DBRS Assigns Provisional Ratings to Benchmark 2018-B5 Mortgage Trust

DBRS, Inc. (DBRS) assigned provisional ratings to the following classes of Commercial Mortgage Pass-Through Certificates, Series 2018-B5 to be issued by Benchmark 2018-B5 Mortgage Trust:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-B at AA (high) (sf)
-- Class B at AA (sf)
-- Class C at A (low) (sf)
-- Class X-D at A (low) (sf)
-- Class D at BBB (high) (sf)
-- Class E-RR at BBB (low) (sf)
-- Class F-RR at BB (low) (sf)
-- Class G-RR at B (sf)

All trends are Stable.

Classes X-D, D, E-RR, F-RR, G-RR and NR-RR will be privately placed. The Class X-A, X-B and X-D balances are notional.

The collateral consists of 53 fixed-rate loans, which includes two sets of two cross-collateralized loans, secured by 219 commercial and multifamily properties. The DBRS analysis of this transaction incorporates these loans as a portfolio, resulting in a modified loan count of 53, and the loan number references within the report for this transaction reflect this total. The transaction is of a sequential-pay pass-through structure. The conduit pool was analyzed to determine the provisional ratings, reflecting the long-term probability of loan default within the term and its liquidity at maturity. Trust assets contributed from five loans, representing 27.6% of the pool, are shadow-rated investment grade by DBRS. Proceeds for the shadow-rated loans are floored at their respective ratings within the pool. When the combined 27.6% of the pool has no proceeds assigned below the rating floor, the resulting pool subordination is diluted or reduced below that rated floor. When the cut-off loan balances were measured against the DBRS Stabilized Net Cash Flow (NCF) and their respective actual constants, four loans, representing 6.7% of the total pool, had a DBRS Term Debt Service Coverage Ratio (DSCR) below 1.15 times (x), a threshold indicative of a higher likelihood of mid-term default. Additionally, to assess refinance risk given the current low-interest-rate environment, DBRS applied its refinance constants to the balloon amounts. This resulted in 37 loans, representing 72.4% of the pool, having whole-loan refinance DSCRs below 1.00x and 25 loans, representing 55.7% of the pool, having whole-loan refinance DSCRs below 0.90x. Aventura Mall, eBay North First Commons and Workspace, which represent 19.6% of the transaction balance and are three of the pool’s loans with a DBRS Refinance (Refi) DSCR below 0.90x, are shadow-rated investment grade by DBRS and have a large piece of subordinate mortgage debt outside the trust.

Ten loans, representing 20.9% of the pool, are located in urban and super-dense urban gateway markets with increased liquidity that benefit from consistent investor demand, even in times of stress. Urban markets represented in the deal include Chicago, San Francisco and New York. Furthermore, there is limited rural and tertiary concentration with only four loans, representing 6.1% of the pool.

Five loans — Aventura Mall, eBay North First Commons, Workspace, AON Center and 181 Fremont Street — representing a combined 27.6% of the pool, exhibit credit characteristics consistent with investment-grade shadow ratings. Aventura Mall exhibits credit characteristics consistent with a BBB (high) shadow rating, eBay North First Commons exhibits credit characteristics consistent with an A (low) shadow rating, Workspace exhibits credit characteristics consistent with an AA (low) shadow rating, AON Center exhibits credit characteristics consistent with an A (high) shadow rating and 181 Fremont Street exhibits credit characteristics consistent with an AA shadow rating. For additional information on these five assets, please refer to pages 15, 27, 29, 44 and 50, respectively, of the report associated with this transaction.

Term default risk is moderate, as indicated by the relatively strong weighted-average (WA) DBRS Term DSCR of 1.71x, and when measured against A-note balances only, the WA DBRS Term DSCR increases to 1.96x. In addition, 18 loans, representing 49.2% of the pool, have a DBRS Term DSCR in excess of 1.50x. Even when excluding the five investment-grade shadow-rated loans, the deal exhibits an acceptable WA DBRS Term DSCR of 1.62x.

Twenty-one loans, representing 59.0% of the pool, are structured with full-term interest-only (IO) payments, and one loan, representing 3.9% of the pool, is structured with full-term IO payments followed by an ARD trail. An additional 18 loans, comprising 19.9% of the pool, have partial IO periods ranging from ten months to 59 months. As a result, the transaction’s scheduled amortization by maturity is only 6.0%, which is generally below other recent conduit securitizations. The DBRS Term DSCR is calculated using the amortizing debt service obligation, and the DBRS Refi DSCR is calculated considering the balloon balance and lack of amortization when determining refinance risk. DBRS determines probability of default (POD) based on the lower of term or refinance DSCRs; therefore, loans that lack amortization are treated more punitively. Ten of the full-term IO loans, representing 33.3% of the full-IO concentration in the transaction, are located in urban markets. Additionally, all five of the loans that are shadow-rated investment grade by DBRS are full-term IO, and they represent 43.9% of the full-term IO concentration.

Seven loans, representing 11.8% of the transaction balance, are secured by properties that are either fully or primarily leased to a single tenant. This includes two of the largest 15 loans: eBay North First Commons and 181 Fremont Street. Loans secured by properties occupied by single tenants have been found to suffer higher loss severities in an event of default. Both of the largest single-tenant loans are leased to tenants that are rated investment grade or have investment-grade-rated parent companies. In addition, DBRS applied a penalty for single-tenant properties that resulted in higher loan-level credit enhancement. The majority of the loans have been structured with cash flow sweeps prior to tenant expiry if the lease expires during, at or just beyond loan maturity.

There are eight loans, totaling 16.7% of the pool, secured by hotels, which are vulnerable to having high NCF volatility because of their relatively short-term leases compared with other commercial properties, which can cause the NCF to quickly deteriorate in a declining market. Three of the largest 15 loans are secured by either hospitality or self-storage properties. Such loans exhibit a WA DBRS Debt Yield and DBRS Exit Debt Yield of 11.0% and 13.2%, respectively, which compare favorably with the overall deal. Additionally, all such loans are located in established urban or suburban markets that benefit from increased liquidity and more stable performance.

Ten loans, representing 22.6% of the pool (eBay North First Commons, Renaissance Tampa International Plaza Hotel, Embassy Suites Kennesaw, Woodland Gardens Apartments, Stonebrook Apartments, Kingsley Apartments, Westbrook Corporate Center, Deerfield Woods Apartments, MacArthur Retail Center and Cascades Shopping Center), have sponsorship risks identified by DBRS that include, but are not limited to, one or a combination of the following deficiencies: a foreign-entity-based sponsor, a prior loan default, limited liquidity relative to the loan obligation, a historical negative credit event or a prior or pending litigation issue. DBRS increased the POD for loans with identified sponsorship concerns, based on the severity of the risk associated with the sponsor. This includes three of the top ten loans. For additional information on these loans, please refer to pages 29, 34 and 60, respectively, of the report associated with this transaction.

The transaction’s WA DBRS Refi DSCR is 0.94x, indicating higher refinance risk on an overall pool level. In addition, 37 loans, representing 72.4% of the pool, have DBRS Refi DSCRs below 1.00x, including seven of the top ten loans and ten of the top 15 loans. Twenty-five of these loans, comprising 55.7% of the pool, have DBRS Refi DSCRs less than 0.90x, including six of the top ten loans and seven of the top 15 loans. These credit metrics are based on whole-loan balances. Three of the pool’s loans with a DBRS Refi DSCR below 0.90x — Aventura Mall, eBay North First Commons and Workspace — which represent 19.6% of the transaction balance, are shadow-rated investment grade by DBRS and have large pieces of subordinate mortgage debt outside of the trust. Based on A-note balances only, the deal’s WA DBRS Refi DSCR improves materially to 1.06x, and the concentration of loans with DBRS Refi DSCRs below 1.00x and 0.90x reduces to 32.8% and 15.6%, respectively. The pool’s DBRS Refi DSCRs for these loans are based on a WA stressed refinance constant of 9.36%, which implies an interest rate of 8.66%, amortizing on a 30-year schedule. This represents a significant stress of 4.63% over the WA contractual interest rate of the loans in the pool.

Classes X-A, X-B and X-D are IO certificates that reference a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation tranche adjusted upward by one notch if senior in the waterfall.

All ratings will be subject to ongoing surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed or discontinued by DBRS.

For more information on this transaction and supporting data, please log into www.viewpoint.dbrs.com. DBRS will continue to monitor this transaction with periodic updates provided in the DBRS Viewpoint platform.

Notes:
All figures are in U.S. dollars unless otherwise noted.

With regard to due diligence services, DBRS was provided with the Form ABS Due Diligence-15E (Form-15E), which contains the description of the information that the third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While DBRS did not require due diligence services outlined in Form-15E, DBRS did use the Data File outlined in the Independent Accountant’s Report in its analysis to determine the ratings.

The principal methodology is North American Multi-borrower CMBS Methodology, which can be found on dbrs.com under Methodologies. For a list of the Structured Finance related methodologies that may be used during the rating process, please see the DBRS Global Structured Finance Related Methodologies document on www.dbrs.com. Please note that not every related methodology listed under a principal Structured Finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrs.com.