Real Estate Asset Liquidity Trust, Series 2020-1 - DBRS
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PRESALE REPORT Real Estate Asset Liquidity Trust, Series 2020-1 JANUARY 2020 STRUCTURED FINANCE: CMBS
Table of Contents Capital Structure 3 Transaction Summary 4 Rating Considerations 5 DBRS Morningstar Credit Characteristics 7 Largest Loan Summary 8 DBRS Morningstar Sample 9 Transaction Concentrations 11 Loan Structural Features 12 Sheraton Gateway Hotel Toronto A1 15 LBC Carrefour Retail 20 O’Shaughnessy Office Tower 25 Rossignol Drive Retirement Residence 30 Robinson Street Office 34 Regency of Lakefield Retirement 38 Metro 1827 Regina 42 Belleville Walmart 46 Wellington Southdale 51 Spruce Heights Multi-Res Edmonton 56 Transaction Structural Features 60 Methodologies 62 Operational Risk Reviews 62 Surveillance 62 Glossary 64 Definitions 64 Karen Gu Eizaan Khan Senior Vice President Senior Financial Analyst +1 416 597-7340 +1 312 332-9571 karen.gu@morningstar.com eizaan.khan@morningstar.com Jason de Souza Erin Stafford Senior Financial Analyst Managing Director +1 416 597-7401 +1 312 332-3291 jason.desouza@morningstar.com erin.stafford@morningstar.com
Presale Report | REAL-T 2020-1
Capital Structure
Description Rating Action Balance ($) Subordination (%) DBRS Morningstar Trend
Rating
Class A-1 New Rating – Provisional 251,712,000 13.250 AAA (sf) Stable
Class A-2 New Rating – Provisional 209,655,000 13.250 AAA (sf) Stable
Class X New Rating – Provisional 488,623,000 - A (high) (sf) Stable
Class B New Rating – Provisional 11,301,000 11.125 AA (sf) Stable
Class C New Rating – Provisional 15,955,000 8.125 A (sf) Stable
Class D-1 New Rating – Provisional 5,104,000 4.750 BBB (sf) Stable
Class D-2 New Rating – Provisional 12,845,000 4.750 BBB (sf) Stable
Class E New Rating – Provisional 2,659,000 4.250 BBB (low) (sf) Stable
Class F New Rating – Provisional 7,978,000 2.750 BB (sf) Stable
Class G New Rating – Provisional 5,318,000 1.750 B (sf) Stable
Class H NR 9,307,662 0.000 NR n/a
Notes:
1. NR = not rated.
2. Classes D-2, E, F, and G will be privately placed.
3. The Class X balances are notional.
January 2020 3
Presale Report | REAL-T 2020-1
Transaction Summary
P OOL CHARACTE RI S TI CS
Trust Amount ($) 531,834,662 Wtd. Avg. Interest Rate (%) 4.019
Number of Loans 52 Wtd. Avg. Remaining Term (Months) 100
Number of Properties 86 Wtd. Avg. Remaining Amortization (Months) 337
Average Loan Size ($) 10,227,590 Total DBRS Morningstar Expected Amorti- -19.3
zation (%)²
Wtd. Avg. DBRS Morningstar Term DSCR (x)1 1.37 Wtd. Avg. DBRS Morningstar Term DSCR 1.37
Whole Loan (x)¹
Wtd. Avg. DBRS Morningstar Issuance LTV 65.7 Wtd. Avg. DBRS Morningstar Balloon LTV 52.9
(%) (%)
Top Ten Loan Concentration (%) 43.2 Avg. DBRS Morningstar NCF Variance (%) -6.4
1. Includes pari passu debt, but excludes subordinate debt.
2. For certain ARD loans, expected amortization may include amortization expected to occur after the ARD but prior to single/major tenant expiry.
PA RTICIPANTS
Issuer Real Estate Asset Liquidity Trust
Mortgage Loan Sellers Royal Bank of Canada (RBC – 46 loans, 88.2% of pool)
Bank of Montreal (BMO – 6 loans, 11.8% of pool)
Trustee Montreal Trust Company of Canada
Master Servicer First National Financial LP
Special Servicer First National Financial LP
Custodian Computershare Trust Company of Canada
Backup Servicer and Reporting Wells Fargo Bank, N.A.
Agent
Operating Advisor MCAP Financial Corporation
January 2020 4
Presale Report | REAL-T 2020-1
Rating Considerations
The collateral consists of 51 fixed-rate loans and one pari passu co-ownership interest (collectively, the loans) secured
by 86 commercial and multifamily properties. The transaction employs a sequential-pay pass-through structure. DBRS
Morningstar analyzed the conduit pool to determine the provisional ratings, reflecting the long-term probability of loan
default within the term and its liquidity at maturity. When DBRS Morningstar measured the cut-off loan balances against
the DBRS Morningstar Stabilized NCF and their respective actual constants, the initial DBRS Morningstar WA DSCR for
the pool was 1.37x. DBRS Morningstar did not identify any loans as having a DBRS Morningstar Term DSCR below 1.15x,
a threshold indicative of a higher likelihood of midterm default. The WA DBRS Morningstar LTV of the pool at issuance
was 65.7%, and the pool is scheduled to amortize down to a WA DBRS Morningstar LTV of 52.9% at maturity. The pool
includes 32 loans, representing 70.0% of the pool by allocated loan balance, with DBRS Morningstar issuance LTVs equal to
or higher than 65.0%, a threshold historically indicative of above-average default frequency. Thirty-three loans, represent-
ing 64.7% of the pool balance, were originated in connection with the borrower’s refinancing of an existing mortgage loan;
three loans, representing 2.1% of the pool, renewed the borrower’s existing mortgage loans with the remaining amortiza-
tion terms; and 13 loans, representing 28.1% of the pool, were originated in connection with the borrower’s acquisition of
the related mortgage property. The remainder of the pool was originated in connection with takeout financing on existing
construction loans.
STRENGTHS
– Forty loans, representing 65.7% of the pool, have been given recourse credit in the DBRS Morningstar CMBS Insight model
because of some form of recourse to individuals and real estate investment trusts or established corporations. Recourse
generally results in lower POD over the term of the loan. While it is generally difficult to quantify the impact of recourse,
all else being equal, there is a small shift lowering the loan’s POD for warmbody or corporate sponsors that give recourse.
Recourse can also serve as a mitigating factor to other risks, such as single-tenant risk, by providing an extra incentive for
the loan sponsor to make debt service payments if the sole tenant vacates.
– Based on the DBRS Morningstar sample and analysis, five loans (18.2% of the sample pool) were considered to be of Above
Average property quality and five loans (10.7% of the pool) of Average (+) property quality. Higher-quality properties are
more likely to retain existing tenants and more easily attract new tenants, resulting in more stable performance.
– Nine loans, representing 15.2% of the pool, were considered by DBRS Morningstar to have Strong sponsor strength.
– All loans in the pool amortize for the entire loan term. Thirteen loans, representing 25.4% of the pool, have approximately
25 years or less of remaining amortization. The remaining loans have remaining amortization ranges between 25 years
and 30 years. The expected amortization for the pool is approximately 19.3% during the expected life of the transaction.
CHALLENGES AND CONSIDERATIONS
– Twenty loans, representing 34.4% of the pool balance, are secured by properties in small towns or villages that DBRS
Morningstar considers as rural or tertiary markets with DBRS Morningstar ranks of 1 and 2.
– These properties are traditional property types, such as retail and multifamily, which have historically exhibited less cash
flow volatility than operating properties, such as hotels.
– Eighteen loans, representing 25.4% of the pool balance, have meaningful recourse to the sponsor. Additionally, none of the
related sponsors were considered by DBRS Morningstar to be weak or below average in terms of net worth or liquidity.
– DBRS Morningstar increases the LGD for these loans to account for market volatility and periods of illiquidity.
– There is sponsor concentration within this transaction. The pool comprises 52 loans; however, there are only 41 different
sponsors or sponsor groups. Fifteen loans, representing 31.3% of the pool balance, have related borrowers and/or sponsors
to one or more loans within the pool. The most significant sponsor concentration is Avenue Living (2014) LP (Avenue
Living), which affects eight loans, representing 13.6% of the pool.
January 2020 5
Presale Report | REAL-T 2020-1
– Of the 15 loans that have related borrowers, three loans (7.3% of the pool) are secured by well-tenanted retail properties
that are well located in each respective market. Additionally, the loans have full recourse to an experienced real estate
professional with high personal net worth.
– With respect to the eight loans related to Avenue Living, the loans are secured by multifamily properties with stable
occupancy history. Avenue Living is one of the largest private real estate owners and operators in Western Canada. As at
December 31, 2018, Avenue Living had a portfolio of investment properties valued at $1.05 billion with unitholders equity
of $428.5 million. The company currently owns and manages over 350 properties containing 8,050 multifamily units and
48,000 sf of commercial spaces across Western Canada. Additionally, the loans benefit from full-recourse personal and
corporate guarantees on a joint and several basis.
– Three loans, representing 10.2% of the pool balance, have nonrecourse carveout guaranty solely from the single-asset
borrowing entities without additional indemnity from individuals or established corporations. DBRS Morningstar considers
these loans having Weak sponsor strength.
– DBRS Morningstar increased POD of the loans to reflect the risk associated with the lack of warmbody guarantor.
January 2020 6
Presale Report | REAL-T 2020-1
DBRS Morningstar Credit Characteristics
D BRS MO RNINGS TAR TE RM D S CR D B R S MO R N IN G STA R ISSU A N C E LT V
% of the Pool % of the Pool
DSCR (x) (Trust Balance1) Issuance LTV (%) (Trust Balance1)
0.00-0.90 0.0 0.0-50.0 5.4
0.90-1.00 0.0 50.0-55.0 0.9
1.00-1.15 0.0 55.0-60.0 11.6
1.15-1.30 47.8 60.0-65.0 12.0
1.30-1.45 40.2 65.0-70.0 37.8
1.45-1.60 1.4 70.0-75.0 30.7
1.60-1.75 1.8 >75.0 1.6
>1.75 8.7 Wtd. Avg. 65.7
Wtd. Avg. (x) 1.37
D BRS MO RNINGS TAR BALLO O N LTV
% of the Pool
Balloon LTV (%) (Trust Balance1)
0.0-50.0 21.1
50.0-55.0 46.8
55.0-60.0 21.2
60.0-65.0 6.0
65.0-70.0 4.9
70.0-75.0 0.0
>75.0 0.0
Wtd. Avg. 52.9
1. Includes pari passu debt, but excludes subordinate debt.
January 2020 7
Presale Report | REAL-T 2020-1
Largest Loan Summary
LOAN DETAIL
DBRS DBRS DBRS
Trust Balance Morningstar Morningstar Morningstar
Loan Name ($) % of Pool Shadow Rating Issuance LTV (%) Term DSCR (x)
Sheraton Gateway Hotel Toronto A1 43,835,780 8.2 n/a 74.91 1.96
LBC Carrefour Retail 37,535,661 7.1 n/a 57.48 1.29
O'Shaughnessy Tower 25,883,423 4.9 n/a 68.84 1.24
Rossignol Drive Retirement Residence 20,908,392 3.9 n/a 67.23 1.33
Robinson Street Office 19,671,975 3.7 n/a 60.23 1.20
Regency of Lakefield Retirement 17,492,825 3.3 n/a 74.44 1.37
Metro 1827 Regina 17,385,849 3.3 n/a 73.36 1.22
Belleville Walmart 16,887,640 3.2 n/a 65.20 1.36
Wellington Southdale 15,978,315 3.0 n/a 65.08 1.34
Spruce Heights Multi-Res Edmonton 13,916,104 2.6 n/a 66.27 1.17
P R OPERTY DETAI L
DBRS Loan per
Morningstar Year SF/Units Maturity Balance
Loan Name Property Type City State Built SF/Units ($) per SF/Units ($)
Sheraton Gateway Hotel Toronto A1 Full-Service Hotel Mississauga ON 1991 474 210,183 142,902
LBC Carrefour Retail Anchored Retail Trois-Rivières QC 1969 485,557 77 72
O'Shaughnessy Tower Office Montreal QC 1957 145,074 178 140
Rossignol Drive Retirement Residence Senior Housing Ottawa ON 2009 119 175,701 138,876
Robinson Street Office Office Simcoe ON 2015 65,933 298 236
Regency of Lakefield Retirement Senior Housing Lakefield ON 2016 73 239,628 217,697
Metro 1827 Regina Multifamily Regina SK 2014 69 251,969 206,731
Belleville Walmart Anchored Retail Belleville ON 1994 275,410 61 50
Wellington Southdale Anchored Retail London ON 1986 86,755 184 146
Spruce Heights Multi-Res Edmonton Multifamily Spruce Grove AB 2015 103 135,108 114,868
Note: Loan metrics are based on whole-loan balances.
January 2020 8
Presale Report | REAL-T 2020-1
DBRS Morningstar Sample
D BRS MO RNINGS TAR S AM PLE RE S U LTS
DBRS DBRS
DBRS Morningstar DBRS Morningstar
Prospectus % Morningstar NCF Variance Morningstar Property
ID Loan Name of Pool NCF ($) (%) Major Variance Drivers Quality
1 Sheraton Gateway Hotel Toronto A1 8.2 12,797,939 -1.2 Nominal Average
2 LBC Carrefour Retail 7.1 3,254,217 -8.0 TI/LC, Recoveries Average (-)
3 O'Shaughnessy Tower 4.9 1,810,058 -6.4 Vacancy, TI/LC, Leasing Credit Average
4 Rossignol Drive Retirement Residence 3.9 1,595,511 -4.0 Nominal Above Average
5 Robinson Street Office 3.7 1,363,567 -8.8 TI/LC, Vacancy, Recoveries Above Average
6 Regency of Lakefield Retirement 3.3 1,355,818 -5.0 Operating Expenses Above Average
7 Metro 1827 Regina 3.3 1,342,427 -8.7 Operating Expenses, Office NCF, Average
Other Income
8 Belleville Walmart 3.2 1,461,678 -9.5 Recoveries, TI/LC Average
9 Wellington Southdale 3.0 1,248,343 -4.8 Vacancy Average
10 Spruce Heights Multi-Res Edmonton 2.6 971,665 -7.4 Operating Expenses, Vacancy Above Average
11 King George Square 2.5 974,172 -6.3 TI/LC Average
12 Evergreen Mall 2.5 933,666 -6.2 Recoveries, Vacancy, Capex Average
13 Mountainview Industrial 2.3 897,018 -1.5 Nominal Average (+)
14 515-531 Nelson Road, Saskatoon SK 2.2 850,708 -9.1 Capex, Recoveries, TI/LC Average
15 Lafayette Retail Repentigny 2.2 899,740 -6.0 TI/LC, Vacancy Average
16 Ronn Road Industrial 2.2 827,324 -8.2 TI/LC Average (+)
17 Avenue Edmonton Portfolio A 2.1 762,030 -9.1 Vacancy, Operating Expenses, Capex Average
18 Imperial Centre Retail 1.9 715,928 -6.8 TI/LC, Vacancy, Recoveries Average
19 Rue de Lisbonne Industrial 1.9 718,780 -4.4 Nominal Average (+)
20 161 Bridge Street West, Belleville ON 1.9 849,391 -6.3 Capex, TI/LC Average
21 Crossing Bridge Square 1.8 723,186 -6.4 Vacancy, Capex Average
22 Avenue Edmonton Portfolio B 1.8 678,794 -5.7 Vacancy Average
23 Avenue MF Medicine Hat Portfolio 1.8 739,217 -5.2 Vacancy Average
24 Henry Street Industrial 1.8 828,055 -1.9 Nominal Average
26 Avenue MF Saskatoon 1 1.7 691,109 -5.7 Operating Expenses Below Average
27 New Horizons Tower Retirement 1.7 839,511 -8.5 Operating Expenses Average
30 Edwards Drive Townhomes 1.6 555,496 -6.2 Operating Expenses Average (+)
31 Lantern Bay MHC 1.6 615,377 -17.4 Other Income, Vacancy, Operating Average
Expenses
32 Château Sainte-Marie Multifamily 1.6 609,284 -7.0 Operating Expenses Above Average
37 Yonge Street Retail 1.0 379,120 -4.9 Nominal Average (+)
40 Sheppard Retail Toronto 0.9 372,650 -10.7 TI/LC, Vacancy, Recoveries Average
42 Comfort Inn Halifax 0.7 382,469 -0.8 Nominal Average
51 Magnum Building Extension 0.3 138,237 -2.8 Nominal Average
January 2020 9
Presale Report | REAL-T 2020-1
DBRS MORNINGSTAR SITE INSPECTIONS DBRS Morningstar Sampled Property Quality
The DBRS Morningstar sample included 33 of the 52 loans
# of % of
in the pool, representing 83.1% of the pool by allocated loan Loans Sample
balance. DBRS Morningstar performed site inspections on Excellent 0 0.0
47 of the 86 properties in the deal, comprising 82.4% of the Above Average 5 18.2
pool by allocated loan balance. DBRS Morningstar conducted Average (+) 5 10.7
meetings with an on-site property manager, a leasing agent, or Average 21 60.5
a representative of the borrowing entity for 20 loans, which Average (-) 1 8.5
represent 64.6% of the pool by allocated loan balance. Below Average 1 2.1
Poor 0 0.0
DBRS MORNINGSTAR CASH FLOW ANALYSIS
DBRS Morningstar completed a cash flow review and a cash flow stability and structural review on 33 of the 52 loans, rep-
resenting 83.1% of the pool by loan balance. For loans not subject to an NCF review, DBRS Morningstar applied the average
NCF variance.
DBRS Morningstar generally adjusted cash flow to current in-place rent and, in some instances, applied an additional
vacancy or concession adjustment to account for deteriorating market conditions or tenants with above-market rent. In
certain instances, DBRS Morningstar accepted contractual rent bumps if they were within market levels. Generally, DBRS
Morningstar recognized most expenses based on the higher of historical figures or the borrower’s budgeted figures. Real
estate taxes and insurance premiums were inflated if a current bill was not provided. Capex was deducted based on the
higher of the engineer’s inflated estimates or the DBRS Morningstar standard, according to property type. Finally, leasing
costs were deducted to arrive at the DBRS Morningstar NCF. If a significant upfront leasing reserve was established at
closing, DBRS Morningstar reduced its recognized costs. DBRS Morningstar gave credit to tenants not yet in occupancy
if a lease had been signed and the loan was adequately structured with a reserve, LOC, or holdback earn-out. The DBRS
Morningstar sample had an average NCF variance of -6.4% and ranged from -17.4% (Lantern Bay MHC) to -0.8% (Comfort
Inn Halifax).
DBRS Morningstar Sampled Property Type
30.0% 30.0%
25.0% 25.0%
20.0% 20.0%
% of Sample
% of Pool
15.0% 15.0%
10.0% 10.0%
5.0% 5.0%
0.0% 0.0%
Anchored Full Service Industrial Limited MHC Multifamily Office Senior Unanchored
Retail Hotel Service Hotel Housing Retail
Excellent Above Average Average (+) Average Average (-) Below Average Poor Pool
January 2020 10Presale Report | REAL-T 2020-1
Transaction Concentrations
DBRS Morningstar Property Type Geography
# of % of # of % of
Property Type Loans Pool State Properties Pool
Anchored Retail 9 23.9 ON 24 47.0
Full Service Hotel 1 8.2 QC 8 19.9
Industrial 6 8.8 AB 32 14.9
Limited Service Hotel 1 0.7 SK 15 9.9
MHC 4 3.1 MB 3 4.5
Multifamily 15 24.2 BC 2 2.7
Office 4 9.4 All Others 2 1.0
Senior Housing 4 10.1
Unanchored Retail 8 11.6
Loan Size DBRS Morningstar Market Types
# of % of # of % of
Loan Size Loans Pool Market Type Properties Pool
Very Large 4 24.1 1 10 14.5
(>$20.0 million) 2 10 19.9
Large 15 38.8 3 7 17.8
($10.0-$20.0 million)
4 14 24.8
Medium 19 29.5
($5.0-$10.0 million) 5 7 14.3
Small 9 6.1 6 3 7.7
($2.0-$5.0 million) 7 1 1.0
Very Small 5 1.5
(Presale Report | REAL-T 2020-1
Loan Structural Features
Pari Passu Notes: One loan, representing 8.2% of the pool, has pari passu debt that is identified in the table below.
PA RI PASSU NO T E S
% of % of Total Pari Passu
Property Name Balance ($) Pool Deal ID Loan Controlling Piece (Y/N)
Sheraton Gateway Hotel Toronto A1 43,835,780 8.2 REAL-T 2020-1 44.0 Y
55,790,992 n/a Future Securitizations 56.0 N
99,626,772 100.0
January 2020 12Presale Report | REAL-T 2020-1
Subordinate Debt: One loan, representing 1.6% of the pool balance, is encumbered by a second mortgage, which is sub-
ject to the terms of a subordination and standstill agreement entered into in favour of the lender. In addition, five loans,
representing 8.2% of the pool, are permitted to incur subordinate debt in the future subject to acceptable subordination
and standstill agreements as well as certain terms and conditions being met, including satisfactory DSCR and LTV tests.
Interest Only DBRS Morningstar Expected Amoritization
# of # of % of
Loans % of Pool Loans Pool
Full IO 0 0.0 0.0% 0 0.0
Partial IO 0 0.0 0.0%-5.0% 0 0.0
Amortizing 52 100.0 5.0%-10.0% 6 13.9
10.0%-15.0% 11 13.7
15.0%-20.0% 5 10.1
20.0%-25.0% 24 48.6
>25.0% 6 13.7
Note: For certain ARD loans, expected amortization may include amortization
expected to occur after the ARD but prior to single/major tenant expiry.
SU BO RDINATE DEBT
Second Future
Trust Balance Pari Passu B Note Mortgage Subordinate Total Debt
Loan Name ($) Balance ($) Balance ($) Balance ($) Debt (Y/N) Balance ($)
Mountainview Industrial 12,175,821 0 0 0 Y 12,175,821
Ronn Road Industrial 11,529,757 0 0 0 Y 11,529,757
161 Bridge Street West, Belleville ON 9,904,211 0 0 0 Y 9,904,211
Edwards Drive Townhomes 8,460,603 0 0 500,000 N 8,960,603
Lakeshore Drive Retail North Bay 5,149,805 0 0 0 Y 5,149,805
Westmore Landing Retail 4,951,452 0 0 0 Y 4,951,452
Leasehold: Two loans, Sheraton Gateway Hotel Toronto A1 and New Horizons Tower Retirement, representing 10.0%
of the pool balance, are fully secured by the borrower’s leasehold interest. Sheraton Gateway Hotel Toronto has a ground
lease with an initial expiration date of February 28, 2031, and a 20-year renewal option. New Horizons Tower Retirement
has a ground lease with an initial expiration date of December 31, 2027, and two 22-year renewal options.
January 2020 13Presale Report | REAL-T 2020-1
Borrowers: Consistent with other Canadian CMBS transactions, the borrowers and the beneficial owners of the mort-
gaged properties are generally not SPEs and will not be restricted from having or acquiring other properties and assets
and/or incurring other liabilities or indebtedness that are either unsecured or secured by real or personal property other
than a mortgaged property. Any such additional liability or indebtedness may have an adverse effect on that borrower’s
ability to satisfy its obligations with respect to the relevant mortgaged property under the applicable mortgage loan.
Sponsor Strength: Nine loans, representing 15.2% of the DBRS Morningstar Sponsor Strength
pool, were considered by DBRS Morningstar to have Strong # of % of
sponsor strength, and three loans, representing 10.2% of Loans Pool
Strong 9 15.2
the pool, were considered by DBRS Morningstar to have
Average 40 74.6
Weak sponsor strength. No loans were considered by DBRS
Morningstar to have Bad sponsor strength. Weak 3 10.2
Bad/Litigious 0 0.0
Property Release: Six loans, representing 10.8% of the pool,
permit release or discharge of all or any part of the related
mortgaged property subject to prepayment of the outstand-
ing principal amount allocable to such mortgaged property, together with the requisite prepayment premium, provided
that the remaining loan security is satisfactory to the lender and/or meets certain underwriting thresholds set forth in
the related mortgage loan documents.
Property Substitution: No loans in the pool allow for the substitution of properties.
R E SERVE REQ UIRE M E N T B O R R O W ER ST R U C T U R E
Type Loans % of Pool Type Loans % of Pool
Tax Ongoing 0 0.0 SAE 35 62.0
Insurance Ongoing 0 0.0 Other 17 38.0
CapEx Ongoing 0 0.0
Leasing Costs Ongoing1 0 0.0
1. Percent of office, retail, industrial and mixed use assets based on DBRS Morn-
ingstar property types.
January 2020 14Presale Report | REAL-T 2020-1
Sheraton Gateway Hotel Toronto A1
Toronto, ON
Loan Snapshot
Seller
RBC
Ownership Interest
Leasehold
Trust Balance ($ millions)
43.8
Loan psf/Unit ($)
210,183
Percentage of the Pool (%)
8.2
Loan Maturity/ARD
February 2031
Amortization CO LLATE RA L SU MMA RY
25 years
DBRS Morningstar Property
DBRS Morningstar Full-Service Hotel Year Built/Renovated 1991/Ongoing
Type
Issuance DSCR (x)
City, State Mississauga, ON T-12 RevPar ($) 212.13
1.96
DBRS Morningstar Keys 474 T-12 RevPar Date August 2019
Issuance LTV (%)
74.9 (as-is leasedhold value)
This loan is the A1 portion of a pari passu co-ownership interest in a whole loan
DBRS Morningstar
Balloon LTV (%) secured by the borrower’s leasehold interest in the Sheraton Gateway Hotel Toronto,
50.9 a 474-key full-service hotel in Mississauga, Ontario. The whole loan proceeds of
DBRS Morningstar $100.0 million, along with the borrower’s equity of $65.0 million, were used to finance
Property Type the acquisition of the property at a purchase price of $130.0 million and fund an upfront
Full-Service Hotel property improvement program (PIP) reserve of $15.0 million of the total PIP cost of
DBRS Morningstar $35.0 million. The loan is nonrecourse and structured with a 11-year plus three-month
Property Quality
loan term over a 25-year amortization schedule.
Average
Debt Stack ($ millions)
Built in 1991, the nine-storey hotel is located at Terminal 3 of the Toronto Pearson
Trust Balance
International Airport (the airport) with interior access to Terminal 1 and the Union
43.8
Pari Passu
Pearson Express (UP Express) train station, which is located at Terminal 1, through
the Terminal Link train (Link train). The previous owner, an affiliate of Marriott
55.8
B Note
International Inc. (Marriott), reportedly invested approximately $9.4 million (or
0.0 $19,800 per key) in capital improvements between 2013 and 2018 on building structure,
Mezz mechanical systems, and selected guest rooms and common areas. A brand-mandated
0.0 $35.0 million, or $73,840 per key, PIP program will take place immediately after the
Total Debt completion of the acquisition and is scheduled to be completed within 12 months. The
99.6 PIP program will include extensive renovation of the guest suites and common areas to
Loan Purpose modernize the hotel in line with Marriott’s Signature Line newest generational design
Acquisition standards. Marriott will continue to operate the property through an affiliate under the
Equity Contribution/ Hotel Management Agreement as well as License and Royalty Agreement. The hotel is
(Distribution) ($ millions)
on a 40-year ground lease with Her Majesty the Queen in Right of Canada with expira-
65.0
tion date of February 28, 2031. There is an option to extend the lease for 20 years under
the same terms and conditions if exercised before February 28, 2026. The landlord has
January 2020 15Presale Report | REAL-T 2020-1
SHERATON GATEWAY HOTEL TORONTO A1 – TORONTO, ON
an option to purchase the leasehold property at an agreed-upon market value calculated based on the cash flows projected
for the 20-year renewal period. The new borrower has reportedly submitted to the landlord a written notice to exercise the
option to extend the ground lease for an additional 20 years.
The guest rooms at the hotel mainly consist of king (344 keys) and double (119 keys) rooms. Additionally, the hotel also
offers four accessible guest rooms and seven suite-styled guest rooms available in five different configurations. The hotel’s
amenities package includes full-service restaurant, lobby bar, club lounge, gift shop, business centre, indoor pool, and fit-
ness centre. The hotel offers 18,600 sf of total meeting space that includes 10 different meeting rooms on the main and
lower lobby levels as well as 14 boardrooms located on the third and fourth floor.
C OMPETITIVE SET
Property Distance from Subject (km) Keys Year Opened
Hilton Toronto Airport Hotel & Suites 2 419 January 1971
Alt Hotel Toronto Airport 2 153 July 2012
Holiday Inn Toronto International Airport 2.5 451 June 1970
The Westin Toronto Airport 2.6 290 June 1974
Crowne Plaza Toronto Airport 4 528 June 1982
Sheraton Hotel Gateway Toronto - Subject n/a 474 July 1991
Total 2,315
Source: STR Report
According to the July 2019 STR report, there were five competitive hotels but none of them are located at the airport ter-
minals. The subject’s occupancy rate of 85.5% was higher than the average competitive set occupancy of 78.4%. The ADR
and RevPAR have been outperforming the competitive set and the subject has ranked number one for three years in a row
among the six assets comprising the competitive set. According to the appraisal, there will be three new hotels in the airport
area over the next couple of years; however, only one, the 144-key Element Toronto Airport, is currently under construction
and scheduled to open in July 2020. The other two hotels are still in the proposal stage without specific timelines. None
of these hotels is on the airport site. There is no asset-specific demand analysis for the subject hotel; however, according
to the appraisal, the demand segmentation in 2018 for the competitive market, which covers 22 midscale limited, focused,
full-service, and extended-stay hotels, including the subject, within five kilometres distance from the airport, comprises
31% for each of corporate and leisure, and 19% for each of meeting/conferences and government/other.
ST R REPO RT SUM M ARY
Occupancy (%) ADR ($) RevPAR ($)
Subject 85.5 248.07 212.20
Competitive Set 78.4 146.77 115.02
Index (%) 109.1 169.0 184.5
Note: For the period ending July 31, 2019.
SPONSORSHIP
The loan indemnitor is the borrowing entity, which is a single-asset entity controlled by Knightstone Capital Management
Inc. (Knightstone), a Toronto-based private real estate company founded in 2001 and specializing in the development and
management of assets that produce long-term cash flow. Knightstone currently manages a portfolio of investment proper-
ties valued at over $1.0 billion with a concentration on hospitality, commercial, residential, and academic assets.
January 2020 16Presale Report | REAL-T 2020-1 SHERATON GATEWAY HOTEL TORONTO A1 – TORONTO, ON The hotel reportedly continues to be operated and managed by Sheraton Gateway Limited Partnership, which is an affiliate of Marriott, with a management agreement coterminous with the land lease agreement until February 28, 2031. DBRS MORNINGSTAR ANALYSIS SITE INSPECTION SUMMARY Based on the DBRS Morningstar site inspection and management meeting conducted on November 20, 2019, DBRS Morningstar found the property quality to be Average. The hotel is located on the airport premises, which is located approximately 23.0 kilometres northwest of downtown Toronto in the northwest quadrant of the interchange of Hwy. 401 and Hwy. 427. The hotel is situated directly across from the Terminal 3 building and is connected to Terminal 3 through a climate-controlled bridge. The interterminal Link train, which has a stop at the hotel, connects the hotel to Terminal 1 and UP Express train, which connects the airport to downtown Toronto through 25-minute train ride. The hotel is located approximately seven kilometres from the Airport Corporate Centre, which is home to Canadian head offices of over 60 Fortune 500 U.S. companies and a major corporate demand generator for the hotel. The nine-storey hotel sits atop of a five-storey parking structure and features a dark green exterior with accentuated dark red window frames. DBRS Morningstar notes that the exterior of the hotel is well-maintained and in good condition. According to the representative of ownership, there is no plan for exterior renovation in the near future. There are three entrances, two on the lobby level and one on the conference level, which is one level below the lobby. The main entrance is located on the lower lobby level directly across from the departures level of the Terminal 3. An escalator leads guests up to the lobby level where the reception desks are located. One of the entrances on the lobby level is connected to Terminal 3 via a climate-controlled bridge and is also a stop of the Link train which runs 24 hours a day. The other entrance on the lobby level is from the rooftop of the parking structure. The lobby level houses a restaurant, bar, business centre, fitness centre, pool, and spa. According to the representative of the ownership, the lobby bar is always busy but the restaurant is less utilized because of the numerous dining options available in the terminals. The ownership intends to expand the lobby bar making it a full-service bar and restaurant while converting the existing restaurant into a club lounge. Accordingly, the existing club lounge, along with the presidential suite, both of which are located on the eighth floor, will be converted into six standard guest rooms. All meeting rooms are located on the conference level, except one on the lobby level. The 14 small boardrooms are located on the third and fourth floors with windows facing the Link train. DBRS Morningstar toured some of meeting spaces and boardrooms and noted dated decor and fixtures. All guest rooms are located on the third to eighth floors. DBRS Morningstar inspected a standard king guest room and a standard double-queen guest room. All rooms were outfitted with bathtubs and flatscreen TVs. Although they appeared well maintained and in reasonable condition, DBRS Morningstar noted dated furniture and furnishings. DBRS Morningstar also toured two model guest rooms that were January 2020 17
Presale Report | REAL-T 2020-1
SHERATON GATEWAY HOTEL TORONTO A1 – TORONTO, ON
stripped to barebones at the time of DBRS Morningstar site inspection waiting for new furniture, fixtures, and decoration
materials. According to the representative of the ownership, once completed, these two model guest rooms will be used
to showcase the new Sheraton brand-standard decor, furniture, and fixtures. Overall, the hotel’s common area, amenities,
and guest rooms appeared well maintained, but the decor, furnishings, and light fixtures appeared dated. The $35.0 million
PIP renovation will incorporate Sheraton 2020 brand standards that include upgrades of all case goods and soft goods in
the guest rooms, replacement of finishes and soft goods in the guest room bathrooms, case goods and soft goods upgrades
in the food and beverage spaces, and meeting spaces. The plans also include modernization of the elevator cabs, cooling
tower replacements, and roof replacement and/or repairs. At the time of DBRS Morningstar site inspection, installation of
new cooling towers was in progress. The representative of the ownership noted that the renovation would take 12 months,
closing no more than a third of the rooms at any given time.
DBRS MORNINGSTAR NCF ANALYSIS
N C F ANALYSIS
DBRS Morn-
T-12 August 2019 ingstar NCF NCF Variance
2017 ($) 2018 ($) ($) Issuer NCF ($) ($) (%)
Occupancy (%) 83.6 82.1 85.2 83.6 80.0 -4.3
ADR 239 244 249 249 249 2.0
RevPAR 200 200 212 208 199 -2.5
Total Departmental Revenue 47,954,994 47,817,350 50,598,200 49,647,999 47,475,022 -4.4
Total Deparmental Expense 16,592,282 17,137,304 17,271,805 16,947,452 16,205,702 -4.4
Total Departmental Profit 31,362,712 30,680,046 33,326,395 32,700,547 31,269,320 -4.4
Total Undistributed Expense 10,210,329 10,061,616 10,924,972 12,169,809 11,420,949 -6.2
Total Fixed Expense 4,891,409 4,877,370 5,161,016 5,597,634 5,151,431 -8.0
NOI 16,260,974 15,741,060 17,240,406 14,933,104 14,696,940 -1.6
FF&E 1,198,875 1,195,434 1,264,955 1,985,920 1,899,001 -4.4
NCF 15,062,099 14,545,626 15,975,451 12,947,184 12,797,939 -1.2
The DBRS NCF is based on the DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria.
Corresponding to the as-is appraised value of $133.0 million prior to the $35.0 million PIP program, the DBRS Morningstar
As-Is NCF was $12,797,939, a variance of -1.2% from the Issuer’s NCF.
DBRS MORNINGSTAR VIEWPOINT
The hotel is well located in the Toronto Person International Airport, which is the largest and busiest airport in Canada
and the second-busiest international air passenger gateway in North America, handling over 49.5 million passengers in
2018. As the only hotel at the airport terminals, the subject benefits from convenient access to both terminals and numer-
ous retail and food service amenities available at either of the terminals as well as in the immediate area surrounding
the airport. Although the STR listed five competing hotels, all of these hotels are located in inferior locations off-site of
the airport. The hotel management noted that the subject hotel increasingly competes with hotels in downtown Toronto
since the UP Express train opened in 2015. The hotel increasingly attracts guests, either corporate or leisure travellers,
who chose to stay at the subject because of convenience to catch early flights and at a cheaper price compared to hotels in
downtown Toronto, while still enjoying access to various entertainment events and facilities, or the ability to do business
in downtown Toronto. The subject hotel benefits from the continued management by Marriott and the strong global brand
recognition. With Marriott’s worldwide network, the subject hotel further benefits from Marriott’s innovative sales and
marketing strategies, state-of-the-art technology, and global negotiating power, as well as the access to over 100 million
January 2020 18Presale Report | REAL-T 2020-1 SHERATON GATEWAY HOTEL TORONTO A1 – TORONTO, ON combined loyalty members from various hotel brands operated by Marriott. The upcoming PIP program, once complete, will enhance guest experiences at the hotel with the state-of-the-art Sheraton brand standards and thereby further improve the hotel’s competitiveness. The whole loan amount of $100.0 million represents 75.2% of the as-is leasehold appraised value of $133.0 million and 59.5% of the as-complete leasehold appraised value of $168.0 million. DBRS Morningstar model recognized an increased loan-level expected loss in the as-complete scenario, which was caused by an increased NCF variance of -16.6% to the Issuer’s NCF. The increased NCF variance was driven by DBRS Morningstar’s increased FF&E requirement to include the $20.0 million unreserved portion of PIP cost divided by 10 years. The resulting DBRS Morningstar of FF&E was $8,226 per key compared to the Issuer’s $4,190 per key. Nevertheless, the whole loan at $210,970 per key is considered reasonable for a full-service hotel in the Greater Toronto Area. Additionally, the loan benefits from a 25-year amortization schedule that results in a balloon LTV of 50.9% and 40.3% based on as-is and as-complete values, respectively. DOWNSIDE RISKS – The loan is nonrecourse and is indemnified only by the single-purpose borrowing entity whose only asset is the subject hotel. STABILIZING FACTORS – DBRS Morningstar increased POD of the loan to account for lack of warm-body guarantor. January 2020 19
Presale Report | REAL-T 2020-1
LBC Carrefour Retail
Trois-Rivières, QC
Loan Snapshot
Seller
RBC
Ownership Interest
Fee Simple
Trust Balance ($ millions)
37.5
Loan psf/Unit ($)
77
Percentage of the Pool (%)
7.1
Loan Maturity/ARD
August 2022
Amortization CO LLATE RA L SU MMA RY
25 years
DBRS Morningstar 1969/2003–04,
DBRS Morningstar Anchored Retail Year Built/Renovated
Property Type 2014–16
Issuance DSCR (x)
City, State Trois-Rivières, QC Physical Occupancy (%) 91.6
1.29
DBRS Morningstar Units/SF 485,557 Physical Occupancy Date July 2019
Issuance LTV (%)
57.5
The loan is secured by the borrower’s fee simple in LBC Carrefour Retail, a 485,557-sf
DBRS Morningstar
Balloon LTV (%) anchored retail complex located in Trois-Rivières, Québec, located 130.0 kilometres
53.3 (km) southwest of Québec City and 138.0 km northeast of Montréal. The Royal Bank of
DBRS Morningstar Canada purchased the loan from another Canadian bank. The original loan had a five-
Property Type year term with amortization of 25 years, as of the cutoff date, the loan had 30 months
Anchored Retail of seasoning. The original loan proceeds of $40.0 million was used to refinance various
DBRS Morningstar existing loans of approximately $36.9 million in total, finance capex of $0.7 million, and
Property Quality
return $2.5 million cash equity to the borrower. The loan is nonrecourse.
Average (-)
Debt Stack ($ millions)
The retail complex comprises two single-storey centres called Carrefour Trois-Rivières
Trust Balance
Ouest, which is a Walmart-anchored enclosed shopping mall (the Mall), and Carrefour
37.5
Pari Passu
des Récollets, a retail plaza anchored by Staples (the Plaza). Constructed in 1969, the
two properties hold a combined 485,557 rentable sf across 33.9 acres. The Mall is an
0.0
B Note
enclosed community shopping centre with multiple buildings holding 421,427 sf while
0.0 the Plaza is a single building with over 64,130 sf. The property has a total of 1,925 park-
Mezz ing spots. The sponsor invested $282,000 between 2015 and 2019 to roofing, storm drain
0.0 infrastructure, and pavement repairs. The sponsor budgeted an additional $673,000 for
Total Debt exterior repairs and HVAC maintenance systems scheduled in 2020.
37.5
Loan Purpose
Refinance
Equity Contribution/
(Distribution) ($ millions)
-2.5
January 2020 20Presale Report | REAL-T 2020-1
LBC CARREFOUR RETAIL – TROIS-RIVIÈRES, QC
T E NANT SUMMARY
DBRS
Morningstar % of Total DBRS Investment
Base Rent PSF Morningstar Base Grade?
Tenant SF % of Total NRA ($) Rent Lease Expiry (Y/N)
Wal-Mart Canada Corp 159,430 32.8 8.67 28.5 November 2023 Y
L'Aubainerie 39,614 8.2 8.00 6.5 July 2027 N
Quillorama les Riveres Inc 32,700 6.7 11.14 7.5 September 2025 N
Best Buy 25,500 5.3 12.00 6.3 January 2022 Y
Surplus R.D. Inc. 24,971 5.1 6.50 3.4 December 2020 N
Bureau en Gros 24,300 5.0 13.87 7.0 October 2021 N
Cinemas Fleur de Lys 24,274 5.0 12.00 6.0 November 2021 N
World Gym Trois-Rivieres 23,151 4.8 10.75 5.1 May 2036 N
Subtotal/Wtd. Avg. 353,940 72.9 9.63 70.4 Various N
Other Tenants 90,698 18.7 15.82 29.6 Various N
Vacant Space 40,919 8.4 n/a n/a n/a n/a
Total/Wtd. Avg. 485,557 100.0 9.97 100.0 Various Various
The subject is largely occupied by multinational corporations and Québec-based retail businesses. The largest tenant at
the property is Walmart Canada Corp. (Walmart), the Canadian division of Walmart Inc., which was founded in 1962 and
quickly became one of the largest multinational discount retail chains in the world. The two Walmart leases—one for the
original space of 129,430 sf, which commenced in November 2003, and the other for the 30,000 sf expansion, which com-
menced in July 2015—will expire three months after loan maturity, but there are eight five-year renewal options. The
second-largest tenant is L’Aubainerie, which is a Québec-based clothing retailer providing affordable fashion for men,
women, teens, children, and babies. With 58 stores across Québec, L’Aubaineire is the largest clothing retailer in the prov-
ince. As of the July 1, 2019, rent roll, the collateral was 91.6% occupied. The property has historically been well occupied as
the borrower reported that, between 2011 and 2017, the property’s vacancy rate ranged between 0.04% and 7.70%. There is
no significant rollover during the loan term with total 14 tenant spaces, representing 36.7% of the NRA, scheduled to expire
ranging from 8.3% to 12.0% per annum. There is no recent sales data available but, according to the appraisal, only 13 ten-
ants reported sales in 2016 with average comparative commercial retail unit (CRU) sales of $198 psf.
The appraiser indicated that the main competition to the subject was Les Rivières Shopping Centre, which is a 550,000-sf
regional mall approximately 4.0 km northeast of the subject. The centre, which has the most recent average CRU sales of
$422 psf, is anchored by Réno-Dépôt, Toys “R” Us, IGA, Sports Experts, Atmosphere, and a vacant anchor space formerly
occupied by Sears. The centre has a very large fashion tenancy, primarily carrying middle-range to high-end clothing lines.
January 2020 21Presale Report | REAL-T 2020-1 LBC CARREFOUR RETAIL – TROIS-RIVIÈRES, QC SPONSORSHIP The sponsors for the loan are Bayfield Trois- Rivières Inc., Bayfield Trois-Rivières LP, and Bayfield Realty Advisors Inc. Bayfield Realty Advisors Inc. was founded in 2005 as a real estate investment firm that specializes in the acquisition, devel- opment, and management of commercial assets. It currently holds a portfolio worth $725.0 million across 4.0 million sf in leasable space. The borrowing entity for the loan is 4258606 Canada Inc., an entity designed specifically for the loan that is wholly owned by Bayfield Trois-Rivières LP. Cogir Management Corporation provides property management for a contractual management fee of 4.0% EGI. The man- agement company oversees 7.0 million sf in commercial space and approximately 19,750 residential units. DBRS MORNINGSTAR ANALYSIS SITE INSPECTION SUMMARY DBRS Morningstar held a management meeting and conducted a guided site tour on September 24, 2019, and found the property quality to be Average (-). The loan collateral consists of two retail properties, the Mall and the Plaza, in Trois-Rivières approximately 140 km east of downtown Montréal. The two properties are adjacent to each other and located within a busy retail node that is situated on the southeast side of the intersection of Autoroute 40 and 55, easily accessible from both highways. The Mall is a Walmart- anchored enclosed shopping mall with three pad buildings while the Plaza is a small L-shaped retail plaza anchored by Staples. Other major retailers within the retail node include Costco, The Brick, RONA, and Winners/HomeSense. On the southwest side of the intersection is an 11 million sf site for a new integrated commercial, leisure, and residential commu- nity called District 55, which is currently under development and expected to cost $800 million. Once complete, District 55 will include 800,000 sf of commercial spaces including a hotel, which is currently under construction; a 5,000-seat sports arena; and multiphased residential developments that include 500 condominium units as well as numerous of townhouses, semidetached or detached single-family houses, and rental apartment units. At the time of DBRS Morningstar’s site inspection, the Plaza appeared to be in good condition and was fully leased to and occupied by four tenants. All tenant spaces were well stocked and bright. DBRS Morningstar noted that the Mall, which had approximately 8.4% of vacant space at the time of DBRS Morningstar’s site inspection, had various physical conditions from section to section. In general, the exterior of the Mall appeared to be in reasonable condition, although some sections appeared newer than others and the interior of the Mall appeared dated. At the time of DBRS Morningstar’s site inspection, roof repair work was in progress and expected to be completed over the following few months. DBRS Morningstar noted that traffic flow within the Mall was not fluent because of the Mall’s unfavorable layout, which created too many turns and January 2020 22
Presale Report | REAL-T 2020-1
LBC CARREFOUR RETAIL – TROIS-RIVIÈRES, QC
long hallways that lacked storefronts and strong anchors at the end of hallways to draw shoppers. In general, stores with
direct exterior access appeared to be busier than those with only interior access. Except a vacant restaurant space with
exterior access, all other vacant units only have interior access. According to the property manager, the restaurant, which
used to be very busy, was closed for issues related the restaurant’s internal management. The property manager noted many
inquiries about the vacant restaurant space and a new tenant should take occupancy in the near future. DBRS Morningstar
noted that the Walmart Supercentre was bright and well stocked; its grocery section appeared to be bigger and cleaner than
other Walmart Supercentres that DBRS Morningstar visited in Canada. According to the property manager, the bowling
alley (Quillorama Trios-Rivières) and the cinema (Cinema Fleur De Lys) were often very busy and became attractions for
the Mall. The food court opposite the cinema, which was barricaded at the time of DBRS Morningstar’s site inspection, was
set to undergo renovation and redevelopment; however, management had not established a timeline for this project.
Overall, the property site and building exterior appeared to be in reasonable condition while the Mall interior appeared to
require updates.
DBRS MORNINGSTAR NCF SUMMARY
N C F ANALYSIS
DBRS
T-12 July 2019 Morningstar NCF Variance
2016 ($) 2017 ($) 2018 ($) ($) Issuer NCF ($) NCF (%)
GPR 4,709,548 5,110,602 5,272,468 5,264,986 5,358,323 5,334,211 -0.4
Recoveries 2,444,004 3,205,944 2,720,344 2,688,664 2,787,664 2,799,270 0.4
Other Income 116,943 79,343 66,830 65,890 65,890 65,890 0.0
Vacancy 0 -101,991 -172,558 -161,857 -487,018 -491,028 0.8
EGI 7,270,495 8,293,899 7,887,084 7,857,684 7,724,859 7,708,343 -0.2
Expenses 3,629,212 3,987,385 3,801,774 3,796,860 3,846,685 3,901,087 1.4
NOI 3,641,283 4,306,513 4,085,310 4,060,823 3,878,174 3,807,255 -1.8
Capex 0 0 0 0 223,356 233,083 4.4
TI/LC 0 29,477 31,732 30,016 117,884 319,955 171.4
NCF 3,641,283 4,277,037 4,053,578 4,030,808 3,536,934 3,254,217 -8.0
The DBRS Morningstar NCF is based on the DBRS Morningstar North America Commercial Real Estate Property Analysis
Criteria. The resulting DBRS Morningstar NCF was $3,254,217, a variance of -8.0% from the Issuer’s NCF. The primary driv-
ers of the variance were leasing costs. DBRS Morningstar generally based TIs on the appraiser’s estimate of $10.00 psf and
$2.50 psf for new and renewal leases while LCs were 5.0% and 2.5% for new and renewal leases, respectively. The resulting
DBRS Morningstar total leasing costs were $0.66 psf compared with the Issuer’s figure of $0.24 psf.
DBRS MORNINGSTAR VIEWPOINT
Although in a tertiary market, the subject is well located within a busy retail node in a growing area and benefits from
increased consumer confidence and buying power because of Québec’s booming economy. In addition to serving local
residents, the subject area also attracts shoppers from Bécancour, which is on the south shore of the St. Lawrence River,
approximately a five-minute drive through the Laviolette Bridge. Many Bécancour residents work in Trois-Rivières and
commute daily. According to the property manager, there have been significant residential development activities in
Bécancour, but no planned retail developments; therefore, the subject area is the closest retail designation for residents
in Bécancour. Although the appraiser listed Les Rivières Shopping Centre as the main competitor, the two retail centres
target different customer bases; the former generally caters to high-fashion customers whereas the subject serves primarily
January 2020 23Presale Report | REAL-T 2020-1 LBC CARREFOUR RETAIL – TROIS-RIVIÈRES, QC value-focused shoppers. Like many older enclosed community malls, however, the subject increasingly faces challenges from ever-growing e-commerce. Occupancy has declined to its current level of 91.6% from 98.9% at the time of loan origi- nation. Nevertheless, the subject is well anchored by a Walmart Supercentre, the only major supermarket in the subject area. Additionally, the subject’s entertainment- and leisure-oriented tenants, such as the cinema and bowling alley, create additional customer draw. Furthermore, the subject benefits from the long-term commitment of capable sponsors since 2006 and experienced third-party property management, which has started a remerchandising program to attract more service-oriented tenants. According to the property manager, leasing discussions with financial service providers and food- related businesses are in progress. The loan has a relatively low cutoff date LTV of 57.5% and continues to amortize down to 53.3% at loan maturity. DOWNSIDE RISKS – While there is no significant lease rollover during the loan term, the Walmart leases, representing 32.8% of total NRA and 28.5% of in-place rents, will expire in November 2023, three months after loan maturity. This represents elevated refinance risk if Walmart chooses not to renew at lease expiration. STABILIZING FACTORS – Walmart has been in occupancy since 2003 and expanded its store by 30,000 sf from 2014 to 2015, which is a strong indication of the tenant’s commitment to the subject location. Additionally, the two leases have eight five-year renewal options. January 2020 24
Presale Report | REAL-T 2020-1
O’Shaughnessy Office Tower
Montréal, QC
Loan Snapshot
Seller
RBC
Ownership Interest
Fee Simple
Trust Balance ($ millions)
25.9
Loan psf/Unit ($)
178
Percentage of the Pool (%)
4.9
Loan Maturity/ARD
November 2029
Amortization CO LLATE RA L SU MMA RY
30 years
DBRS Morningstar
DBRS Morningstar Office Year Built/Renovated 1957/2014 & ongoing
Property Type
Issuance DSCR (x)
City, State Montréal, QC Physical Occupancy (%) 93.61
1.24
DBRS Morningstar Units/SF 145,074 Physical Occupancy Date September 2019
Issuance LTV (%)
1. Physical occupancy excludes month-to-month tenants.
68.8
DBRS Morningstar
Balloon LTV (%) The loan is secured by the borrower’s fee simple interest in O’Shaughnessy Office Tower,
54.1 a 145,074-sf office in Montréal, Québec. The 10-year loan amortizes over a 30-year
DBRS Morningstar schedule and has 50% recourse from a high-net-worth real estate veteran. The borrower
Property Type
will use mortgage loan proceeds of $26.0 million to refinance the approximately
Office
$20.9 million existing Royal Bank of Canada (RBC) loan; fund the $500,000 leasing
DBRS Morningstar
reserve and $125,000 immediate repair reserve; and cover the $4.5 million cash equity
Property Quality
Average
takeout. The loan represents RBC’s second refinancing term on the property. During the
first refinancing term, the borrower invested in significant upgrades to the property’s
Debt Stack ($ millions)
Trust Balance
maintenance systems. Since the acquisition in 2008, the borrower has reportedly
25.9 invested over $7.0 million in capital improvements to the property.
Pari Passu
0.0 The office building, which was constructed in 1957 and has been continually renovated
B Note since 2014, consists of 11 floors and two levels of underground parking for tenants. The
0.0 parking ratio across the parking amounts to 0.63 spaces per 1,000 sf. Major renovations
Mezz over the past three years include roof repairs, tenant fixturing, and HVAC maintenance.
0.0
Total Debt
25.9
Loan Purpose
Refinance
Equity Contribution/
(Distribution) ($ millions)
-4.5
January 2020 25Presale Report | REAL-T 2020-1
O’SHAUGHNESSY OFFICE TOWER – MONTRÉAL, QC
T E NANT SUMMARY
DBRS % of Total
Morningstar DBRS
% of Base Rent Morningstar Lease Investment
Tenant SF Total NRA PSF ($) Base Rent Expiry Grade? (Y/N)
Schwartz, Levitsky, Feldman LLP 13,826 9.5 19.35 10.0 July 2020 N
Matrix College of Management 13,817 9.5 12.79 6.6 October 2020 N
Technology and Healthcare Inc.
Securitas Canada Ltd. 13,669 9.4 24.50 12.5 May 2024 N
Clinique Medic-Elle Inc. 12,952 8.9 17.00 8.2 April 2033 N
Business Center 9,600 6.6 26.00 9.3 August 2032 N
Rising Phoenix 7,700 5.3 25.00 7.2 October 2024 N
La Fondation Pierre Elliott Trudeau 7,453 5.1 26.00 7.2 September 2023 N
Jazz Marketing and 6,100 4.2 17.48 4.0 MTM N
Communications Inc.
Royal Inst. For the Adv.of L 4,971 3.4 12.00 2.2 April 2024 N
Inkas Payments Corp. 4,360 3.0 26.00 4.2 April 2020 N
Subtotal/Wtd. Avg. 94,448 65.1 20.27 71.4 Various N
Other Tenants 40,654 28.0 18.89 28.6 Various n/a
Vacant Space¹ 9,972 6.9 n/a n/a n/a n/a
Total/Wtd. Avg. 145,074 100.0 18.49 100.0 Various n/a
1. DBRS Morningstar’s vacant space includes tenants that are vacanting in the near future and tenants that are not in occupancy.
The subject holds a broad roster of tenants operating in the accounting, education, medical, and security industries, among
others. The subject’s largest tenant by NRA is Schwartz Levitsky Feldman LLP, a Canadian accounting firm, which uses
the property as its Montréal office. Securitas Canada Ltd. is the largest tenant by rental income at the property, serving as
a security and consulting firm with over 300,000 employees worldwide. As of the September 1, 2019, rent roll, there were
three vacant units totalling 2,563 sf or physical vacancy of 1.8%. One tenant, representing 1,636 psf or 1.1% of total NRA,
was scheduled to vacate upon its lease expiration at the end of October 2019 and another tenant, representing 2,253 sf or
1.6% of total NRA, would roll over to month-to-month status upon its lease expiration at the end of September 2019. Jazz
Marketing and Communications Inc.’s (Jazz Marketing) lease, representing 6,100 sf or 4.2% of total NRA, would have
expired at the end of September 2019, but the tenant signed a lease renewal at the time of DBRS Morningstar’s site inspection
on September 23, 2019. The renewal term is yet to be determined. Historically, the property has been well occupied with an
average occupancy of 91.0% since 2015. Rollover throughout the loan term is heavily concentrated in 2020 and 2024 when
two leases, representing 24.3% and 18.2% of the NRA, respectively, are scheduled to expire.
SPONSORSHIP
The sponsors for the loan are 1980 Sherbrooke West Properties Inc. (1980 Sherbrooke) and Thomas Marmaros.
1980 Sherbrooke was established in 2009 for the sole purpose of acquiring the subject property. Thomas Marmaros is
an experienced investor with 40 years of operating in the industry and currently manages a portfolio of over 24 income-
producing properties with his son, Jonathan Marmaros. As of December 2018, Thomas Marmaros reported a net worth is
in excess of the loan amount.
IMC Real Estate, Inc., an affiliate of the sponsors, manages the property for a contractual management fee of 4.0% EGI.
The company has over 15 years of experience in acquiring, improving, leasing, and managing properties in North America.
January 2020 26Presale Report | REAL-T 2020-1 O’SHAUGHNESSY OFFICE TOWER – MONTRÉAL, QC DBRS MORNINGSTAR ANALYSIS SITE INSPECTION SUMMARY Based on the DBRS Morningstar site inspection and management meeting held on September 23, 2019, DBRS Morningstar found the property to be Average (-). The property is an 11-storey office building on the south side of Sherbrooke Street West, a major east-west artery in the Shaughnessy Village neighbourhood of Ville-Marie, which is the downtown core of Montréal. Shaughnessy Village is a busy commercial neighbourhood known for its popular restaurants and eateries as well as fashion houses around Saint Catherine Street. The subject’s surrounding area comprises mixed-property types, including residential condominiums and apartments, religious buildings, museums, offices, shops and retail complexes, as well as educational institutions. The Gramercy Residences, a recently redeveloped luxury residential condominium complex, is immediately east of the subject while the chancery office building for the Diocese of Montreal is immediately west. Directly across Sherbrooke Street West to the north are two historical complexes: the Grand séminaire de Montréal and Collège de Montréal. Properties across the street to the south are primarily mid- to high-rise rental apartments. Concordia University is approximately 500 metres southeast of the subject. Additionally, the subject is adjacent to Westmount, which is an affluent community in Montréal and one of richest neighbourhoods in Canada. DBRS Morningstar noted that there was no visitor parking at the subject because the 90 underground parking spots are reserved for tenants; however, a paid parking lot is available across street at the Grand séminaire de Montréal. Additionally, the subject is well serviced by many bus routes along Sherbrooke Street West and two metro stations, including Guy-Concordia station, which is an approximately eight-minute walk east, and Atwater station, which is an approximately nine-minute walk west of the subject. The subject has two municipal addresses: 1984 Sherbrooke Street West represents the west half of the ground floor, which is entirely leased to and occupied by Jazz Marketing, and 1980 Sherbrooke Street West houses the rest of the building, including all upper floors and the east half of the ground floor, which is the main entrance for upper-floor tenants. There is no interior access from the lobby to Jazz Marketing’s space. The north facade fronting Sherbrooke Street West features a glass curtain wall, but the other three elevations are finished with a mix of brick walls and vertical concrete pilasters delineating individual windows. The building was built in 1957 and its appearance generally reflects its age. The exterior appears to be dated, but the front elevation’s unique horizontally concaved glass curtain wall was noticeable from a distance. According to the property manager, the owners plan to renovate the building facade in the next few years. The main entrance lobby is spacious and features granite wall panels and flooring; however, the recessed ceiling lighting hidden behind black beams make the lobby appear dark and dated. DBRS Morningstar toured four office floors and noted various conditions. Elevator lobbies on some floors appeared to be recently renovated and in very good condition while other floors were dated and still covered with old carpet. The property manager noted that the dated elevator lobbies will be upgraded in the next few years. Similarly, the office space condition varies. Some recently renovated tenant office spaces were bright and well finished, but others appeared to require some updates. Nevertheless, all DBRS Morningstar-toured office spaces have functional layouts January 2020 27
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