Bank of American is marketing $166 million of bonds backed by a commercial mortgage on One Channel Center, 500,000 square foot office building and adjacent parking garage in Boston, according to Standard & Poor’s.

BAMLL Commercial Mortgage Securities Trust 2016-SS1

Among the strengths of the deal, according to S&P, is the fact that the building is a newly constructed and complies with Leadership in Energy and Environmental Design (LEED) Silver standard, 100% occupied, 11-story class A office building located in Boston's Seaport submarket with close proximity to a Red Line subway station. The property was completed in 2014 and delivered as a build-to-suit for State Street Corp. ('A/Stable/A-1'), which fully occupies the property. Building amenities include a 1.6-acre public park (non-collateral), cafeteria, fitness center, nine-foot high finished ceilings, and 130-space bike rack/storage.

The Seaport submarket has seen continual redevelopment in recent decades and has transitioned into an attractive office and residential submarket from its historically maritime and industrial use. The strong demand for class A office space within the submarket has brought vacancy rates down to 3.4% as of fourth-quarter 2015 (according to CoStar Group Inc. [CoStar]) from approximately 11.5% in 2011.

The office building is leased on a triple net basis, to State Street Corp. for a 15-year initial term. The One Channel Center is critical space for State Street Corp. and supports its headquarters at One Lincoln St. in downtown Boston. State Street Corp. has consolidated its staff to this facility from its Copley Place, Prudential Center, John Hancock Tower, and Lafayette Corporate Center locations.

The in-place gross rent of $39.4 per sq. ft. is significantly below the submarket's $68.0 average asking gross rent for other class A properties, according to CoStar's fourth-quarter 2015 data. However, reasons for the below-market in-place rent may include the inferior location of One Channel Center within the submarket (slightly remote and further inland than other office properties that are located closer to the Boston Harbor), as well as the timing of the rent negotiations, which were executed in 2011-2012, when market rents were lower.

The loan is structured with a hard lockbox and a springing cash management. The cash management does however provide for ongoing reserves to be set aside for ground rent and debt service, though ongoing reserves for other subaccounts are triggered based on various provisions. Furthermore, the cash management provides for a full cash sweep, subject to various provisions, which, among other things, include State Street Corp.'s occupancy falling below 50% of the building's net rentable area (NRA) or if Standard & Poor's lowers its long-term unsecured debt rating on the company below 'BBB-'.

The deal’s major weakness, according to S&P, is the fact that the trust loan balance has high leverage relative to other single borrower transactions, with a 95.3% loan-to-value ratio, based on the rating agencies’ own valuation. By comparison, the LTV ratio based on the appraiser's valuation is lower, at 51.6%.

Also, the loan pays only interest, and no principal, for its entire term. The lack of amortization increases the risk that it may be difficult to refinance the loan at the end of its 10-year term.

Bank of America originated the loan; Wells Fargo Bank is the master servicer.

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