DBRS Confirms All Classes of Morgan Stanley Capital I Trust 2018-BOP

DBRS Limited (DBRS) confirmed all classes of the Commercial Mortgage Pass-Through Certificates, Series 2018-BOP (the Certificates) issued by Morgan Stanley Capital I Trust 2018-BOP as follows:

-- Class A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at A (high) (sf)
-- Class X-EXT at A (sf)
-- Class D at A (low) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (sf)

All trends are Stable.

In addition, DBRS discontinued the rating on Class X-CP, as the notional class was structured to receive interest distributions and passed its final distribution date with the August 2019 remittance.

The rating confirmations reflect the overall stable performance of the transaction since issuance. Whole loan proceeds of $278.4 million, consisting of the $222.3 million trust loan and $55.0 million of senior and junior mezzanine debt, were primarily used to refinance existing debt of $259.4 million and fund upfront reserves of $8.3 million, which included $4.7 million of tenant improvement/leasing commission obligations and $2.6 million of existing rent obligations. The collateral is secured by the fee simple interest in a portfolio of 12 suburban office properties, comprising nearly 1.8 million square feet (sf) of office space. Nine of the 12 properties (1.5 million sf) are concentrated within the Washington D.C. metro area, situated in Northern Virginia (two properties) and suburban Maryland (seven properties), while the remaining three properties (0.4 million sf) are located in Atlanta, Georgia (one property) and Orlando, Florida (two properties). The underlying loan is interest-only (IO) throughout the entire loan term and is structured with a 24-month original term and three one-year extension options.

Per the March 2019 rent roll, the portfolio reported an occupancy and average rental rate of 79.4% and $26.90 psf, respectively, compared with the issuance figures of 78.9% and $28.39 psf, respectively. When factoring in the $2.6 million in rental abatements given to 23 tenants, the implied average rental rate equates to $28.76 psf. The portfolio’s largest six tenants collectively represent 16.8% of the collateral net rentable area (NRA). The largest three tenants include Bank of America (3.4% of the collateral NRA, through March 2021), Siemens Real Estate Corp (Siemens; 3.4% of the collateral NRA, through October 2019 and December 2019) and Montgomery County, Maryland (3.0% of collateral NRA, through March 2021). There are 27 tenants, representing 12.7% of the portfolios collateral NRA, with scheduled lease expirations through to YE2019; the largest is Siemens, whom the servicer has indicated will vacate upon lease expiration. Otherwise, the remaining tenant leases expiring in 2019 are granular, with no tenants representing more than 1.0% of NRA.

According to the YE2018 financials, the loan reported a debt service coverage ratio (DSCR) of 1.84 times (x) compared with the DBRS Term DSCR of 1.95x derived at issuance. When excluding rental abatements, the implied DSCR is 1.99x. The loan benefits from strong sponsorship under a subsidiary of Brookfield Asset Management Inc. (Brookfield; rated A (low) with a Stable trend by DBRS), which has considerable experience with both the property type and market, in addition to large amounts of capital as evidenced by its $50.7 billion market cap and $385.0 billion in assets under management. Brookfield acquired the assets through two separate transactions between 2016 and 2017 at a purchase price of $341.1 million. With the added investment of $8.6 million into select properties between the time of acquisition and issuance, Brookfield had approximately $126.3 million of cash equity behind the rated mortgage debt at issuance.

Classes X-EXT is an IO certificate that references multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation tranche adjusted upward by one notch, as it is senior in the waterfall.

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

DBRS provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for this transaction.

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

The principal methodology is the North American CMBS Surveillance Methodology, which can be found on www.dbrs.com under Methodologies & Criteria. 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, which can be found on www.dbrs.com in the Commentary tab under Regulatory Affairs. 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.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrs.com.

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. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS long-term rating scale definition indicates that ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.

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