating to historical leasing at the Mack-Cali Short Hills Office Portfolio Properties:

 

Historical Leased %(1)

 

Owned Space

 

2013

 

2014

 

2015

 

As of 10/27/2016

51 JFK Parkway  97.7%  100.0%  100.0%  100.0%
101 JFK Parkway  100.0%  100.0%  100.0%  100.0%
103 JFK Parkway 

100.0%

 

100.0%

 

100.0%

 

100.0% 

Wtd. Avg.  99.0%  100.0%  100.0%  100.0%

 

 

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

 

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LOAN #1: Mack-cali short hills office portfolio

 

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 Mack-Cali Short Hills Office Portfolio Properties:

 

Cash Flow Analysis(1)

 

  

2013

 

2014

 

2015 

 

2016 

 

Underwritten(2)

 

Underwritten

$ per SF(2)

Base Rent(2)(3)  $17,759,035  $19,611,859  $21,031,088  $22,110,079  $24,359,928  $42.57
Contractual Rent Steps(4)  0  0  0  0  869,530  1.52
Gross Up Vacancy  0  0  0  0  0  0.00
Reimbursements  931,150  1,190,005  1,068,338  1,192,973  1,052,986  1.84
Other Income  821,456  1,001,738  1,010,542  965,470  915,097  1.60
Gross Revenue 

$19,511,641

 

$21,803,602

 

$23,109,968

 

$24,268,522

 

$27,197,541

 

$47.53

                   
Vacancy & Credit Loss 

(315)

 

(61,571)

 

(91,111)

 

0

 

(1,279,476)

 

(2.24)

Effective Gross Income  $19,511,326  $21,742,031  $23,018,857  $24,268,522  $25,918,065  $45.30
                   
Real Estate Taxes  $2,035,750  $2,076,666  $2,158,121  $2,185,167  $2,213,474  3.87
Insurance  155,934  165,678  167,553  152,109  246,156  0.43
Management Fee  621,482  662,436  750,174  752,117  777,542  1.36
Other Operating Expenses 

4,342,007

 

4,827,305

 

4,864,277

 

4,638,448

 

4,757,421

 

8.31

Total Operating Expenses  $7,155,173  $7,732,085  $7,940,125  $7,727,841  $7,994,593  $13.97
                   
Net Operating Income  $12,356,153  $14,009,946  $15,078,732  $16,540,681  $17,923,472  $31.33
TI/LC  0  0  0  0  999,568  1.75
Capital Expenditures 

0

 

0

 

0

 

0

 

114,434

 

0.20

Net Cash Flow  $12,356,153  $14,009,946  $15,078,732  $16,540,681  $16,809,470  $29.38
                   
Occupancy  99.0%  100.0%  100.0%  100.0%  100.0%   
NOI Debt Yield  9.9%  11.3%  12.1%  13.3%  14.4%   
NCF DSCR  2.41x  2.73x  2.94x  3.23x  3.28x   

 

 

(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)The increase in Underwritten Base Rent from 2016 is primarily due to (i) $1,093,081 of free rent related to KPMG and RGN Short Hills LLC not being included in 2016 collections, (ii) $837,133 of free rent related to Dun & Bradstreet not being included in 2016 collections and (iii) various tenants’ annual rent increases taking effect during 2016.

(3)The increase in UW Base Rent is related to the expiration of free rent at the 101 JFK Parkway and 51 JFK Parkway buildings.

(4)Contractual Rent Steps are underwritten based upon the actual scheduled rent increases (totaling $627,382) through January 1, 2018 and the present value of scheduled rent increases (totaling $242,148) through the end of the lease term for credit tenants.

 

Appraisal. According to the appraisal dated as of February 2, 2017, the Mack-Cali Short Hills Office Portfolio Properties had an aggregate “as is” appraised value of $276,000,000.

 

Appraisal Approach

 

Value

 

Discount Rate

 

Capitalization Rate

Direct Capitalization Approach  $282,700,000  N/A  6.25% - 6.50%(1)
Discounted Cash Flow Approach  $274,800,000  7.50%  6.75%(2)

 

 

(1)The Direct Capitalization Approach used a 6.25% capitalization rate for the 51 JFK Parkway building and a 6.50% capitalization rate for the 101 JFK Parkway and 103 JFK Parkway buildings.

(2)Represents the terminal capitalization rate.

 

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LOAN #1: Mack-cali short hills office portfolio

 

Environmental Matters. According to three separate Phase I environmental reports, dated December 29, 2016, there are no recognized environmental conditions or recommendations for further action for the Mack-Cali Short Hills Office Portfolio Properties except for the continued implementation of an asbestos operations and maintenance plan.

 

Market Overview and Competition. The Mack-Cali Short Hills Office Portfolio Properties are located within the Short Hills community of Millburn Township, New Jersey in Essex County, which is approximately 25 miles west of midtown Manhattan. Short Hills is known for its affluent demographic base, having been named the “Richest Town in America” in 2014 by Time Magazine and as of year-end 2016 having an average annual household income within a 1-, 3- and 5-mile radius of the Mack-Cali Short Hills Office Portfolio Properties of $207,696, $186,704 and $172,628, respectively. Short Hills is home to many senior executives from some of the largest corporations in the United States, who benefit from the Short Hills train station having direct access into New York Penn Station. In addition, many local residents are senior executives for businesses located at the Mack-Cali Short Hills Office Portfolio Properties such as Dun & Bradstreet. Other major economic drivers for the Short Hills area include the Short Hills Mall, a 1.4 million SF mall that is 100% occupied, which sits across the street from the Mack-Cali Short Hills Office Portfolio Properties and includes anchor tenants such as Bloomingdales, Neiman Marcus, Macy’s and Nordstrom. As of year-end 2016, the population within a 1-, 3- and 5-mile radius of the Mack-Cali Short Hills Office Portfolio Properties was 5,223, 73,258 and 192,051, respectively.

 

The Mack-Cali Short Hills Office Portfolio Properties are located in the West Essex submarket. As of the fourth quarter of 2016, the West Essex office submarket had a total office inventory of approximately 2.1 million SF, with a 2.5% vacancy rate and asking rents of $41.02 per SF. The West Essex submarket has experienced positive net absorption of 3.1% over the last 10 years. Average asking rents in the West Essex submarket have also increased by 43.4% over the last 10 years, during which time the submarket add 673,375 SF of new supply and had a net absorption of 661,357 SF. There was no new office inventory added to the West Essex submarket during 2016 and there are currently no new office projects under development.

 

The appraiser identified five comparable properties for the 51 JFK Parkway building and three comparable properties for the 101 JFK Parkway and 103 JFK Parkway buildings. The following tables present certain information relating to the primary competition for the Mack-Cali Short Hills Office Portfolio Properties:

 

51 JFK Parkway Competitive Set(1)

 

  

51 JFK Parkway (Subject)

 

Waterfront Corporate Center II

 

Waterfront Corporate Center III

 

1 DeForest Avenue 

 

25 Deforest Avenue

 

Summit Executive Center

Location  Short Hills, NJ  Hoboken, NJ  Hoboken, NJ  Summit, NJ  Summit, NJ  Summit, NJ
Year Built  1988  2003  2014  2012  1958  2012
SF  259,096(2)  579,341  507,781  65,670  125,000  256,009
% Occupied  100.0%(2)  93.0%  98.0%  100.0%  100.0%  100.0%
Asking Rent  $42.00 – $57.72(2)  $42.00 – $45.00  $45.00 – $50.00  $46.00 – $48.00  $46.00 – $48.00  $46.00 – $48.00

 

 

(1)Source: Appraisal.

(2)Per the underwritten rent roll dated October 27, 2016.

 

101 JFK Parkway and 103 JFK Parkway Competitive Set(1)

 

  

101 JFK Parkway(Subject)

 

103 JFK Parkway (Subject)

 

150 JFK Parkway

 

7 Giralda Farms 

 

25 Deforest Avenue

Location  Short Hills, NJ  Short Hills, NJ  Short Hills, NJ  Morristown, NJ  Summit, NJ
Year Built  1980  1980  1985  2000  1958
SF  190,071(2)  123,001(2)  247,476  203,000  125,000
% Occupied  100.0%(2)  100.0%(2)  96.9%  53.0%  100.0%
Asking Rent  $35.60 – $43.35(2)  $40.18(2)  $42.00  $34.00 – $38.00  $46.00 – $48.00

 

 

(1)Source: Appraisal.
(2)Per the underwritten rent roll dated October 27, 2016.

 

5

 

 

LOAN #1: Mack-cali short hills office portfolio

 

The Borrowers. The borrowers, 51 JFK Unit L.L.C. (“51 Borrower”) and 101-103 JFK Realty, L.L.C, are single purpose Delaware limited liability companies. Legal counsel to the borrowers delivered a non-consolidation opinion in connection with the origination of the Mack-Cali Short Hills Office Portfolio Loan. The borrower sponsor is Mack-Cali Realty Corporation. Mack-Cali Realty Corporation is a real estate management company with a primary focus on the northeast and assets of over $4.2 billion as of December 31, 2016. As of December 31, 2016 Mack-Cali Realty Corporation owned or had an interest in 248 properties, consisting of 119 office and 110 flex properties totaling approximately 26.6 million SF and 19 multifamily properties containing 5,614 residential units. Mack-Cali Realty Corporation has a history in real estate dating back to the 1940s and initially went public under the name Cali Realty Corporation (NYSE: CLI) in 1994.

 

Escrows. On the origination date of the Mack-Cali Short Hills Office Portfolio Loan Combination, the borrowers funded reserves of (i) $3,520,668 for an unfunded obligations reserve at the Mack-Cali Short Hills Office Portfolio Properties, (ii) $513,838 related to common area maintenance overcharges to Dun & Bradstreet at the 103 JFK Parkway building that occurred in 2015 and 2016, (iii) $326,011 for capital expenses to repair the parking garage at the 101 JFK Parkway and 103 JFK Parkway buildings and (iv) $13,405 for deferred maintenance.

 

The borrowers will not be required to fund monthly reserves to the extent (i) a Mack-Cali Short Hills Office Portfolio Trigger Period is not in effect and (ii) the debt yield is equal to or greater than 10.5%. To the extent either (i) a Mack-Cali Short Hills Office Portfolio Trigger Period is in effect or (ii) the debt yield is less than 10.5%, on each due date, the borrowers will be required to fund (a) 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 ensuing twelve-month period, (b) an insurance reserve in an amount equal to one-twelfth of the amount that the lender estimates will be necessary to pay insurance premiums over the then succeeding twelve-month period, (c) a replacement reserve in an amount of $9,536, and (d) a tenant improvement and leasing commission reserve in an amount of $125,000.

 

In the event General Assessments (as defined below under “—The Condominium”) are adopted and assessed against the Office Unit (as defined below under “—The Condominium”), the borrowers will deposit with the lender an amount equal to six months of any anticipated ongoing assessments pursuant to the condominium’s governing documents, to be held in reserve by the lender.

 

Lockbox and Cash Management. The Mack-Cali Short Hills Office Portfolio Loan Combination requires a lender-controlled hard lockbox account, which is already in place, and into which the borrowers and property manager direct all tenants to directly pay rents. The Mack-Cali Short Hills Office Portfolio Loan Combination also requires the borrowers or property manager to deposit into the lockbox account immediately after receipt all rents and other revenue of any kind from the Mack-Cali Short Hills Office Portfolio Properties received by the borrowers or the property manager. Each borrower opened a separate lockbox for its respective property. Upon the occurrence and during the continuance of a Mack-Cali Short Hills Office Portfolio Trigger Period (as defined below), all funds in the lockbox accounts are to be swept daily to a cash management account under the control of the lender and disbursed to pay debt service, fund reserves and pay operating expenses, after which (x) to the extent a Mack-Cali Short Hills Office Portfolio Trigger Period has occurred and is ongoing, all excess cash flow will be held as additional collateral for the Mack-Cali Short Hills Office Portfolio Loan Combination, and (y) to the extent no Mack-Cali Short Hills Office Portfolio Trigger Period is continuing, all excess cash flow will be disbursed to the borrowers. Prior to the occurrence of a Mack-Cali Short Hills Office Portfolio Trigger Period, all funds in the lockbox account are to be disbursed pursuant to the borrowers’ instructions. Upon an event of default under the Mack-Cali Short Hills Office Portfolio Loan documents, the lender may apply funds to amounts payable under the Mack-Cali Short Hills Office Portfolio Loan Combination in the order of priority it determines.

 

A “Mack-Cali Short Hills Office Portfolio Trigger Period” means a period: (a) commencing upon the earlier of (i) the occurrence of an event of default under the Mack-Cali Short Hills Office Portfolio Loan documents; (ii) the debt yield (as calculated in accordance with the Mack-Cali Short Hills Office Portfolio Loan documents) being less than 8.25%, or (iii) the occurrence of a Mack-Cali Short Hills Office Portfolio Specified Tenant Trigger Period (as defined below); and (b) expiring with regard to clause (a)(i), upon the cure of such event of default, if applicable; with regard to clause (a)(ii), upon the debt yield equaling or exceeding 8.5% for two consecutive calendar quarters; and with respect to clause (a)(iii), upon the Mack-Cali Short Hills Office Portfolio Specified Tenant Trigger Period ceasing to exist in accordance with the terms of the Mack-Cali Short Hills Office Portfolio Loan documents.

 

6

 

 

LOAN #1: Mack-cali short hills office portfolio

 

A “Mack-Cali Short Hills Office Portfolio Specified Tenant Trigger Period” means a period: (a) commencing upon the first to occur of (i) Dun & Bradstreet, any future tenant of the Dun & Bradstreet premises comprising more than 15.0% of the total SF of the Mack-Cali Short Hills Office Portfolio Properties, or any tenant with a lease that contains an option, offer, or right of first refusal to acquire or encumber all or any portion of the Mack-Cali Short Hills Office Portfolio Properties (collectively, a “Mack Specified Tenant”) being in monetary default of the payment of base rent, material monetary default in the payment of any additional rent and/or material non-monetary default under its lease beyond applicable notice and cure periods, (ii) unless the Mack Specified Tenant maintains a long-term unsecured debt rating of at least “BBB-” from S&P and an equivalent rating from each of the other national statistical rating agencies which rate such entity, a Mack Specified Tenant failing to be in actual, physical possession of their space, failing to be open to the public for business during customary hours, and/or “going dark”, (iii) the Mack Specified Tenant providing notice that it is terminating its lease for all or any portion of its premises, (iv) any termination, cancellation or failure to be in full force and effect (including rejection in a bankruptcy or insolvency proceeding) of the Mack Specified Tenant lease, (v) any bankruptcy or similar insolvency of the Mack Specified Tenant and (vi) the Mack Specified Tenant failing to extend or renew the applicable lease for the Mack Specified Tenant space on or prior to the date that is twelve months before expiration of its lease; and (b) expiring upon the first to occur of the lender’s receipt of reasonably acceptable evidence (including an estoppel certificate) of (1) the matter giving rise to the Mack-Cali Short Hills Office Portfolio Specified Tenant Trigger Period has been cured or corrected in accordance with the terms of the Mack-Cali Short Hills Office Portfolio Loan documents or (2) the borrowers re-leasing of the space that was demised pursuant to the applicable tenant’s lease to a new tenant pursuant to a lease entered into in accordance with the applicable terms and conditions under the Mack-Cali Short Hills Office Portfolio Loan documents and such replacement tenant is in physical occupancy of the applicable premises, open for business, and paying full, unabated rent under its lease.

 

Property Management. The Mack-Cali Short Hills Office Portfolio Properties are managed by Mack-Cali Realty, L.P., which is 89.7% owned by Mack-Cali Realty Corporation (and 10.3% owned by certain limited partners). The lender has the right to, or to 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 an involuntary bankruptcy action or proceeding that is not dismissed within 90 days or any voluntary bankruptcy proceeding; (ii) a Mack-Cali Short Hills Office Portfolio Trigger Period has occurred and is continuing under the Mack-Cali Short Hills Office Portfolio Loan documents; (iii) the property manager has engaged in gross negligence, fraud, willful misconduct or misappropriation of funds; or (iv) a default by the property manager has occurred and is continuing under the property management agreement after the expiration of all applicable notice and cure periods. The borrowers have the right to replace the property manager, provided no event of default is continuing under the Mack-Cali Short Hills Office Portfolio Loan documents, with a property manager approved by the lender in writing (which may be conditioned upon receipt of a rating agency confirmation) upon notice to the lender and provided that the replacement does not cause any termination or purchase option or similar right or material adverse effect under certain property documents to occur.

 

The Condominium. The 51 JFK Parkway building is the office unit in a two-unit condominium regime. The condominium is comprised of two separate buildings (the office unit which is part of the collateral (the “Office Unit”), and a hotel unit which is not part of the collateral (the “Hotel Unit”)) that are connected by a parking garage and plaza area, which are general common elements. Each unit owns a 50% interest in the general common elements. There are four members on the condominium board, two of which are appointed by 51 Borrower.

 

Mezzanine or Secured Subordinate Indebtedness. Not permitted.

 

Release of Collateral. The Mack-Cali Short Hills Office Portfolio Loan documents permit, after the expiration of the lockout period, the release from the lien of the mortgage of the 51 JFK Parkway building itself or the 101 JFK Parkway and 103 JFK Parkway buildings together through a partial defeasance provided that conditions under the Mack-Cali Short Hills Office Portfolio Loan documents are satisfied, including, among other requirements: (a) the 51 JFK Parkway building cannot be released prior to the renewal of Dun & Bradstreet’s lease for additional term that expires no less than five years after the Mack-Cali Short Hills Office Portfolio Loan maturity; (b) the borrowers defease the loan in an amount equal to 115% of the allocated loan amount for the applicable property(s) being released; (c) delivery of a REMIC opinion and rating agency confirmation; (d) a debt yield of the greater of (i) the debt yield of the Mack-Cali Short Hills Office Portfolio Properties immediately prior to such release and (ii) 13.5%; (e) a debt service coverage ratio of the greater of (i) the debt service coverage ratio of the Mack-Cali Short Hills Office Portfolio Properties immediately prior to such release and (ii) 3.39x; (f) a maximum loan to value ratio of the lesser of (i) the loan to value ratio that existed prior to such release and (ii) 45.1%; and (g) all legal requirements are satisfied for the remaining Mack-Cali Short Hills Office Portfolio Properties.

 

7

 

 

LOAN #1: Mack-cali short hills office portfolio

 

Terrorism Insurance. The borrowers are required to maintain an “all-risk” insurance policy that provides coverage for terrorism in an amount equal to 100% of the full replacement cost of the Mack-Cali Short Hills Office Portfolio Properties, plus a business interruption insurance policy that provides 18 months of business interruption coverage with an additional 12 month extended period of indemnity, with no deductible in excess of $100,000 (provided, however, that higher deductibles for damage caused by earthquake and windstorm/named storm are permitted so long as such higher deductibles do not exceed 5% of the total insurable value of the applicable individual property with respect to earthquake and windstorm/named storm). See “Risk Factors—Terrorism Insurance May Not Be Available for All Mortgaged Properties” in the Preliminary Prospectus.

 

8

 

 

LOAN #2: 50 broadway

 

Mortgaged Property Information   Mortgage Loan Information
Number of Mortgaged Properties 1   Loan Seller   CREFI
Location (City/State) New York, New York   Cut-off Date Principal Balance   $62,000,000
Property Type Office   Cut-off Date Principal Balance per SF   $176.14
Size (SF) 351,999   Percentage of Initial Pool Balance   6.0%
Total Occupancy as of 3/1/2017 89.6%   Number of Related Mortgage Loans   None
Owned Occupancy as of 3/1/2017 89.6%   Type of Security   Fee Simple
Year Built / Latest Renovation 1927 / NAP   Mortgage Rate   4.13000%
Appraised Value   $150,000,000   Original Term to Maturity (Months)   120
Appraisal Date 2/2/2017   Original Amortization Term (Months)    NAP
Borrower Sponsor United Federation of Teachers, Local 2   Original Interest Only Period (Months) 120
  American Federation of Teachers, AFL-CIO   First Payment Date  5/1/2017
Property Management Cushman & Wakefield U.S., Inc.   Maturity Date                                                                                        4/1/2027
       
       
Underwritten Revenues $15,330,310    
Underwritten Expenses $8,656,674   Escrows
Underwritten Net Operating Income (NOI) $6,673,636     Upfront Monthly
Underwritten Net Cash Flow (NCF) $6,092,748   Taxes $0 $0
Cut-off Date LTV Ratio 41.3%   Insurance $0 $0
Maturity Date LTV Ratio 41.3%   Replacement Reserve $0 $0
DSCR Based on Underwritten NOI / NCF 2.57x / 2.35x   TI/LC $0 $0
Debt Yield Based on Underwritten NOI / NCF 10.8% / 9.8%   Other(1) $739,726 $0

 

Sources and Uses
Sources $ % Uses  $ %
Loan Amount $62,000,000 100.0% Loan Payoff $43,030,479    69.4%
      Principal Equity Distribution 15,874,723 25.6
      Closing Costs 2,355,072 3.8
      Reserves 739,726 1.2
Total Sources $62,000,000 100.0% Total Uses $62,000,000 100.0%
           

 

 

(1)The Upfront Other reserve is comprised of $739,726 for free rent associated with the Seaport-Tees, Inc. lease. See “—Escrows” below.

 

The Mortgage Loan. The mortgage loan (the “50 Broadway Loan”) is evidenced by a note in the original principal amount of $62,000,000 and is secured by a first mortgage encumbering the borrower’s fee simple interest in a multi-tenant office building located in New York, New York (the “50 Broadway Property”). The 50 Broadway Loan was originated by Citi Real Estate Funding Inc. on March 14, 2017 and represents approximately 6.0% of the Initial Pool Balance. The note evidencing the 50 Broadway Loan has an outstanding principal balance as of the Cut-off Date of $62,000,000 and an interest rate of 4.13000% per annum. The proceeds of the 50 Broadway Loan were primarily used to refinance prior debt secured by the 50 Broadway Property, fund reserves, pay origination costs and return equity to the sponsor.

 

The 50 Broadway Loan had an initial term of 120 months and has a remaining term of 120 months as of the Cut-off Date. The 50 Broadway Loan requires monthly payments of interest only on each due date. The scheduled maturity date of the 50 Broadway Loan is the due date in April 2027. At any time after the second anniversary of the securitization Closing Date, the 50 Broadway Loan 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 50 Broadway Loan documents. Voluntary prepayment of the 50 Broadway Loan is permitted on or after the due date occurring in January 2027 without payment of any prepayment premium.

 

The Mortgaged Property. The 50 Broadway Property is comprised of a 351,999 SF, 37-story, multi-tenant office building located in the Financial District office submarket of New York, New York. The 50 Broadway Property is located on the northwest corner of New Street and Exchange Place in lower Manhattan, commonly referred to as downtown Manhattan’s Financial District, the area at the southern tip of Manhattan south of Chambers Street. The 50 Broadway Property has frontage along Broadway and is interconnected, on the second and third floors, with 52 Broadway. Tenants at the 50 Broadway Property have access to amenities, such as a 1,000 person auditorium, a conference center and a full-service cafeteria, in the neighboring 52 Broadway building.

 

The 50 Broadway Property is currently 89.6% occupied as of March 1, 2017. The 50 Broadway Property has a total of 35 tenants consisting of 32 office tenants and 4 retail tenants. In terms of its space utilization, the 50 Broadway Property has 326,624 SF of office space, 21,659 of retail space and 3,706 SF of storage space. The largest tenants at the 50 Broadway Property are the United Federation of Teachers (“UFT”), The Center for Employment Opportunities and the Mental Health Association of NYC. The remaining tenancy is granular with no other tenant accounting for more than 5.0% of the net rentable area.

 

9

 

 

LOAN #2: 50 broadway

 

The following table presents certain information relating to historical leasing at the 50 Broadway Property:

 

Historical Leased %(1)

 

 

2013

2014

2015

2016

As of 3/1/2017(2)

Owned Space 89.1% 86.9% 92.3% 88.2% 89.6%

 

 

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

(2)Based on the underwritten rent roll dated March 1, 2017.

 

The following table presents certain information relating to the major tenants at the 50 Broadway Property:

 

Ten Largest Owned Tenants 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

Lease Expiration

Renewal / Extension Options

United Federation of Teachers(3) NR / NR / NR 93,942 26.7% $4,087,543 30.0% $43.51 8/31/2034 NA
Seaport-Tees, Inc. NR / NR / NR 8,666 2.5 1,500,000 10.9 173.09 8/31/2032 NA
The Center for Employment Opportunities NR / NR / NR 25,807 7.3 889,995 6.5 34.49 7/31/2029 NA
Mental Health Association of NYC NR / NR / NR 18,821 5.3 669,238 4.9 35.56 4/30/2021 NA
Regency International Business NR / NR / NR 16,981 4.8 583,085 4.2 34.34 2/28/2026 1, 5-year option
Center for Hearing and Communication NR / NR / NR 15,029 4.3 522,474 3.8 34.76 12/31/2023  NA
Pret A Manger NR / NR / NR 2,134 0.6 513,042 3.7 240.41 4/30/2024 NA
New York City Department of Education(4) NR / NR / NR 12,752 3.6 468,381 3.4 36.73 12/31/2022  NA
YWCA of New York NR / NR / NR 9,673 2.7 441,531 3.2 45.65 5/31/2022 NA
Doctors Council SEIU NR / NR / NR

7,852 

2.2

358,980

2.6

45.72

7/31/2023 NA
Ten Largest Owned Tenants   211,657 60.1% $10,034,270 73.0% $47.41    
Remaining Tenants   103,579 29.4 3,708,725 27.0 35.81    
Vacant  

36,763

10.4

0

0.0

0.00

   
Total / Wtd. Avg. All Tenants   351,999 100.0% $13,742,995 100.0% $43.60    

 

 

(1)Based on the underwritten rent roll dated March 1, 2017.

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

(3)UFT has the right to downsize its lease at the 50 Broadway Property by a maximum of 11,664 square feet if UFT enters into an acceptable third party replacement lease. UFT may vacate only upon the new tenant taking possession of its space.

(4)New York City Department of Education has an option to terminate its lease any time after December 31, 2018 with 180 days’ prior written notice.

 

The following table presents the lease rollover schedule at the 50 Broadway 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

 

% of Total UW
Base Rent

 

UW Base Rent
$ per SF

 

# of Expiring Tenants

2017   8,859     2.5 %   2.5%     $333,954     2.4 %   $37.70     3  
2018   16,675     4.7     7.3%     605,415     4.4     36.31     4  
2019   6,105     1.7     9.0%     233,297     1.7     38.21     3  
2020   0     0.0     9.0%     0     0.0     0.00     0  
2021   26,285     7.5     16.5%     967,212     7.0     36.80     6  
2022   34,080     9.7     26.1%     1,347,607     9.8     39.54     6  
2023   36,202     10.3     36.4%     1,443,998     10.5     39.89     9  
2024   18,980     5.4     41.8%     1,063,636     7.7     56.04     5  
2025   5,361     1.5     43.3%     122,871     0.9     22.92     3  
2026   20,735     5.9     49.2%     733,151     5.3     35.36     2  
2027   9,785     2.8     52.0%     279,564     2.0     28.57     1  
2028 & Thereafter   132,169     37.5     89.6%     6,612,291     48.1     50.03     8  
Vacant  

36,763

   

10.4

    100.0%    

0

   

0.0

   

0.00

   

0

 
Total / Wtd. Avg.   351,999     100.0 %         $13,742,995     100.0 %   $43.60     50  

 

 

(1)Calculated based on approximate square footage occupied by each Owned Tenant unless otherwise specified.

 

10

 

 

LOAN #2: 50 broadway

 

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 50 Broadway Property:

 

Cash Flow Analysis(1)(2)

 

  2013   2014   2015   2016   CY 12/31/2016   Underwritten  

Underwritten

$ per SF(2)

Base Rent(3) $10,474,186   $11,094,965   $11,484,030   $11,623,787   $11,928,067   $13,589,484   $38.61
Contractual Rent Steps(4) 0   0   0   0   0   153,511   0.44
Gross Up Vacancy 0   0   0   0   0   1,723,056   4.90
Reimbursements 1,355,433   1,398,316   1,478,665   1,161,819   1,431,568   1,033,454   2.94
Other Income(5) 732,251   863,552   791,559   643,465   589,494   553,861   1.57
Gross Revenue

$12,561,870

 

$13,356,833

 

$13,754,254

 

$13,429,071

 

$13,949,129

 

$17,053,366

 

$48.45

                           
Vacancy & Credit Loss

(196,762)

 

(234,185)

 

0

 

0

 

0

 

(1,723,056)

 

(4.90)

Effective Gross Income $12,365,108   $13,122,648   $13,754,254   $13,429,071   $13,949,129   $15,330,310   $43.55
                           
Real Estate Taxes $2,402,411   $2,370,185   $2,508,319   $2,612,613   $2,557,719   $2,625,760   7.46
Insurance 178,689   189,191   206,092   189,191   192,503   194,868   0.55
Management Fee 386,944   398,434   423,175   441,504   457,654   459,909   1.31
Other Operating Expenses

4,571,247

 

4,916,608

 

5,066,332

 

4,600,645

 

5,285,507

 

5,376,137

 

15.27

Total Operating Expenses $7,539,291   $7,874,418   $8,203,918   $7,843,953   $8,493,383   $8,656,674   $24.59
                           
Net Operating Income $4,825,817   $5,248,230   $5,550,336   $5,585,118   $5,455,746   $6,673,636   $18.96
TI/LC 0   0   0   0   0   510,488   1.45
Capital Expenditures

0

 

0

0

 

0

 

0

 

70,400

 

0.20

Net Cash Flow $4,825,817   $5,248,230   $5,550,336   $5,585,118   $5,455,746   $6,092,748   $17.31
                           
Occupancy 89.1%   86.9%   92.3%   88.2%   89.3%   89.6%    
NOI Debt Yield 7.8%   8.5%   9.0%   9.0%   8.8%   10.8%    
NCF DSCR 1.86x   2.02x   2.14x   2.15x   2.10x   2.35x    

 

 

(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)Represents a fiscal year-end of July 31 for the indicated year unless otherwise specified.

(3)The increase in Underwritten Base Rent is due to a new retail lease that commenced on March 1, 2017 for a tenant, Seaport-Tees, Inc. with an annual rent of $1,500,000.

(4)Contractual Rent Steps are underwritten based upon the actual scheduled rent increases through September 1, 2017.

(5)Other Income includes sub-metered electric income, janitorial service revenue, labor/repair revenue, HVAC revenues and miscellaneous other tenant revenue.

 

Appraisal. According to the appraisal, the 50 Broadway Property had an “as-is” appraised value of $150,000,000 as of February 2, 2017.

 

Appraisal Approach

Value 

Discount Rate 

Capitalization Rate 

Direct Capitalization Approach $150,000,000 N/A 4.50%    
Discounted Cash Flow Approach $150,000,000 6.25% 5.00%(1)

 

 

(1)Represents the terminal capitalization rate.

 

Environmental Matters. Based on a Phase I environmental report dated February 10 2017, the environmental consultant did not identify evidence of any recognized environmental conditions or recommendations for further action at the 50 Broadway Property other than the recommendation for the development and implementation of the existing asbestos O&M plan. 

 

Market Overview and Competition. The 50 Broadway Property is located in lower Manhattan within the Financial District office submarket. According to the appraisal, the downtown office market has experienced a flurry of activity with renewed interest in investment in both new and existing developments. Additionally, the Financial District has seen significant growth in recent years due to the completion of the new World Trade Center tower as well as the World Trade Center Transportation Hub. The 50 Broadway Property is well-located along Broadway which is the premier commercial corridor in the Financial District. Primary access to the 50 Broadway Property is provided by the city’s subway system while vehicular access is accommodated by FDR Drive, the West Side Highway, the Brooklyn Bridge and the Manhattan Bridge. As of year-end 2016, the population within a one-, three- and five-mile radius, of the 50 Broadway Property, was 81,257, 812,938 and 2,205,790, respectively. For the same period, the average household income was within a one-, three- and five-mile radius was $188,801, $143,566 and $120,502, respectively. The 50 Broadway Property is part of the Downtown Office market which, as of the fourth quarter of 2016, reported average asking rents of $58.26 per SF with a vacancy rate of 9.5%. The 50 Broadway Property is also part of the Financial District submarket which, as of the fourth quarter of 2016, had average asking rents of $55.62 per SF and a vacancy rate of 9.5%. The appraiser also cited eight office lease comparables in the Downtown Manhattan submarket with a rental range of $42.00 to $56.00 per SF, with an average of $48.18 per SF. Weighted average

 

11

 

 

LOAN #2: 50 broadway

 

gross office rents at the 50 Broadway Property are $43.60 per SF with the appraiser concluding a weighted average rent of $47.85 per SF. Additionally, the appraiser cited nine retail lease comparables in the 50 Broadway Property’s submarket with a rental range of $82.89 to $360.00 per SF. According to the appraisal, the market rent for the grade Broadway retail space, at the 50 Broadway Property, is $250 per SF. Additionally, the appraiser’s concluded market rent for multi-floor Broadway retail space is $140 per SF and $80 per SF for retail space that is not on Broadway (on New Street).

 

The following table presents certain information relating to lease comparables for the 50 Broadway Property:

 

Office Lease Comparables(1)

 

    50 Broadway
(Subject)
  100 Broadway   50 Broad Street   26 Broadway   40 Exchange Place
Distance of subject   --   0.2 miles   0.2 miles   315 feet   0.1 miles
Year Built / Renovated   1927   1897 / 1998   1913 / NAP   1923 / NAP   1893 / 2016
Building SF   351,999(2)   400,000   272,260   860,889   300,000
Total Occupancy   89.6%(2)   86.1%   72.7%   94.4%   83.4%
Tenant   --   NHK Cosmomedia America, Inc.   Worldwide Finances   Eckersley O’Callaghan & Partners LLC   Kaufman, Dolowich & Voluck LLP
Lease SF   8,229(3)   17,426   6,667   7,171   14,200
Base Rent   $37.37(3)   $56.00   $47.21   $46.86   $47.94

 

   

90 Broad Street

 

5 Hanover Square

 

80 Broad Street

 

150 Broadway

   
Distance of subject   0.3 miles   0.3 miles   0.2 miles   0.3 miles    
Year Built / Renovated   1930 / 2006   1962 / 2006   1930 / 2013   1924 / 1986    
Building SF   417,068   338,049   423,403   279,669    
Total Occupancy   87.4%   82.0%   100%   98.9%    
Tenant Sher Tremonte LLP Oxford Economics Ltd Robert Allen Group Studio Daniel Libeskind    
Lease SF   12,223   10,025   25,730   12,500    
Base Rent   $47.25   $49.00   $47.29   $52.43    

 

 

(1)Source: Appraisal.

(2)Per underwritten rent roll dated March 1, 2017.

(3)Represents a weighted average based on leases that were signed by two new office tenants.

 

The Borrower. The borrower is 50 Broadway Realty Corp., a single-purpose, single-asset New York corporation. 50 Broadway Realty Corp. is 100% owned by 50-52 Broadway Realty LLC, which is 100% owned by the United Federation of Teachers, Local 2, American Federation of Teachers, AFL-CIO (“UFT Local 2”). The sponsor for the 50 Broadway Loan is UFT Local 2. The non-recourse carveout guarantor for the 50 Broadway Loan is UFT Local 2. Legal counsel to the borrower delivered a non-consolidation opinion in connection with the origination of the 50 Broadway Loan. UFT was founded in 1960 as the Local 2 of the now 1.4 million-member American Federation of Teachers. UFT is the sole bargaining agent for most of the non-supervisory educators who work in New York City public schools. UFT represents approximately 200,000 members including 100,000 teachers and 25,000 classroom paraprofessionals, along with school secretaries, attendance teachers, guidance counselors, social workers, nurses, speech therapists and over 60,000 retired members.

 

Escrows. In connection with the origination of the 50 Broadway Loan, the borrower funded a reserve of $739,726 for free rent associated with the Seaport-Tees, Inc. lease.

 

Additionally, on each due date, during a Reserve Trigger Period (as defined below), the borrower is required to fund the following reserves with respect to the 50 Broadway Property: (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, (ii) at the option of the lender, if the liability or casualty policy maintained by the borrower does not constitute an approved blanket or umbrella insurance policy under the 50 Broadway Loan documents, an insurance reserve in an amount equal to one-twelfth 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 the amount of $5,867 and (iv) a tenant improvements and leasing commissions reserve in the amount of $29,333, subject to an initial cap of $1,759,995 which amount excludes the upfront deposit.

 

A “Reserve Trigger Period” means a period commencing upon the debt yield falling below 7.5% and expiring upon the date that debt yield is equal to or greater than 7.75% for two consecutive calendar quarters.

 

Lockbox and Cash Management. The 50 Broadway Loan documents require a hard lockbox with springing cash management. The 50 Broadway Loan documents require the borrower to deliver tenant direction letters at closing, which will, at such time, direct tenants to pay rent directly to a lender-controlled lockbox account and require that all other money received by the borrower with respect to the 50 Broadway Property be promptly deposited into such lockbox account during the term of the 50 Broadway Loan. During the continuance of a 50 Broadway Trigger Period

 

12

 

 

LOAN #2: 50 broadway

 

(as defined below) and/or a Reserve Trigger Period, all amounts in the lockbox account are required to be swept to a lender-controlled cash management account on a daily basis and, provided no event of default under the 50 Broadway Loan documents is continuing, applied to payment of debt service and funding of required reserves, with the remainder (i) to the extent a 50 Broadway Trigger Period (and not merely a Reserve Trigger Period) is continuing, first applied to pay monthly operating expenses and then deposited into an excess cash flow reserve and held by the lender as additional collateral for the 50 Broadway Loan and (ii) to the extent no 50 Broadway Trigger Period is continuing, to be swept into the borrower’s operating account. After the occurrence and during the continuance of an event of default under the 50 Broadway Loan documents, the lender may apply any funds in the cash management account to amounts payable under the 50 Broadway Loan (and/or toward the payment of expenses of the 50 Broadway Property), in such order of priority as the lender may determine.

 

A “50 Broadway Trigger Period” means a period commencing upon the earliest of (i) the occurrence and continuance of an event of default under the 50 Broadway Loan documents, (ii) the debt yield being less than 6.50%, (iii) the occurrence of a 50 Broadway Specified Tenant Trigger Period (as defined below) and (iv) the borrower failing to cause each of the building code violations to be cured within the time period set forth in the 50 Broadway Loan agreement and expiring upon (w) with regard to any 50 Broadway Trigger Period commenced in connection with clause (i) above, the cure (if applicable) of such event of default, (x) with regard to any 50 Broadway Trigger Period commenced in connection with clause (ii) above, the date that the debt yield is equal to or greater than 6.75% for two consecutive calendar quarters, (y) with regard to any 50 Broadway Trigger Period commenced in connection with clause (iii) above, a 50 Broadway Specified Tenant Trigger Period ceasing to exist and (z) with regard to any 50 Broadway Trigger Period commenced in connection with clause (iv) above, the borrower causing each of the building code violations to be cured in accordance with the 50 Broadway Loan agreement.

 

A “50 Broadway Specified Tenant Trigger Period” means a period (A) commencing upon the first to occur of (i) UFT (or any subsequent lessee of the UFT space) being in default under its lease beyond applicable notice and cure periods, (ii) UFT (or any subsequent lessee of the UFT space) failing to be in actual, physical possession of at least 50,162 SF of its space for any reason other than a renovation or restoration, (iii) UFT (or any subsequent lessee of the UFT space) giving notice that it is terminating its lease for all or any portion of its space in excess of 11,664 SF, (iv) any termination, cancellation or failure to be in full force and effect of the UFT (or any subsequent lessee of the UFT space) lease and (v) any bankruptcy or similar insolvency of UFT (or any subsequent lessee of the UFT space), including any bankruptcy or insolvency proceeding pursuant to which the UFT (or any subsequent lessee of the UFT space) lease is rejected; and (B) expiring upon (1) the satisfaction of cure conditions in accordance with the 50 Broadway Loan documents or (2) the borrower re-leasing the entire space that was demised pursuant to the UFT lease (or applicable portion thereof) to one or more new tenants in accordance with the 50 Broadway Loan documents and the applicable new tenant under such lease being in actual, physical occupancy of the space demised under its lease, and paying the full amount of the rent then due under its lease.

 

Property Management. The 50 Broadway Property is managed by Cushman & Wakefield U.S., Inc., a third-party manager. The lender has the right to direct the borrower to terminate the property management agreement and replace the property manager if (i) the property manager becomes insolvent or a debtor in an involuntary bankruptcy or insolvency proceeding not dismissed within 90 days or any voluntary bankruptcy or insolvency proceeding; (ii) an event of default under the 50 Broadway Loan documents has occurred and is continuing; (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. The borrower has the right to replace the property manager, provided no event of default is continuing under the 50 Broadway Loan documents and upon 60 days’ prior notice to the lender, with a property manager approved by the lender in writing (which may be conditioned upon receipt of a rating agency confirmation).

 

Mezzanine or Secured Subordinate Indebtedness. 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 100% of the full replacement cost of the 50 Broadway Property with no deductible in excess of $100,000 (except with respect to earthquake and windstorm coverage), plus a business interruption insurance policy that provides 18 months of business interruption coverage with an additional extended period of indemnity for up to six months after the physical loss has been repaired. See “Risk Factors—Terrorism Insurance May Not Be Available for All Mortgaged Properties” in the Preliminary Prospectus.

 

13

 

 

LOAN #3: KEY CENTER CLEVELAND

           
Mortgaged Property Information   Mortgage Loan Information
Number of Mortgaged Properties 1   Loan Seller   CREFI
Location (City/State) Cleveland, Ohio   Cut-off Date Balance(6)   $50,000,000
Property Type(1) Mixed Use   Cut-off Date Balance per SF(5)   $92.07
Property Size (SF)(1) 2,389,441   Percentage of Initial Pool Balance   4.9%
Total Occupancy(2) Various   Number of Related Mortgage Loans None
Owned Occupancy(2) Various   Type of Security(7)   Fee Simple / Leasehold
Year Built / Latest Renovation 1991 / 2015   Mortgage Rate   5.31000%
Appraised Value(3) $362,000,000   Original Term to Maturity (Months) 120
Appraisal Date 12/1/2017   Original Amortization Term (Months) 300
Borrower Sponsor Frank T. Sinito   Original  Interest Only Term (Months) 24
Property Management(4) Various   First Payment Date   3/6/2017
      Maturity Date   2/6/2027
Underwritten Revenues $67,329,103    
Underwritten Expenses $39,219,781   Escrows
Underwritten Net Operating Income (NOI) $28,109,322     Upfront Monthly
Underwritten Net Cash Flow (NCF) $25,327,136   Taxes $1,540,363 $770,181
Cut-off Date LTV Ratio(3)(5) 60.8%   Insurance $55,406 $27,703
Maturity Date LTV Ratio(3)(5) 49.6%   Replacement Reserve(8) $20,262,985 $29,284
DSCR Based on Underwritten NOI / NCF(5) 1.77x / 1.59x   TI/LC $0 $110,513
Debt Yield Based on Underwritten NOI / NCF(5) 12.8% / 11.5%   Other $28,786,799(9) $5,000(10)
             

Sources and Uses
Sources $       % Uses         $         %
Loan Combination Amount $220,000,000    66.7% Purchase Price $267,500,000    81.1%
Principal’s Equity Contribution(11) 60,845,008 18.5 Reserves 50,645,552 15.4
Mezzanine Loan 42,500,000 12.9 Closing Costs 11,588,828   3.5
Other Sources(12) 6,389,372  1.9      
Total Sources $329,734,380 100.0% Total Uses $329,734,380 100.0%

 

 

(1)The Key Center Cleveland Property (as defined below) consists of a 1,369,980 SF office building (“Key Tower”), 400-room, 699,871 SF, full service hotel (“Marriott Cleveland Downtown”), and 985-space, 319,590 SF, parking garage (“Key Center Parking Garage Component”).
(2)Total Occupancy and Owned Occupancy at the Key Center Cleveland Property are both (i) 92.9% occupied for Key Tower as of October 19, 2016 which includes the tenants Forest City and Millennia, which are expected to take occupancy at a later date and (ii) 66.2% occupied for the Marriott Cleveland Downtown for TTM December 31, 2016, respectively.
(3)The Appraised Value of $362,000,000 represents the Key Center Cleveland Property’s combined “As Complete” as of December 1, 2017, which is the date upon which all capital improvement is expected to be completed at the Key Center Cleveland Property. The Appraised Value of $362,000,000 consists of (i) $253,800,000 for Key Tower, (ii) $77,000,000 for Marriott Cleveland Downtown, and (iii) $31,200,000 for the Key Center Parking Garage Component. The combined “As-Is” appraised value of $304,100,000 as of December 1, 2016 results in a Cut-off Date LTV Ratio and Maturity Date LTV Ratio of 72.3% and 59.0%, respectively. See “—Appraisal” below.
(4)Key Tower is managed by Millennia Housing Management, Ltd. and Jacobs Real Estate Services LLC. Marriott Cleveland Downtown is managed by Marriott Hotel Services, Inc. The Key Center Parking Garage Component is managed by SP Plus Corporation.
(5)Calculated based on the aggregate outstanding principal balance of the Key Center Cleveland Loan Combination (as defined below).
(6)The Cut-off Date Balance of $50,000,000 represents the controlling note A-1 of a $220,000,000 Key Center Cleveland Loan Combination, which is evidenced by six pari passu notes. The related companion loans are evidenced by (i) the non-controlling notes A-2 and A-5 with an aggregate outstanding principal balance as of the Cut-off Date of $80,000,000 are currently held by Bank of America, N.A. and are expected to be contributed to one or more future securitization transactions, (ii) the non-controlling notes A-3 and A-6, which have an aggregate outstanding principal balance as of the Cut-off Date of $60,000,000 are currently held by Deutsche Bank AG, New York Branch and are expected to be contributed to the JPMDB 2017-C5 securitization transaction and (iii) the non-controlling note A-4 with an outstanding principal balance as of the Cut-off Date of $30,000,000 is currently held by Citi Real Estate Funding Inc. and is expected to be contributed to one or more future securitization transactions.
(7)The collateral for the Key Center Cleveland Loan (as defined below) includes the borrower’s fee simple interests in Key Tower and Marriott Cleveland Downtown as well as leasehold interest in the Key Center Parking Garage Component. See “—The Mortgaged Property, Market Overview and Competition” below.
(8)The Upfront Replacement Reserve includes $13,542,750 in planned capital improvements for the Marriott Cleveland Downtown with the remainder in planned capital improvements to Key Tower and other related costs. $1,991,429 of the $20,262,985 in Replacement Reserves is currently held in an FF&E reserve account with Marriott Hotel Services as the hotel manager for Marriott Cleveland Downtown. The Replacement Reserve (excluding the portion controlled by Marriott Hotel Services) is capped at $1,757,065 after the upfront Replacement Reserve. See “—Escrows” below.
(9)Other Upfront escrow of $28,786,799 consists of (i) $18,461,400 for outstanding tenant improvements related to the Forest City and Millennia tenants, (ii) $5,608,359 for outstanding tenant improvements related to the Thompson Hine LLP tenant, (iii) $4,652,415 for estimated property improvement costs in connection with the anticipated renewal of Marriott Cleveland Downtown’s management agreement with Marriott Hotel Services, Inc. in 2021, and (iv) $64,625 for deferred maintenance.
(10)The Other Monthly escrow represents collections for ground rent payable under the Key Center Parking Garage Component’s ground lease.
(11)On the origination date, the borrower provided two letters of credit in the aggregate amount of $5,175,296 associated with gap rent for the Forest City and Millennia tenants which was not included in the calculation of the Principal’s Equity Contribution. See “—Escrows” below.
(12)Other Sources include $5,608,359 transferred to the borrower sponsor from the seller at loan origination which was related to outstanding tenant improvements for the Thompson Hine LLP tenant.

 

The Mortgage Loan. The mortgage loan (the “Key Center Cleveland Loan”) is part of a loan combination (the “Key Center Cleveland Loan Combination”) evidenced by six pari passu notes that are together secured by a first mortgage encumbering the borrower’s fee simple interest in a 1,369,980 SF office building and a 400-room full service hotel and leasehold interest in an adjacent, subterranean 985 space parking garage, located in Cleveland, Ohio (the “Key Center Cleveland Property”). The Key Center Cleveland Loan, which is evidenced by note A-1 and represents a controlling interest in the Key Center Cleveland Loan Combination, had an original principal balance of $50,000,000, has an outstanding aggregate principal balance of as of the Cut-off Date of $50,000,000 and represents 4.9% of the Initial Pool Balance. The related companion loans (the “Key Center Cleveland Companion Loans”), which are evidenced by the following five pari passu notes: (i) non-controlling notes A-2 and A-5, which had an aggregate original principal balance of $80,000,000, and have an aggregate outstanding principal balance as of the Cut-off Date of $80,000,000, and are currently held by Bank of America, N.A. and are expected to be contributed to one or more future securitization transactions; (ii) non-controlling notes A-3 and A-6, which had an aggregate original principal balance of $60,000,000, have an aggregate outstanding principal balance as of the Cut-off Date of $60,000,000, and are currently held by Deutsche Bank AG, New York Branch and expected to be contributed to the JPMDB 2017-C5 securitization transaction; and (iii) non-controlling note A-4, which had an original principal balance of $30,000,000, has an outstanding principal balance as of the Cut-off Date of $30,000,000, is currently held by Citi

 

14

 

 

LOAN #3: KEY CENTER CLEVELAND

 

 Real Estate Funding Inc. and is expected to be contributed to one or more future securitization transactions. The Key Center Cleveland Loan Combination, which has an interest rate of 5.31000% per annum, was co-originated by Deutsche Bank AG, New York Branch, Bank of America, N.A. and Citi Real Estate Funding Inc. on January 31, 2017. The proceeds of the Key Center Cleveland Loan Combination were primarily used to acquire the Key Center Cleveland Property and pay loan origination costs and fund upfront reserves. The Key Center Cleveland Loan Combination will be serviced under the CGCMT 2017-P7 Pooling and Servicing Agreement. See “Description of the Mortgage Pool – The Loan Combinations” in the Preliminary Prospectus for more information regarding the co-lender agreement that governs the relative rights of the holders of the Key Center Cleveland Loan and the Key Center Cleveland Companion Loans.

 

The Key Center Cleveland Loan Combination had an initial term of 120 months and has a remaining term of 118 months as of the Cut-off Date. The Key Center Cleveland Loan Combination requires payment of interest only until the due date in March 2019 and thereafter, payments of principal and interest based on a 25-year amortization schedule. The scheduled maturity date of the Key Center Cleveland Loan Combination is the due date in February 2027. Voluntary prepayment of the Key Center Cleveland Loan Combination without payment of any prepayment premium is permitted on or after the due date in November 2026. Defeasance, in full, but not in part, of the Key Center Cleveland Loan Combination with direct, non-callable obligations of the United States of America or other obligations which are “government securities” is permitted under the Key Center Cleveland Loan documents at any time after the earlier of 42 months following origination of the Key Center Cleveland Loan Combination and the second anniversary of the securitization of the last portion of the Key Center Cleveland Loan Combination.

 

The Mortgaged Property, Market Overview and Competition. The Key Center Cleveland Property is located in downtown Cleveland, Ohio, within Cuyahoga County and consists of a 1,369,980 SF office building (“Key Tower”), a 400-room full service hotel (“Marriott Cleveland Downtown”), and a 985 space subterranean parking garage (“Key Center Parking Garage Component”). The Key Center Cleveland Property is located on three separate parcels over a 2.14-acre site at 127 Public Square in Cleveland, Ohio. The Key Center Cleveland Property takes up a full city block and is located between 2 arteries and 2 commercial corridors. The immediate area is urban in nature and has a mix of commercial uses, including retail, office and multifamily developments. Local transportation is provided by the Greater Cleveland Regional Transit Authority (“RTA”). There are several stops in the immediate vicinity located along East 9th Street and St. Clair Avenue. The Key Center Cleveland Property is located approximately 13.5 miles northeast of the Cleveland Hopkins International Airport.

 

Cleveland has a diversified economy with a large presence in education, technology, finance, biotechnology, and healthcare. The top five employers in the Cleveland area are Cleveland Clinic (34,000 employees), US Office of Personnel Management (15,095), University Hospitals (13,726), Giant Eagle (10,311), and Progressive Corporation (8,612). According to a third party report, the 2016 population within a 1-, 3-, and 5-mile radius of the Key Center Cleveland Property was 11,685, 75,091, and 239,627, respectively. According to a third party report, the 2016 average household income within a 1-, 3-, and 5-mile radius of the Key Center Cleveland Property was $65,299, $41,254, $39,712, respectively.

 

Key Tower

 

Key Tower was built in 1991 and contains 1,369,980 SF over 57 stories. Key Tower was designed by architect Cesar Pelli and is currently the tallest building in Ohio. The building provides views of Lake Erie, FirstEnergy Stadium, City Hall, and the Cleveland Skyline. Key Tower features a spacious and ornate lobby with four separate street entrances and access to the underground parking facilities between Key Tower and the Marriott Cleveland Downtown lobbies.

 

Key Tower is currently 92.9% leased to approximately 36 tenants and historical occupancy has averaged 90% since 2006. The largest tenant at Key Tower is KeyBank National Association (NYSE: KEY, Fitch / Moody’s / S&P: A- / Aa3 / A-) (“KeyBank”) who has been operating its headquarters there since 1992 and currently occupies 34.9% of the net rentable area (“NRA”). KeyBank is one of the largest bank-based financial services companies in the United States, with $95.1 billion in total assets as of year-end 2015.

 

KeyBank has reportedly invested approximately $24 million in its space since 2013. KeyBank’s lease expires in June 2030 and provides for three, five-year renewal options remaining as well as an option to contract its space up to 103,000 SF in three installments over a six-year period beginning in July 2020. KeyBank may elect to contract its premise by 44,000 SF any time after July 2020. Then, after three-year lockout periods, they may elect to contract its premise by another 44,000 SF and 15,000 SF, respectively. KeyBank must give 12 months’ notice prior to exercising each contraction option and pay a termination fee which will consist of unamortized tenant improvement and leasing commission costs as well as rent penalty.

 

15

 

 

LOAN #3: KEY CENTER CLEVELAND

 

Other large tenants in the building include law firms such as Squire Patton Boggs, Thompson Hine LLP and Baker Hostetler LLP as well as accounting and consulting firms such as Deloitte LLP and PricewaterhouseCoopers. The top five tenants by NRA have been at Key Tower on average approximately 18.3 years and have a weighted average remaining lease term of 12.6 years.

 

The following table presents certain information relating to historical leasing at Key Tower:

 

Historical Leased %(1)

 

2013

2014

2015

As of
10/19/2016(2)

Owned Space 89.7% 86.4% 80.3% 92.9%

 

 

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

(2)Based on underwritten rent roll dated October 19, 2016.

 

The following table presents certain information relating to the ten largest tenants at Key Tower:

 

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(3) 

% of Total UW Base Rent 

UW Base Rent $ per SF(3) 

Lease Expiration 

Renewal / Extension Options 

KeyBank A- / Aa3 / A- 477,781 34.9%  $15,097,040 40.1%  $31.60            6/30/2030(4) 3, 5-year options
Squire Patton Boggs NR / NR / NR 150,890 11.0 4,987,280 13.2 $33.05            4/30/2022(5) 2, 5-year options(6)
Forest City(7) BB- / NR / NR 147,795 10.8 3,990,465 10.6 $27.00         3/31/2033 3, 5-year options
Thompson Hine LLP NR / NR / NR 125,120 9.1 3,447,532 9.2 $27.55             9/30/2029(8) (9)
Baker Hostetler LLP NR / NR / NR 115,615 8.4 3,308,369 8.8 $28.62       10/31/2031 3, 5-year options
Millennia(10) NR / NR / NR 45,360 3.3 1,247,400 3.3 $27.50        6/30/2032 2, 5-year options
Deloitte LLP NR / NR / NR 41,718 3.0 1,220,252 3.2 $29.25             7/31/2024(11) 2, 5-year options
PricewaterhouseCoopers NR / NR / NR 16,385 1.2 552,175 1.5 $33.70         3/31/2019 1, 5-year option
Amin, Turocy & Watson NR / NR / NR 13,887 1.0 475,859 1.3 $34.27       11/30/2018 2, 5-year options
Ogletree NR / NR / NR

14,589    

1.1        

417,778     

1.1        

$28.64 

        6/30/2025 2, 5-year options
Ten Largest Owned Tenants   1,149,140 83.9%  $34,744,149 92.3%  $30.23    
Remaining Owned Tenants   123,595 9.0 2,912,016 7.7 $23.56    
Vacant Spaces (Owned Space)  

97,245    

7.1        

0    

0.0         

$0.00 

   
Total / Wtd. Avg. All Owned Tenants   1,369,980 100.0%  $37,656,164 100.0%  $29.59    
                   

 

(1)Based on the underwritten rent roll dated October 19, 2016.

(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 SF include contractual rent increases through May 1, 2017 and the present value of rent steps for KeyBank and Jones Lang LaSalle GR.

(4)KeyBank has an option to contract its space by 44,000 SF any time after July 2020. Then, after three-year lockout periods, they may contract its space by another 44,000 SF and 15,000 SF, respectively. KeyBank must provide 12 months’ notice for each contraction option as well as pay a termination fee which consists of unamortized tenant improvement and leasing commission costs as well as rent penalty.

(5)Squire Patton Boggs has the option to reduce the size of its premises to no less than six full floors in Key Tower without a penalty at the time Squire Patton Boggs exercises the first renewal option, the second renewal option or the ten year renewal option. The six full floors must be contiguous and located either at the top or bottom of the stack of floors leased by Squire Patton Boggs at the time the tenant makes such election.

(6)In lieu of 2, 5-year options, Squire Patton Boggs is permitted to exercise 1, 10-year extension option.

(7)Forest City is not yet in occupancy or paying rent. Forest City is expected to commence paying rent no later than April 1, 2018. At the origination date, the borrower provided the lender a letter of credit in the amount of $4,655,546, in respect of gap rent for Forest City. Forest City has the one-time option to contract its space by no less than one-half and not more than one full floor on March 31, 2023 upon 12 months prior notice.

(8)Thompson Hine LLP has a one-time right with 12-months’ notice to reduce a contiguous portion of its premises by at least one-half and not more than a full floor of either (i) any single, non-contiguous floor of the premises or (ii) the lower or highest full floor of any contiguous block of floors within Key Tower, as designed by Thompson Hine LLP, provided if such contraction is for less than a full floor, such contraction space has elevator lobby exposure and a marketable configuration as reasonably determined by the landlord, effective upon either October 1, 2023 or October 1, 2025.

(9)Thompson Hine LLP has the option to extend the term of its lease for either one year until September 30, 2030 or five years until September 30, 2034. If Thompson Hine LLP exercises its option to extend for five years until September 30, 2034, Thompson Hine LLP will have an additional option to extend the term of its lease for one additional year until either September 30, 2035 or for five additional years until September 30, 2039.

(10)Millennia is an affiliate of the borrower. Millennia is not yet in occupancy or paying rent and is expected to commence paying rent no later than July 1, 2017. At the origination date, the borrower provided the lender a letter of credit in the amount of $519,750, in respect of gap rent for Millennia.

(11)Deloitte LLP has a one-time right, exercisable no later than April 30, 2018, to reduce a contiguous portion of its premises located on the lowest or highest of the contiguous portion of its premises including the 33rd and 34th floors of the building, effective on April 30, 2019.

 

16

 

 

LOAN #3: KEY CENTER CLEVELAND

 

The following table presents certain information relating to the lease rollover schedule at Key Tower, 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   3,353   0.2%   0.2%   $97,237   0.3%   $29.00   1
2017   14,240   1.0   1.3%   574,472   1.5   $40.34   7
2018   35,869   2.6   3.9%   1,152,639   3.1   $32.13   6
2019   24,251   1.8   5.7%   784,222   2.1   $32.34   2
2020   356   0.0   5.7%   79,602   0.2   $223.59   2
2021   10,705   0.8   6.5%   292,071   0.8   $27.28   2
2022   167,787   12.2   18.7%   5,454,978   14.5   $32.51   3
2023   0   0.0   18.7%   0   0.0   $0.00   0
2024   46,451   3.4   22.1%   1,359,875   3.6   $29.28   2
2025   14,589   1.1   23.2%   417,778   1.1   $28.64   1
2026   0   0.0   23.2%     0   0.0   $0.00   0
2027   37,044   2.7   25.9%     349,785   0.9   $9.44   2
2028 & Thereafter   918,090   67.0   92.9%     27,093,506   71.9   $29.51   8
Vacant   97,245   7.1   100.0%   0   0.0   $$0.00   0
Total / Wtd. Avg.  

1,369,980

 

100.0%        

     

$37,656,164

 

100.0%        

 

$29.59

 

36

 

 

(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.

 

Key Tower is located within the Cleveland CBD office submarket which has a total Class A office inventory of 10.9 million SF and a vacancy rate of 14.9% as of the third quarter of 2016. Over the past four quarters, the CBD Class A office market has experienced no growth of supply. There was also positive net absorption, decrease in vacancy rates and increase of asking rent in the marketplace. The appraiser identified five Class A properties located within the submarket that are the primary competitors of Key Tower. The properties range from 321,311 SF to 1,270,204 SF with occupancies ranging from 89.0% to 93.6% with a weighted average of 90.8%. Average asking rents range from $17.00 per SF to $35.00 per SF with a weighted average of $25.00 per SF on a modified gross basis. The appraiser concluded to a general vacancy rate of 7.0% for Key Tower.

 

The following table presents certain information relating to certain residential lease comparables provided in the appraisal for Key Tower:

 

Office Competitive Set(1)

 

 

Key Tower 

Ernst & Young Tower 

200 Public Square 

Fifth Third Center 

One Cleveland Center 

Skylight Office Center 

Location Cleveland, OH Cleveland, OH Cleveland, OH Cleveland, OH Cleveland, OH Cleveland, OH
Distance from Subject 0.5 miles 0.1 miles 0.2 miles 0.4 miles 0.2 miles
Year Built 1991 2013 1985 1991 1983 1990
SF 1,369,980(2) 550,000 1,270,204 508,400 545,028 321,311
Occupancy % 92.9%(2) 93.6% 91.0% 89.7% 89.0% 90.0%
Average Asking Rent $/SF $29.59(2) $35.00 $20.00 – $27.00 $19.00 - $23.00 $22.00 $17.00 - $25.00

 

 

(1)Source: Appraisal unless otherwise noted.

(2)Based on underwritten rent roll dated October 19, 2016.

 

Key Center Parking Garage Component

 

The Key Center Parking Garage Component contains 985 spaces and is connected to the Key Tower lobby through a separate double elevator bank. The garage features security lighting, video surveillance, and security patrols throughout the day. Valet service is offered at the Marriott Cleveland Downtown entrance. The City of Cleveland owns the land beneath the parking lot and leases it to the borrower sponsor through 2059 with one 34-year extension through 2093 (“Parking Ground Lease”). The Parking Ground Lease requires that at least 45% of the parking spaces be reserved for transient parking and hotel guests, and the remainder of the parking spaces may be leased on a monthly basis. Minimum base rent paid to the city under the Parking Ground Lease is $60,000 per year provided that if the revenue exceeds certain breakpoints (based on the percentage of parking space leased on a monthly basis), percentage rent will also be payable. SP Plus Corporation manages the Key Center Parking Garage Component for a 3.0% fee of net revenue. The term of the parking management agreement is month-to-month with automatic renewals.

 

17

 

 

LOAN #3: KEY CENTER CLEVELAND

 

Marriott Cleveland Downtown

 

Marriott Cleveland Downtown is a 24-story, 400-room, full service lodging facility built in 1991. Amenities at the Marriott Cleveland Downtown include a sports bar (“Jake’s Lounge”) and a modern American restaurant (“David’s Restaurant”) and a 23,000 SF private health club which is for use by hotel guests as well as tenants at Key Tower (“Key Club”). Key Club features an indoor pool, sauna, and fitness room. The Marriott Cleveland Downtown also contains approximately 17,000 SF of meeting space, a ballroom, and a contemporary lobby lounge with TVs. Since 2010 the prior ownership has invested $6.3 million ($15,782/key) in capital expenditures, including over $4.6 million in guestroom upgrades. The Marriott Cleveland Downtown is slated to undergo $13.5 million in capital improvements which includes $3.2 million to update Key Club, $2.6 million to modernize the meeting rooms, $2.0 million to gut renovate David’s Restaurant and $1.4 million to upgrade the hotel lobby.

 

The Key Center Cleveland Property is within close proximity to the Gateway District and local sports venues, Progressive Field (home to Major League Baseball’s Cleveland Indians) and Quicken Loans Arena (home to the National Basketball Association’s Cleveland Cavaliers), both of which are less than one mile away. Playhouse Square, a not-for-profit performing arts center is located 0.7 miles away and is the largest performing arts center outside of New York and features over 1,000 annual events including Broadway shows, dance, concerts, and speakers. Cleveland State University (over 17,000 students) is located 1.0 miles from the Marriott Cleveland Downtown.

 

The approximate distribution of demand of the Marriott Cleveland Downtown is 41% group, 28% leisure, 27% commercial, and 4% extended-stay which generally mirrors that of the market. As of July 2016, top accounts at the Marriott Cleveland Downtown included KeyBank (4.2% of room nights), Greater Cleveland Sports Commissions (2.4%), Association of Healthcare Journal (1.3%), Ernst & Young (1.2%), and Deloitte LLP (1.1%).

 

The following table presents certain information relating to historical occupancy, ADR and RevPAR at the Marriott Cleveland Downtown and its competitive set, as provided in a third-party industry travel research report for the Marriott Cleveland Downtown:

 

Marriott Cleveland Downtown Historical Statistics(1)

 

 

Marriott Cleveland Downtown 

Competitive Set 

Penetration 

                   

Year 

Occupancy 

ADR 

RevPAR 

Occupancy 

ADR 

RevPAR 

Occupancy 

ADR 

RevPAR 

2014 65.8% $159.58 $104.99 67.9% $161.07 $109.31 96.9% 99.1% 96.0%
2015 70.2% $159.52 $111.95 70.4% $162.80 $114.68 99.6% 98.0% 97.6%
2016 66.2% $162.44 $107.51 69.8% $161.00 $112.33 94.9% 100.9% 95.7%

 

 

(1)Source: industry travel research report.

 

Marriott Cleveland Downtown Competitive Set(1)

 

Property 

Number of Rooms 

Year Built 

Marriott Cleveland Downtown 400 1991
Wyndham Cleveland at Playhouse Square 205 1995
Hyatt Regency Cleveland at The Arcade 293 2001
InterContinental Hotel Cleveland 295 2003
Total(2) 793  

 

 

(1)Source: industry travel research report.

(2)Total excludes the Marriott Cleveland Downtown.

 

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LOAN #3: key center CLEVELAND

 

The following table presents certain information relating to the 2015 demand analysis with respect to the Marriott Cleveland Downtown based on market segmentation, as provided in the appraisal for the Marriott Cleveland Downtown:

 

2015 Accommodated Room Night Demand(1)

 

Property  Commercial  Group  Leisure  Extended-Stay
Marriott Cleveland Downtown  27%  41%  28%  4%

 

(1)Source: Appraisal.

 

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, on an aggregate basis and per room, at the Marriott Cleveland Downtown:

 

Marriott Cleveland Downtown Cash Flow Analysis(1)

 

   2013  2014  2015  2016  Underwritten  Underwritten
$ per Room
Room Revenue  $16,240,749   $15,328,051   $16,344,286   $15,738,880   $15,511,405   $38,779 
Food & Beverage Revenue  6,570,035   6,684,994   6,900,689   6,359,302   5,996,176   14,990 
Other Revenue(2)  944,523   880,565   807,358   825,681   584,993   1,462 
Total Revenue  $23,755,307   $22,893,610   $24,052,333   $22,923,863   $22,092,574   $55,231 
                         
Room Expense  $4,304,027   $4,127,235   $4,491,676   $4,060,110   $4,032,965   $10,082 
Food & Beverage Expense  4,861,458   4,876,676   5,101,971   4,744,258   4,437,170   11,093 
Other Expense  955,052   809,103   818,316   736,237   584,993   1,462 
Total Departmental Expense  $10,120,537   $9,813,014   $10,411,963   $9,540,605   $9,055,128   $22,638 
Total Undistributed Expense  6,890,609   6,965,054   7,394,903   7,407,458   7,437,569   18,594 
Total Fixed Charges  1,205,091   1,487,694   1,264,250   1,312,263   1,433,240   3,583 
Total Operating Expenses  $18,216,237   $18,265,762   $19,071,116   $18,260,326   $17,925,937   $44,815 
                         
Net Operating Income  $5,539,070   $4,627,848   $4,981,217   $4,663,537   $4,166,637   $10,417 
FF&E  1,181,285   1,138,580   1,197,413   1,141,811   1,104,629   2,762 
Net Cash Flow  $4,357,785   $3,489,268   $3,783,804   $3,521,726   $3,062,008   $7,655 

 

(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 Revenue consists primarily of vending commissions, guest services, miscellaneous commissions, sales tax discounts, cancellation fees, and attrition fees.

 

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LOAN #3: key center CLEVELAND

 

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 Key Center Cleveland Property:

 

Key Center Cleveland Property Cash Flow Analysis(1)

 

  

2013

 

2014

 

2015

 

2016

 

Underwritten

 

Underwritten

$ per SF / Room

Base Rent(2)  $32,510,214   $31,608,409   $29,936,738   $28,060,735   $35,952,962   $26.24(3)
Contractual Rent Steps(4)  0   0   0   0   1,703,202   1.24(3)
Gross Up Vacancy  0   0   0   0   2,745,589   2.00(3)
Total Reimbursement Revenue  2,348,968   2,690,336   1,319,674   691,479   597,315   0.44(3)
Hotel Revenue  23,755,307   22,893,610   24,052,333   22,923,863   22,092,574   55,231.44(5)
Parking Revenue  4,208,945   3,784,318   3,804,773   4,014,186   3,953,056   12.37(6)
Other Income  3,122,262   3,226,533   4,133,442   3,550,145   3,375,221   2.46(3)
Vacancy & Credit Loss  0   0   0   0   (3,090,816)  (2.26)(3)
Effective Gross Income  $65,945,696   $64,203,206   $63,246,960   $59,240,408   $67,329,103   $28.18(7)
                         
Real Estate Taxes  7,328,456   7,479,510   7,521,235   7,917,113   7,557,705   5.52(3)
Insurance  222,847   213,688   203,536   178,137   205,793   0.15(3)
Management Fee  1,175,941   1,116,060   1,066,322   967,260   1,357,096   0.99(3)
Hotel Expenses  18,216,237   18,265,762   19,071,116   18,260,326   17,925,937   44,814.84(5)
Parking Expenses  1,790,147   1,750,452   1,660,359   1,634,547   1,634,547   5.11(6)
Parking Ground Rent  60,000   60,000   60,000   60,000   60,000   0.19(6)
Other Operating Expenses  9,096,558   9,323,332   10,213,368   10,023,488   10,478,703   7.65(3)
Total Operating Expenses  $37,890,186   $38,208,804   $39,795,936   $39,040,871   $39,219,781   $16.41(7)
                         
Net Operating Income  $28,055,510   $25,994,402   $23,451,024   $20,199,537   $28,109,322   $11.76(7)
TI/LC  0   0   0   0   $1,326,153   0.97(3)
Capital Expenditures  0   0   0   0   $351,405   0.26(3)
Hotel FF&E  1,181,285   1,138,580   1,197,413   1,141,811   1,104,629   2,761.57(5)
Net Cash Flow  $26,874,225   $24,855,822   $22,253,611   $19,057,726   $25,327,136   $10.60(7)
                         
Key Tower Occupancy(8)  89.7%  86.4%  80.3%  81.0%  92.9%    
Marriott Cleveland Downtown Occupancy  71.6%  66.5%  70.9%  66.2%  65.0%    
NOI Debt Yield  12.8%  11.8%  10.7%  9.2%  12.8%    
NCF DSCR  1.69x  1.56x  1.40x  1.20x   1.59x    

 

 

(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)The decline in historical Base Rent was primarily due to KeyBank downsizing its space at Key Tower in an effort to reconfigure employee workspaces. The increase in Base Rent between Underwritten and 2016 was primarily due to newly executed leases with the Forest City and Millennia tenants. Forest City executed a lease for 147,795 SF resulting in an increase to the Underwritten Base Rent of $3,990,465 and Millennia executed a lease for 45,360 SF resulting in an increase to the Underwritten Base Rent of $1,247,400. Both the Forest City and Millennia tenants are not yet in occupancy and have rent commencement dates of no later than April 1, 2018 and July 1, 2017, respectively. The tenant improvement cost, leasing commission cost, and gap rent associated with these tenants were escrowed at loan origination.

(3)Calculated based on the total square footage of Key Tower.

(4)Includes contractual rent increases through May 1, 2017 and the present value of rent steps for investment grade tenants, Jones Lang LaSalle GR and KeyBank.

(5)Calculated based on total rooms at the Marriott Downtown Cleveland.

(6)Calculated based on the total square footage of the Key Center Parking Garage Component.

(7)Calculated based on total square footage of the Key Center Cleveland Property.

(8)Key Tower Occupancy is presented as of December 31 for the specified year unless otherwise noted. Underwritten Key Tower Occupancy is based on underwritten rent roll dated October 19, 2016. 2013 to 2016 figures represent the physical occupancy while the underwritten occupancy represents the economic occupancy.

 

Appraisal. According to the appraisal, the Key Center Cleveland Property has a “prospective value upon completion” of $362,000,000 as of December 1, 2017. The “prospective value upon completion” assumes completion of planned capital improvements to Key Tower and Marriott Cleveland Downtown. The “as is” value for the Key Center Cleveland Property is $304,100,000.

 

Environmental Matters. According to a Phase I environmental report, dated August 11, 2016, there are no recognized environmental conditions or recommendations for further action at the Key Center Cleveland Property other than a recommendation for an asbestos operations and maintenance plan, which is already in place and continual weekly monitoring of the UST.

 

20

 

 

LOAN #3: key center CLEVELAND

 

The Borrower. The borrower is 127 PS Fee Owner LLC, a single-purpose, single-asset entity. Legal counsel to the borrower delivered a non-consolidation opinion in connection with the origination of the Key Center Cleveland Loan Combination. The non-recourse carve-out guarantors are Frank T. Sinito and his wife, Malisse J. Sinito, jointly and severally. Frank T. Sinito is the CEO and President of Millennia Companies which he founded in 1995. Millennia Companies own and manage over 200 multifamily communities totaling over 20,000 residential units across 22 states. The sponsorship includes a joint venture between Frank T. Sinito and Lubert Adler, an institutional real estate fund that has raised over 7 billion of capital and invested in over $17 billion of real estate assets. Frank T. Sinito and Lubert Adler own 38.6% controlling interest and 24.4% non-controlling, limited interest in the borrower, respectively.

 

Escrows. On the origination date of the Key Center Cleveland Loan Combination, the borrower funded escrow reserves of $1,540,363 for real estate taxes, $55,406 for insurance premiums, $20,262,985 for replacement reserve (1,991,429 of which is held by Marriott as property manager for the Marriott Cleveland Downtown), $64,625 for an immediate repair reserve, $24,069,759 for leasing reserve funds and new lease upfront deposits (of which $5,608,358 is held by a third party escrow agent and for which the borrower is not required to fund a reserve provided that certain conditions of the Key Center Cleveland Loan documents are satisfied) and $4,652,415 for estimated property improvement costs related to Marriott Cleveland Downtown. On the origination date, the borrower also provided two letters of credit in the aggregate amount of $5,175,296 to cover free rent associated with the Forest City and Millennia tenants. Provided that no event of default has occurred and subjected to certain conditions being satisfied under the Key Center Cleveland Loan documents, the letters of credit may be reduced to reflect the burn-off of the respective tenant’s free rent period.

 

On each due date, the borrower is required to fund the following reserves with respect to the Key Center Cleveland 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 ensuing twelve month period, initially estimated to be $770,181; (ii) an insurance reserve in an amount equal to one-twelfth of the amount that the lender estimates will be necessary to pay insurance premiums over the then succeeding twelve month period, initially estimated to be $27,703; (iii) a replacement reserve in an amount of $29,284 which amount is capped at $1,757,065, (iv) a tenant improvement and leasing commission reserve in an amount of $110,513, and (v) a ground rent reserve in an amount of $5,000. The borrower is required to fund a monthly FF&E reserve unless (a) Marriott Corporation or an affiliate thereof is the hotel manager, (b) the borrower is required to reserve with the hotel manager an amount not less than the FF&E payment required under the Key Center Cleveland Loan documents, and (c) no event of default is continuing.

 

Lockbox and Cash Management. The Key Center Cleveland Loan Combination is structured with a require a hard lockbox which is already in place and require all tenants to pay their rents and all credit card companies under merchant agreements to pay receipts directly into such lockbox account. All checks and cash received from the hotel manager by the borrower or the property manager are required to be deposited into the lockbox account immediately upon receipt; provided that, so long as Marriott Corporation or its affiliate is the hotel manager, Marriott Corporation is only required to deposit net proceeds payable to the borrower into the lockbox. The funds on deposit in the lockbox account are required to be transferred daily to the cash management account under the control of the lender. On each due date, the Key Center Cleveland Loan documents require that all amounts on deposit in the cash management account will be applied to fund reserves and pay debt service (and mezzanine debt service), and (i) to the extent that a Key Center Cleveland Trigger Period (as defined below) has occurred and is continuing, remaining funds are transferred first, if a PIP reserve is then required under the Key Center Cleveland Loan documents, to the PIP reserve, and then into an excess cash flow account to be held by the lender as additional collateral and (ii) to the extent that no Key Center Cleveland Trigger Period exists, be disbursed to the borrower in accordance with related loan documents. Upon an event of default under the Key Center Cleveland Loan documents, the lender may apply the funds in the cash management account in such priority as it may determine.

 

A “Key Center Cleveland Trigger Period” shall mean a period (A) commencing upon the earliest of: (i) the occurrence and continuance of an event of default, (ii) the debt service coverage ratio when including Key Center Cleveland Mezzanine Loan (as defined below) is less than (a) 1.05x through January 31, 2019 or (b) 1.10x at any time thereafter, (iii) the occurrence of a Key Center Cleveland Specified Tenant Trigger Period (as defined below) or (iv) the occurrence of a Hotel Management Trigger Period (as defined below), and (B) expiring upon: (i) with regard to any Key Center Cleveland Trigger Period commenced in connection with clause (A)(i) above, the cure (if applicable) of such event of default, (ii) with regard to any Key Center Cleveland Trigger Period commenced in connection with clause (A)(ii) above, the date that the debt service coverage ratio is equal to or greater (a) 1.10x for one calendar quarter through January 31, 2019 and (b) 1.15x for one calendar quarter thereafter, (iii) with regard to any Key Center Cleveland Trigger Period commenced in connection with clause (A)(iii) above, a Key Center Cleveland Specified Tenant Trigger Period ceasing to exist and (iv) with regard to any Key Center Cleveland Trigger Period commenced in connection with clause (A)(iv) above, a Hotel Management Trigger Period ceasing to exist.

 

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LOAN #3: key center CLEVELAND

 

Key Center Cleveland Specified Tenant” means, as applicable, (i) KeyBank, (ii) any other lessee(s) of more than 20,000 SF of the space occupied by KeyBank at origination (or any portion thereof), and (iii) any guarantor(s) of such lease.

 

Key Center Cleveland Specified Tenant Trigger Period” means a period: (A) commencing upon the first to occur of: (i) any Key Center Cleveland Specified Tenant being in default under its lease beyond applicable grace and cure periods set forth therein, (ii) any Key Center Cleveland Specified Tenant failing to be in actual, physical possession of any portion of the applicable space in excess of 20,000 SF (except as a result of a qualified casualty event), (iii) any Key Center Cleveland Specified Tenant giving notice that it is terminating its lease for all or any portion of the space (or applicable portion thereof) (other than as a result of an exercise of a contraction option set forth in the lease at origination), (iv) any termination or cancellation of any Key Center Cleveland Specified Tenant lease (including, without limitation, rejection in any bankruptcy or similar insolvency proceeding) and/or any Key Center Cleveland Specified Tenant lease failing to otherwise be in full force and effect, (v) any bankruptcy or similar insolvency of any Key Center Cleveland Specified Tenant, (vi) any Key Center Cleveland Specified Tenant failing to extend or renew its lease on or prior to the earlier to occur of (a) the date occurring one year prior to the expiration of the then applicable term of the applicable Key Center Cleveland Specified Tenant lease or (b) the renewal notice date (if any) set forth in the applicable Key Center Cleveland Specified Tenant lease for a term of at least five years, (vii) any Key Center Cleveland Specified Tenant ceasing to maintain for at least one calendar quarter a long-term unsecured debt rating of at least “BBB-” from S&P and an equivalent rating from each of the other rating agencies which rate such entity, and (viii) any termination or cancellation of the Key Center Cleveland Specified Tenant lease to any portion (but less than all) of the Key Center Cleveland Specified Tenant space; and (B) expiring upon the first to occur of the lender’s receipt of evidence reasonably acceptable to the lender (which such evidence includes a duly executed estoppel certificate from the applicable Key Center Cleveland Specified Tenant in form and substance acceptable to the lender) of: (i) the satisfaction of the Key Center Cleveland Specified Tenant Cure Conditions (defined below) or (ii) the borrower leasing the entire Key Center Cleveland Specified Tenant space (or applicable portion thereof that was partially terminated) in accordance with the applicable terms and conditions of the Key Center Cleveland Loan documents, the applicable tenant under such lease being in actual, physical occupancy of the space demised under its lease and paying the full amount of the rent due under its lease and the borrower depositing into the leasing reserve account funds (which, to the extent that the excess cash flow account contains sufficient funds therefor, shall be transferred from the excess cash flow account to the leasing reserve account) sufficient to pay any leasing costs as reasonably expected to be incurred by the borrower in connection with re-leasing the applicable Key Center Cleveland Specified Tenant space applicable to the Key Center Cleveland Specified Tenant space.

 

Key Center Cleveland Specified Tenant Cure Conditions” means the receipt by the lender of evidence reasonably satisfactory to the lender of the following, as applicable: (i) the applicable Key Center Cleveland Specified Tenant has cured all defaults under the applicable Key Center Cleveland Specified Tenant lease, (ii) the applicable Key Center Cleveland Specified Tenant is in actual, physical possession of the Key Center Cleveland Specified Tenant space (or applicable portion thereof) and the applicable Key Center Cleveland Specified Tenant is paying full, unabated rent under the applicable Key Center Cleveland Specified Tenant lease, (iii) the applicable Key Center Cleveland Specified Tenant has revoked or rescinded all termination or cancellation notices with respect to the applicable Key Center Cleveland Specified Tenant lease and has re-affirmed the applicable Key Center Cleveland Specified Tenant lease as being in full force and effect, (iv) in the event the Key Center Cleveland Specified Tenant Trigger Period is due to the applicable Key Center Cleveland Specified Tenant’s failure to extend or renew the applicable Key Center Cleveland Specified Tenant lease in accordance with clause (A)(vi) of the definition of Key Center Cleveland Specified Tenant Trigger Period, the applicable Key Center Cleveland Specified Tenant has renewed or extended the applicable Key Center Cleveland Specified Tenant lease in accordance with the terms of the Key Center Cleveland Loan documents for a term of at least five years, (v) with respect to any applicable bankruptcy or insolvency proceedings involving the applicable Key Center Cleveland Specified Tenant and/or the applicable Key Center Cleveland Specified Tenant lease, the applicable Key Center Cleveland Specified Tenant is no longer insolvent or subject to any bankruptcy or insolvency proceedings and has affirmed the applicable Key Center Cleveland Specified Tenant lease pursuant to final, non-appealable order of a court of competent jurisdiction, (vi) in the event the Key Center Cleveland Specified Tenant Trigger Period is due to a clause (vii) of Key Center Cleveland Specified Tenant Trigger Period, the applicable Key Center Cleveland Specified Tenant with respect to which such trigger occurred satisfies the credit requirements, and (vii) in the event the Key Center Cleveland Specified Tenant Trigger Period is due to the borrower having deposited or cause to be deposited into the reserve account, an amount equal to $50 per SF terminated.

 

A “Hotel Management Trigger Period” shall mean a period: (A) commencing upon the first to occur of: (i) the occurrence of a default by the borrower or hotel manager under the hotel management agreement, which default continues beyond any applicable grace or cure period, (ii) the borrower or hotel manager giving notice that it is terminating the hotel management agreement or hotel manager failing to renew the hotel management agreement not

 

22

 

 

LOAN #3: key center CLEVELAND

 

later than December 31, 2020, (iii) a Property Improvement Plan (“PIP”) is required in connection with any hotel management agreement (including, but not limited to, as a result of the exercise of hotel manager’s rights pursuant to the hotel management agreement to require, from time to time, a PIP), (iv) any notice of termination, non-renewal or cancellation of the hotel management agreement (including, without limitation, rejection in any bankruptcy or similar insolvency proceeding) and/or the hotel management agreement failing to otherwise be in full force and effect, (v) any bankruptcy or similar insolvency of hotel manager, (vi) the hotel failing to be operated, “flagged” and/or branded pursuant to the hotel management agreement, and (vii) any permits required pursuant to the hotel management agreement ceasing to be in full force in effect; and (B) expiring upon the first to occur of the lender’s receipt of evidence reasonably acceptable to the lender (which such evidence includes, without limitation, a duly executed estoppel certificate from the hotel manager in form and substance reasonably acceptable to the lender) of: (1) the satisfaction of the Hotel Management Cure Conditions (as defined below), and (2) the branding, “flagging” and operation of the hotel pursuant to a hotel management agreement entered into in accordance with the terms of the Key Center Cleveland Loan documents (which agreement is in full force and effect with no defaults thereunder) and the deposit into a PIP reserve account of an amount equal to any required PIP deposit (if any).

 

Hotel Management Cure Conditions” shall mean each of the following, as applicable: (i) all defaults have been cured under the hotel management agreement to the satisfaction of the non-defaulting party, (ii) the borrower and the applicable hotel manager have re-affirmed in writing the hotel management agreement as being in full force and effect, (iii) with respect to any applicable bankruptcy or insolvency proceedings involving the applicable hotel manager and/or hotel management agreement, such hotel manager is no longer insolvent or subject to any bankruptcy or insolvency proceedings and has affirmed such hotel management agreement pursuant to a final, non-appealable order of a court of competent jurisdiction, (iv) the hotel continues to be operated, “flagged” and branded pursuant to the hotel management agreement, (v) all permits applicable to the related hotel management agreement are in full force and effect, and (vi) any required PIP reserve has been deposited.

 

Property Management. The portion of the Key Center Cleveland Property identified as Key Tower is currently managed by Millennia Housing Management, Ltd. and Jacobs Real Estate Services LLC, an affiliate of the borrower, pursuant to a management agreement. The Key Center Parking Garage Component is managed by SP Plus Corporation pursuant to a management agreement. The Key Center Cleveland Loan documents provide that the lender may, or may require the borrower to, replace the property manager with a property manager which is not an affiliate of the borrower, but may be chosen by the borrower and approved by the lender (i) upon the occurrence of an event of default; (ii) if the property manager is in default under the management agreement beyond any applicable notice and cure period; (iii) if property manager becomes involved in any voluntary insolvency or bankruptcy proceeding or any involuntary insolvency or bankruptcy action not dismissed within 90 days and/or (iv) if at any time the property manager has engaged in gross negligence, fraud, willful misconduct or misappropriation of funds. The borrower is permitted to replace the manager provided that (a) no event of default is continuing, (b) the lender receives 30 days’ notice, (c) the replacement does not result in any termination right, right of first refusal, or similar right or fee, (d) the replacement manager is an affiliate of Lubert Adler (so long as Lubert Adler owns an interest in the borrower or is approved by the lender in writing (which approval may be conditioned upon receipt of a ratings agency confirmation) and (e) if the replacement manager is affiliated, delivery of a new non-consolidation opinion.

 

The Marriott Cleveland Downtown is brand-managed by Marriott Hotel Services, Inc. under an agreement which will be expiring in 2021 with three, 10-year renewal periods. The hotel management agreement may be terminated by the borrower if the average operating profit does not equal or exceed $3.3 million for any three consecutive fiscal years.

 

Mezzanine or Subordinate Indebtedness. Concurrently with the funding of the Key Center Cleveland Loan Combination, ACREFI Mortgage Lending, LLC funded a mezzanine loan in the amount of $42,500,000 (the “Key Center Cleveland Mezzanine Loan”) to 127 PS Mezz Borrower, LLC, as mezzanine borrower, which is the direct owner of 100.0% of the limited liability company interests in the borrower. The Key Center Cleveland Mezzanine Loan is secured by a pledge of the mezzanine borrower’s 100% limited liability company interests in the borrower. The Key Center Cleveland Mezzanine Loan carries an interest rate of 12.75000% per annum and is co-terminus with the Key Center Cleveland Loan Combination. The Key Center Cleveland Mezzanine Loan is subject to an intercreditor agreement.

 

23

 

 

LOAN #3: key center CLEVELAND

 

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 Key Center Cleveland Property, plus 18 months of business interruption coverage in an amount equal to 100% of the projected gross income from the Key Center Cleveland Property for a period continuing until the restoration of the Key Center Cleveland Property is completed and containing an extended period endorsement which provides for up to 12 months of additional coverage. The terrorism insurance is required to contain a deductible that is no larger than $25,000. See “Risk Factors—Terrorism Insurance May Not Be Available for All Mortgaged Properties” in the Preliminary Prospectus.

 

24

 

 

LOAN #4: SCRIPPS CENTER

  

Mortgaged Property Information   Mortgage Loan Information
Number of Mortgaged Properties 1   Loan Seller   PCC
Location (City/State) Cincinnati, Ohio   Cut-off Date Balance(2)   $50,000,000
Property Type Office   Cut-off Date Balance per SF(1)   $133.77
Size (SF) 538,243   Percentage of Initial Pool Balance   4.9%
Total Occupancy as of 2/1/2017 93.1%   Number of Related Mortgage Loans   None
Owned Occupancy as of 2/1/2017 93.1%   Type of Security   Fee Simple
Year Built / Latest Renovation 1989 / 2013-2015   Mortgage Rate   4.66000%
Appraised Value   $98,000,000   Original Term to Maturity (Months)   120
Appraisal Date 12/15/2016   Original Amortization Term (Months)    360
Borrower Sponsor Neal H. Mayerson   Original Interest Only Term (Months) 24
Property Management The Mayerson Company   First Payment Date 3/1/2017
      Maturity Date 2/1/2027
       
       
Underwritten Revenues $13,210,971    
Underwritten Expenses $6,471,316   Escrows
Underwritten Net Operating Income (NOI) $6,739,655     Upfront Monthly
Underwritten Net Cash Flow (NCF) $6,297,729   Taxes $392,500 $196,250
Cut-off Date LTV Ratio(1) 73.5%   Insurance $93,351 $9,736
Maturity Date LTV Ratio(1) 63.0%   Replacement Reserve(3) $1,300,000 $0
DSCR Based on Underwritten NOI / NCF(1) 1.51x / 1.41x   TI/LC(4) $3,700,000 $0
Debt Yield Based on Underwritten NOI / NCF(1) 9.4% /8.7%   Other(5) $1,633,783 $0
             
Sources and Uses(6)
Sources $         %     Uses $          %    
Loan Combination Amount $72,000,000 100.0% Loan Payoff $58,673,555 81.5%
      Reserves 7,119,634 9.9
      Closing Costs 564,517 0.8
      Principal Equity Distribution 5,642,295 7.8
Total Sources $72,000,000 100.0% Total Uses $72,000,000 100.0%
                                 

 

(1)Calculated based on the aggregate outstanding principal balance of the Scripps Center Loan Combination (as defined below).

(2)The Scripps Center Loan (as defined below) has a Cut-off Date Balance of $50,000,000 and represents the controlling note A-1 of the $72,000,000 Scripps Center Loan Combination, which is evidenced by two pari passu notes. The related companion loan is evidenced by the non-controlling note A-2, which has an outstanding principal balance as of the Cut-Off Date of $22,000,000, is currently held by Principal Commercial Capital, and is expected to be contributed to one or more future commercial mortgage securitization transactions. See “—The Mortgage Loan” below.

(3)The Replacement Reserve is for future capital improvements. If the Replacement Reserve balance falls below the replacement reserve cap of $324,000 (the “Replacement Reserve Cap”), the borrower is required to deposit $9,000 monthly until the funds on deposit in the Replacement Reserve account are equal to or greater than the Replacement Reserve Cap. Provided no event of default exists and the balance exceeds the Replacement Reserve Cap, the borrower has the right to transfer funds in excess of the Replacement Reserve Cap to the TI/LC reserve. See “—Escrows” below.

(4)If the TI/LC reserve falls below the TI/LC reserve cap of $1,620,000 (the “TI/LC Reserve Cap”) the borrower is required to deposit $45,000 monthly until the funds on deposit in the TI/LC account are equal to or greater than the TI/LC Reserve Cap (which cap is subject to increase to $2,600,000 upon an E.W. Scripps Cash Sweep Trigger Event (as defined below)). See “—Escrows” below.

(5)The upfront other reserve includes $1,292,241 in outstanding tenant improvements and leasing commissions and $341,542 in outstanding free rent. See “—Escrows” below.

(6)Based on the aggregate original principal balance of the Scripps Center Loan Combination.

 

The Mortgage Loan. The mortgage loan (the “Scripps Center Loan”) is part of a loan combination (the “Scripps Center Loan Combination”) evidenced by two pari passu notes that are together secured by a first mortgage encumbering the borrower’s fee simple interest in a 538,243 SF office building located in Cincinnati, Ohio (the “Scripps Center Property”). The Scripps Center Loan, which is evidenced by the controlling note A-1, has an aggregate outstanding principal balance as of the Cut-off Date of $50,000,000 and represents approximately 4.9% of the Initial Pool Balance. The related companion loan is evidenced by the non-controlling note A-2, which has an original principal balance of $22,000,000, has an outstanding principal balance as of the Cut-off Date of $22,000,000, is currently held by Principal Commercial Capital, and is expected to be contributed to one or more future commercial mortgage securitization transactions. The Scripps Center Loan Combination, which accrues interest at an interest rate of 4.66000% per annum, was originated by Principal Commercial Capital on February 1, 2017, had an original principal balance of $72,000,000 and has an outstanding principal balance as of the Cut-off Date of $72,000,000. The proceeds of the Scripps Center Loan Combination were primarily used to refinance the Scripps Center Property, fund reserves, pay origination costs and return a portion of equity to the borrower.

 

The Scripps Center Loan Combination had an initial term of 120 months and has a remaining term of 118 months as of the Cut-off Date. The Scripps Center Loan Combination requires monthly payments of interest only through the due date in February 2019, after which it requires monthly payments of interest and principal sufficient to amortize the Scripps Center Loan Combination over a 30-year amortization schedule. The scheduled maturity date of the Scripps Center Loan Combination is the due date in February 2027. At any time after the earlier of 48 months following the first due date under the Scripps Center Loan Combination and the 25th due date following the securitization of the last portion of the Scripps Center Loan Combination, the Scripps Center Loan Combination may either be (i) provided no event of default has occurred and is continuing under the Scripps Center Loan documents, 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 Scripps Center Loan documents or (ii) prepaid in full, provided the applicable prepayment is accompanied by payment of the greater of 1.0% of the amount prepaid or a yield maintenance premium (as described in the Scripps Center Loan documents). Voluntary prepayment of the Scripps Center Loan

 

25

 

 

LOAN #4: SCRIPPS CENTER

 

Combination in full without payment of any yield maintenance or any other prepayment premium is permitted on or after the due date in November 2026.

 

The Mortgaged Property. The Scripps Center Property is comprised of a 538,243 SF, Class A office building located in the Cincinnati, Ohio central business district (“CBD”). The Scripps Center Property, which is set on a 0.72 acre site, was constructed in 1989. The Scripps Center Property includes a 35-story office building that was the first Class A building on the Cincinnati riverfront. The floor plates of the office building range from 17,000 SF to 24,000 SF. The improvements include a 618-space parking garage that is on eight levels in the lower portion of the building and is leased to a parking operator, Central Parking System of Ohio, Inc., through December 2020. Building amenities include on-site parking, conference center, fitness center, full-service hair salon, day care center, 24/7 building access and security, on-site management and a full service concierge offering travel reservations, errand running, and vehicle, entertainment, retail and dining services. From 2013-2015, the borrower spent approximately $1,600,000 on capital improvements to the Scripps Center Property.

 

As of February 1, 2017, the Scripps Center Property was approximately 93.1% leased by 46 tenants. The Scripps Center Property serves as the headquarters of E.W. Scripps Company, which is the largest tenant, occupying 15.5% of the net rentable area, and has been located at the Scripps Center Property since 1992. E.W. Scripps Company (NYSE: SSP) was founded in 1878 and serves audiences and businesses through a portfolio of television, radio, and digital media brands. No other tenant represents more than 10.0% of the net rentable area.

 

The following table presents certain information relating to the major tenants at the Scripps Center Property:

 

Largest Tenants Based on Underwritten Base Rent(1)

 

Tenant Name

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

Tenant
GLA(3)

% of
Owned
GLA

UW Base
Rent

% of Total
UW Base
Rent

UW Base
Rent $
per SF

Lease
Expiration

Renewal / Extension
Options

E.W. Scripps Company(4) (5)   NR / Ba2 / BB   83,159 15.5% $1,137,247   15.9% $13.68   1/31/2024 2, 5-year options
Thompson Hine LLP(6)  NR / NR / NR   53,066   9.9         928,655   13.0 $17.50 12/31/2020 2, 5-year options
Ernst & Young U.S. LLP     NR / NR / NR   32,638   6.1         539,364     7.6 $16.53   8/31/2019 2, 5-year options
Graydon Head & Ritchey(7)        NR / NR / NR   38,508   7.2         494,443     6.9 $12.84   6/30/2032 2, 5-year options
Office Key(8) NR / NR / NR   23,939   4.4         347,115     4.9 $14.50 12/31/2021 1, 5-year option
Baker & Hostetler, LLP   NR / NR / NR   19,104   3.5         292,352     4.1 $15.30 11/30/2024 NA
UBS Financial Services   NR / NR / NR   15,266   2.8         219,220     3.1 $14.36    1/31/2024 2, 5-year option
JJB Hilliard WLL Lyons Trust(5) NR / NR / NR     9,636   1.8         209,487     2.9 $21.74    2/05/2021 1, 5-year option
Merrill Lynch, Pierce, Fenner       A+ / NR / A+   14,707   2.7         193,103     2.7 $13.13   1/31/2020 1, 5-year option
Chubb Insurance Company NR / Aa3 / AA

  12,684

 2.4   

     187,343

    2.6   

$14.77

  7/31/2019 NA
Ten Largest Owned Tenants   302,707 56.2% $4,548,328   63.7% $15.03    
Remaining Owned Tenants(9)   198,255 36.8    2,589,809   36.3 $13.06    
Vacant Spaces (Owned Space)  

   37,281

  6.9   

               0

    0.0   

$0.00

   
Total / Wtd. Avg. All Owned Tenants 538,243 100.0%   $7,138,137 100.0% $14.25    
                 

 

(1)Based on the underwritten rent roll dated February 1, 2017.

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

(3)There is a parking structure totaling 241,362 SF on floors two through nine of the Scripps Center Property. This SF is not included in the Tenant GLA.

(4)The E.W. Scripps Company lease includes 9,044 SF of buy-out space (the “Scripps Buy-Out Space”) on the 26th floor and 74,115 SF of standard office space (the “Scripps Standard Office Space”) on the 26th through 29th floors. The Scripps Buy-Out Space was surrendered by E.W. Scripps Company in 2013; however, E.W. Scripps Company continued to occupy the Scripps Buy-Out Space at a lower rent. E.W. Scripps Company currently pays $6.80 per SF for the Scripps Buy-Out Space and $14.51 per SF for the Scripps Standard Office Space. E.W. Scripps Company must give notice by June 30, 2017 if E.W. Scripps Company wants to reincorporate the Scripps Buy-Out Space into the standard office lease and if elected, the rent is required to be the same per SF as that of the Scripps Standard Office Space subject to certain free rent periods and offsets and the term will expire concurrently with the Scripps Standard Office Space on January 31, 2024. E.W. Scripps Company is currently utilizing all of the Scripps Buy-Out Space. If E.W. Scripps Company does not elect to reincorporate the Scripps Buy-Out Space, its lease of the Scripps Buy-Out Space will terminate on January 1, 2018.

(5)The UW Base Rent and UW Base Rent $ per SF for JJB Hilliard WLL Lyons Trust and the Scripps Buy-Out Space is on a gross basis and the remaining nine largest tenants are on a net basis.

(6)Thompson Hine LLP has the option to terminate its lease effective December 31, 2018 if Thompson Hine LLP has or will cease operation of its business in the Cincinnati, Ohio area provided Thompson Hine LLP provides twelve months’ notice and pays a termination fee equal to $710,771.

(7)Graydon Head & Ritchey is in full occupancy of its space but is not required to commence paying rent until July 1, 2017.

(8)Office Key has the one-time option to reduce its space from 23,939 SF to 17,412 SF effective on April 30, 2018 by giving notice before July 30, 2017 without payment of a termination fee.

(9)The Remaining Owned Tenants category includes, among other tenants, 312 Fitness LLC totaling 5,079 SF and the 10th Floor Conference Center totaling 3,611 SF. While these are amenities for the building only with no attributable lease income, the SF is included as part of the % of Owned GLA calculation.

 

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LOAN #4: SCRIPPS CENTER

 

The following table presents certain information relating to the lease rollover schedule at the Scripps Center 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(3)

# of Expiring
Tenants

MTM            0       0.0%     0.0%              $0       0.0%   $0.00   0
2017   17,995    3.3     3.3%     242,999   3.4 $13.50   2
2018    17,736    3.3     6.6%     282,144   4.0 $15.91   5
2019    79,790 14.8   21.5%  1,214,846 17.0 $15.23 11
2020    77,490 14.4   35.9%  1,258,926 17.6 $16.25   4
2021    49,960    9.3    45.1%     728,655 10.2 $14.58   7
2022    19,847    3.7   48.8%     246,745   3.5 $12.43   5
2023    13,618    2.5   51.4%     203,493   2.9 $14.94   2
2024 117,529 21.8   73.2% 1,648,818 23.1 $14.03   3
2025    25,499    4.7   77.9%     334,504   4.7 $13.12   2
2026    39,379    7.3   85.2%     482,565   6.8 $12.25   3
2027             0    0.0   85.2%                0   0.0   $0.00   0
2028 & Thereafter    42,119    7.8   93.1%     494,443   6.9 $11.74   2
Vacant

    37,281

  6.9

100.0%

               0

  0.0

   $0.00

  0

Total / Wtd. Avg. 538,243 100.0%   $7,138,137  100.0%   $14.25 46

 

 

(1)Calculated based on approximate square footage occupied by each Owned Tenant.

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

(3)Wtd. Avg. UW Base Rent $ per SF excludes vacant space.

 

The following table presents certain information relating to historical leasing at the Scripps Center Property:

 

Historical Leased %(1)

 

   

2013

 

2014

 

2015

 

2016

 

As of 2/1/2017(2)

Owned Space   83.7%   85.7%   87.7%   92.2%   93.1%

 

 

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

(2)Based on the underwritten rent roll dated February 1, 2017.

 

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LOAN #4: SCRIPPS CENTER

 

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 Scripps Center Property:

 

Cash Flow Analysis(1)

 

 

2013

2014

2015

TTM 12/31/2016

Underwritten

Underwritten
$ per SF

Base Rent(2) $6,554,600 $5,825,098 $6,762,041 $5,979,262 $7,061,729 $13.12
Contractual Rent Steps(3) 0 0 0 0 76,408 0.14
Potential Income from Vacant Space

0

0

0

0

540,575

1.00

Total Rent $6,554,600 $5,825,098 $6,762,041 $5,979,262 $7,678,711 $14.27
Reimbursements 4,191,030 4,448,055 4,430,718 4,437,361 5,280,698 9.81
Other Income(4) 1,499,834 1,512,288 1,494,799 1,526,112 1,547,503 2.88
Vacancy, Credit Loss & Concessions

0

0

0

0

(1,295,941)

(2.41)

Effective Gross Income $12,245,464 $11,785,441 $12,687,558 $11,942,735 $13,210,971 $24.54
             
Real Estate Taxes(5) $2,132,566 $2,087,851 $2,085,682 $2,080,379 $2,229,385 $4.14
Insurance 103,551 104,897 105,044 104,941 106,211 0.20
Management Fee 421,705 423,319 447,929 488,678 528,439 0.98
Other Expenses

3,529,955

3,618,986

3,603,170

3,495,815

3,607,281

6.70

Total Operating Expenses $6,187,777 $6,235,053 $6,241,825 $6,169,813 $6,471,316 $12.02
             
Net Operating Income $6,057,687 $5,550,388 $6,445,733 $5,772,922 $6,739,655 $12.52
TI/LC(6) 0 0 0 0 437,365 0.81
Replacement Reserves(7)

0

0

0

0

4,561

0.01

Net Cash Flow $6,057,687 $5,550,388 $6,445,733 $5,772,922 $6,297,729 $11.70
             
Occupancy 83.7% 85.7% 87.7% 92.2% 93.1%  
NOI Debt Yield 8.4% 7.7% 9.0% 8.0% 9.4%  
NCF DSCR 1.36x 1.24x 1.45x 1.29x 1.41x  

 

 

(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 higher than historical base rent including TTM 12/31/2016 due to seven new leases or lease extensions that are currently in a free rent period or were in a free rent period during all or a portion of the TTM period. The largest of these is the new lease with Graydon Head & Ritchey, the third largest tenant based on net rentable area, which is not required to commence paying rent until July 1, 2017. The lender escrowed for all currently effective contractual lease abatements at origination.

(3)Contractual Rent Steps are underwritten based upon the actual scheduled rent increases through October 1, 2017.

(4)Other Income includes conference room rental, garage elevator income, storage income, ATM income, communications income and parking garage income. The parking garage income accounts for $1,497,816 of the other income which includes $1,400,000 of rental income plus percentage rents (60% of sales over $1,650,000 per year) pursuant to the lease with Central Parking System of Ohio, Inc.

(5)The Scripps Center Property is part of a designated tax increment financing (“TIF”) district. The TIF agreement for the Scripps Center Property was part of a development agreement that commenced in January 1990 and expires in January 2020. The borrower is required to pay semiannual service payments to the City of Cincinnati which are equal to the real estate taxes that the borrower would otherwise be required to pay to the county. Upon expiration, there is no expected increase to the real estate taxes solely as a result of the expiration. The primary difference is anticipated to be that real estate taxes will be paid to the county rather than the city.

(6)Underwritten TI/LC takes into account the $3,700,000 upfront escrow for future TI/LC obligations.

(7)Underwritten Replacement Reserves take into account the $1,300,000 upfront escrow for future capital improvements.

 

Appraisal. According to the appraisal, the Scripps Center Property had an “as-is” appraised value of $98,000,000 as of December 15, 2016. The appraiser valued the property based on the two approaches below and gave equal weight to both approaches to determine the “as-is” appraised value of the Scripps Center Property.

 

Appraisal Approach

Value

Discount
Rate

Capitalization
Rate

Direct Capitalization Approach $97,900,000 NA 7.25%
Discounted Cash Flow Approach $98,100,000 8.50% 7.75%(1)

 

 

(1)Represents the terminal capitalization rate.

 

Environmental Matters. Based on the Phase I environmental report dated December 16, 2016, there were no recognized environmental conditions related to the Scripps Center Property. 

 

Market Overview and Competition. The Scripps Center Property is located on the northeast quadrant of Walnut Street and 3rd Street within the Cincinnati CBD. This location is less than one mile west of the I-71/US 50 interchange. The Scripps Center Property is located just north of the mixed use development known as the Banks and two blocks southeast of Fountain Square. It is also located on the new StreetCar line. It is within walking distance of Great American Ballpark (Cincinnati Reds), Paul Brown Stadium (Cincinnati Bengals), U.S. Bank Arena, Fountain Square, The Banks development, and some of the area’s Fortune 500 companies’ headquarters.

 

Per the appraisal, the Scripps Center Property is part of the Cincinnati Office Market and the Cincinnati City office submarket. As of the third quarter of 2016, the Cincinnati Office Market consisted of approximately 97.6 million SF with a 10.1% vacancy rate and triple net asking rents of $16.08 per SF. The Cincinnati City office submarket consists of approximately 39.6 million SF with a 10.1% vacancy rate and triple net asking rents of $17.16 per SF.

 

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LOAN #4: SCRIPPS CENTER

 

The following table presents certain information relating to the primary competition for the Scripps Center Property:

 

Scripps Center Property Competitive Set(1)

 

 

Scripps Center
Property

Atrium Two

First Financial Center

Omnicare Center

Year Built 1989 1984 1991 1981
SF 538,243(2) 653,604 525,036 568,052
Total Occupancy 93.1%(2) 94.0% 87.8% 87.5%
Asking Rent $6.80-$24.67(2)(3) $10.50-$15.50 $10.00-$17.00 $5.31-$34.66
         
 

PNC Center

US Bank Building

 
Year Built 1979 1981  
SF 501,024 562,000  
Total Occupancy 82.2% 88.9%  
Asking Rent $11.50-$13.50 $18.00-$21.50  

 

 

(1)Source: Appraisal.

(2)Based on the underwritten rent roll dated February 1, 2017.

(3)The $6.80 per SF asking rent at the Scripps Center Property represents a temporary rent reduction for the Scripps Buy-Out Space (1.7% of the net rentable area). Average in-place rent at the Scripps Center Property is $14.25 per SF.

 

The Borrower. The borrower is 312 Walnut, LLC, a newly formed special purpose Delaware limited liability company. Legal counsel to the borrower delivered a non-consolidation opinion in connection with the origination of the Scripps Center Loan Combination. The non-recourse carveout guarantor for the Scripps Center Loan Combination is Neal H. Mayerson. Mr. Mayerson is president of the Mayerson Company which was founded in 1949 by Mr. Mayerson’s late father, Manuel D. Mayerson.

 

Escrows. In connection with the origination of the Scripps Center Loan Combination, the borrower funded reserves of (i) $392,500 for real estate taxes; (ii) $93,351 for insurance; (iii) $1,300,000 for replacement reserves; (iv) $3,700,000 for tenant improvements and leasing commissions; (v) $1,292,241 for outstanding tenant improvements and leasing commissions obligations with respect to eleven tenants and (vi) $341,542 for outstanding free rent with respect to six tenants.

 

Additionally, on each due date, the borrower is required to fund the following reserves with respect to the Scripps Center Property: (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 $196,250), (ii) an insurance reserve in an amount equal to one-twelfth of the amount that the lender estimates will be necessary to pay insurance premiums over the then succeeding 12-month period (initially $9,736), provided that the monthly insurance reserve deposit is waived if the borrower is maintaining blanket insurance policies in accordance with the Scripps Center Loan documents, (iii) a $9,000 monthly replacement reserve if the replacement reserve falls below the Replacement Reserve Cap; and (iv) a $45,000 monthly tenant improvements and leasing commissions reserve if the tenant improvements and leasing commissions reserve falls below the TI/LC Reserve Cap, which said cap increases to $2,600,000 upon the occurrence of an E.W. Scripps Cash Sweep Trigger Event (as defined below) and continues until an E.W. Scripps Cash Sweep Cure (as defined below) occurs. Provided no event of default exists under the Scripps Center Loan Combination and the balance of the replacement reserve exceeds the Replacement Reserve Cap, the borrower has the right to transfer funds in excess of the Replacement Reserve Cap to the tenant improvements and leasing commissions (but not vice versa).

 

Lockbox and Cash Management. The Scripps Center Loan Combination is structured with a hard lockbox with springing cash management. The Scripps Center Loan documents require the borrower to direct tenants to pay rent directly to a lender-controlled lockbox account and require that all other money received by the borrower with respect to the Scripps Center Property be deposited into such lockbox account within two business days following receipt. Prior to the occurrence of a Scripps Center Cash Sweep Trigger Event (as defined below) and after the occurrence of a Scripps Center Cash Sweep Cure (as defined below), all funds in the lockbox account are swept into the borrower’s operating account. Following the occurrence of a Scripps Center Cash Sweep Trigger Event and until the occurrence of a Scripps Center Cash Sweep Cure, all cash flow is required to be swept from the lockbox account into a lender-controlled cash management account and applied in accordance with the Scripps Center Loan documents, and excess cash is required to be swept and held as additional collateral for the Scripps Center Loan Combination.

 

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LOAN #4: SCRIPPS CENTER

 

A “Scripps Center Cash Sweep Trigger Event” means the occurrence of any one or more of the following as determined by the lender in its sole discretion: (a) an event of default under the Scripps Center Loan documents; (b) the debt service coverage ratio being less than 1.15x based upon amortizing debt service; (c) an E.W. Scripps Cash Sweep Trigger Event (as defined below); or (d) if a mezzanine loan is made, an event of default under any of the mezzanine loan documents.

 

A “Scripps Center Cash Sweep Cure” means the following, as determined by the lender in its sole discretion: (i) with respect to a Scripps Center Cash Sweep Trigger Event described in clause (a) above, upon the waiver by the lender of, or cure accepted by the lender of, such event of default; (ii) with respect to a Scripps Center Cash Sweep Trigger Event described in clauses (b) of the definition thereof, the Scripps Center Property maintaining an amortizing debt service coverage ratio of greater than 1.20x for two consecutive calendar quarters determined by the lender as of the last day of each calendar quarter for such quarter; (iii) with respect to a Scripps Center Cash Sweep Trigger Event described in clause (c) of the definition thereof, the occurrence of an E.W. Scripps Cash Sweep Cure (as defined below); or (iv) with respect to a Scripps Center Cash Sweep Trigger Event described in clause (d) of the definition thereof, the specific waiver in writing by the mezzanine lender of the related event of default under the mezzanine loan documents (or if applicable, confirmation in writing from the mezzanine lender that such event of default has been cured to its satisfaction).

 

An “E.W. Scripps Cash Sweep Trigger Event” means, as determined by lender in its sole discretion, (1) funds in the general TI/LC reserve equal less than $2,600,000 and (2) the occurrence of any one or more of the following: (a) E.W. Scripps Company ceases to operate its business in all or a majority of the space under the E.W. Scripps Company lease, excluding the Scripps Buy-Out Space; (b) E.W. Scripps Company files voluntary or involuntary bankruptcy or insolvency proceedings or any person (other than the lender) files an involuntary bankruptcy or insolvency proceeding against E.W. Scripps Company; (c) E.W. Scripps Company provides notice to the borrower of its intent to implement an early termination of the E.W. Scripps Company lease; (d) a default by E.W. Scripps Company occurs under the E.W. Scripps Company lease, beyond any applicable notice and cure periods; or (e) E.W. Scripps Company has not renewed the E.W. Scripps Company lease (excluding the Scripps Buy-Out Space) at market terms acceptable to the lender at least 12 months prior to the then-current expiration date of the E.W. Scripps Company lease.

 

An “E.W. Scripps Cash Sweep Cure” means the following, as determined by the lender in its sole discretion either (1) funds in the general TI/LC reserve equal or exceed $2,600,000 or (2) the occurrence of the applicable cure event as follows: (i) with respect to an E.W. Scripps Cash Sweep Trigger Event described in clause (a) above, then the earlier of the following: (A) E.W. Scripps Company has notified the borrower in writing that E.W. Scripps Company has rescinded its notice to “go dark,” and (B) E.W. Scripps Company has resumed operations in the space occupied by E.W. Scripps Company and has continuously remained in occupancy and open for no less than 60 consecutive days; (ii) with respect to an E.W. Scripps Cash Sweep Trigger Event described in clause (b) above, E.W. Scripps Company has (A) obtained the applicable bankruptcy court's approval of its affirmation of the E.W. Scripps Company lease, and (B) delivered to the lender a new estoppel certificate reasonably acceptable to the lender, certifying that (1) the E.W. Scripps Company lease has been validly affirmed in the bankruptcy proceeding and remains in full force and effect on the same terms and conditions as in effect as of the loan closing