DBRS Morningstar Assigns Provisional Ratings to Benchmark 2020-IG3 Mortgage Trust

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the following classes of Commercial Mortgage Pass-Through Certificates, Series 2020-IG3 to be issued by Benchmark 2020-IG3 Mortgage Trust (BMARK 2020-IG3 or the Issuer):

-- Class A2 at AAA (sf)
-- Class A3 at AAA (sf)
-- Class A4 at AAA (sf)
-- Class ASB at AAA (sf)
-- Class AS at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (sf)
-- Class XA at AAA (sf)
-- Class XB at AA (sf)

-- Class 825S-A at A (low) (sf)
-- Class 825S-B at BBB (low) (sf)
-- Class 825S-C at BB (low) (sf)
-- Class 825S-D at B (low) (sf)

-- Class T333-A at AA (low) (sf)
-- Class T333-B at A (low) (sf)
-- Class T333-C at BBB (low) (sf)
-- Class T333-D at BB (high) (sf)

-- Class BX-A at A (low) (sf)
-- Class BX-B at BBB (low) (sf)
-- Class BX-C at BB (high) (sf)

All trends are Stable.

Classes 825S-A, 825S-B, 825S-C, and 825S-D are loan-specific certificates associated with the 825 South Hill loan. Classes T333-A, T333-B, T333-C, and T333-D are loan-specific certificates associated with the Tower 333 loan. Classes BX-A, BX-B, and BX-C are loan-specific certificates associated with the BX Industrial Portfolio loan. The Class XA and XB balances are notional.

The BMARK 2020-IG3 transaction is a pooled securitization of 21 fixed-rate, noncontrolling (with the exception of 1501 Broadway) pari passu senior notes with an aggregate cut-off pooled balance of $608.475 million. The collateral consists of nine mortgage loans (considering the Chase Center Tower I/II loans are crossed) across 144 properties, with significant concentrations in California (seven properties; 48.1% of the pool by loan balance), New York (four properties; 17.7% of the pool), and Washington (one property; 13.0% of the pool).

The BMARK 2020-IG3 trust will also issue 11 classes of loan-specific certificates—all DBRS Morningstar rated—collateralized by certain subordinate components of the BX Industrial Portfolio (BX-A/B/C), Tower 333 (T333-A/B/C/D), and 825 South Hill (825S-A/B/C/D/E) mortgage loans. The loan-specific certificates will be assets of the Issuer but are not being pooled with the other mortgage loans and are only entitled to payments of interest and principal from their respective subordinate companion notes.

DBRS Morningstar takes a positive view on the BMARK 2020-IG3 transaction and broadly recognizes the benefits of pooling high investment-grade risk. Unlike a typical single-asset/single-borrower (SASB) transaction, certificateholders in this transaction benefit from the pooling of multiple structurally senior investment-grade notes on largely institutional real estate in liquid primary markets. The BMARK 2020-IG3 transaction, like the BMARK 2020-IG2 transaction recently rated by DBRS Morningstar, benefits from the same lack of exposure to lodging properties and very limited exposure to retail properties, both of which remain particularly sensitive to ongoing risks related to the Coronavirus Disease (COVID-19) pandemic.

DBRS Morningstar has previously rated several of the loans included in the transaction, including the Moffett Towers Buildings A, B, & C loan in MOFT Trust 2020-ABC (rated by Morningstar Credit Ratings, LLC), while DBRS Morningstar previously rated the 525 Market Street loan in MKT 2020-525M Mortgage Trust on a stand-alone basis. DBRS Morningstar also previously rated pari passu components of all other loans (with the exception of BX Industrial Portfolio and 825 South Hill) in the BMARK 2020-IG2 transaction.

All nine of the loans that serve as the collateral for the pooled component of the transaction exhibit investment-grade credit characteristics on a stand-alone basis. The weighted-average (WA) credit profile of the underlying collateral is approximately A (sf)/A (low) (sf) and produces a WA Idealized Default Table rating factor of 2.36%, which is slightly above the recent BMARK 2020-IG2 transaction. Furthermore, 60.7% of the trust collateral by balance had a DBRS Morningstar property quality score of either Above Average or Excellent.

For the trust portion, the pool has a WA DBRS Morningstar loan-to-value (LTV) ratio of 61.7% and an Issuer LTV of 37.8%, both of which are substantially below the leverage point of other recently analyzed SASB transactions. The DBRS Morningstar LTV is for the senior note components that serve as the collateral for this transaction.

The trust collateral includes two portfolio loans, BX Industrial Portfolio (68 properties; 13.1% of the pool) and Stonemont Net Lease Portfolio (66 properties; 9.1% of the pool). Mortgage loans secured by portfolios of multiple properties generally benefit from greater diversification of cash flow and may exhibit more favorable default and loss severity characteristics.

The pool has significantly higher loan concentration than previously analyzed multiborrower transactions, with a loan Herfindahl score of only 8.43. Additionally, the transaction has substantial property type and geographic concentration, as indicated by property type and state Herfindahl scores of 2.26 and 3.11, respectively. The top five loan exposure is 65.6% of the pool, which is well above the typical exposure level for more diversified multiborrower transactions.

Certain components of the BMARK 2020-IG3 trust are collateralized by mortgages that involve multiple layers of structural complexity. The BX Industrial Portfolio loan, for example, has a $99.42 million floating-rate revolving credit facility (balance sheet) that is fully pari passu with the fixed-rate note components, and the fixed-rate components are split into A (pooled trust), B (rake bonds), and C/D notes (privately placed). In the case of 825 South Hill, the loan’s co-originator is American International Group, which holds a $114 million note component that is pari passu with both the $61.67 million senior component (pooled) and the $38 million subordinate component (rake bonds). Finally, the Tower 333 loan is split into A (pooled), B (rake bonds), and C notes (privately placed). DBRS Morningstar views the structural complexity of the mortgage loans as a potential risk in the event of a default, whereby other noteholders could potentially exercise certain rights or remedies that are adverse to the interest of the certificate in the BMARK 2020-IG3 trust.

None of the pari passu participations in the pooled component of the transaction are the controlling interests in the related whole loans (with the exception of Tower 333). The noncontrolling certificateholders may be in a less favorable position than those with control rights under certain adverse situations, including in the event of a workout.

Seven of the nine loans (82.7% of the pool) have some form of existing secured subordinate debt or mezzanine debt and/or permit the sponsors to incur additional debt in the form of mezzanine debt or debtlike preferred equity. Furthermore, the presence of both secured and unsecured subordinate debt adds substantial incremental leverage, resulting in a WA all-in DBRS Morningstar LTV of 100.8% for the pool.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Classes XA and XB are interest-only (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 are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

For supporting data and more information on this transaction, please log into www.viewpoint.dbrsmorningstar.com. DBRS Morningstar provides analysis and in-depth commentary in the DBRS Viewpoint platform.

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

With regard to due diligence services, DBRS Morningstar was provided with the Form ABS Due Diligence-15E (Form-15E), which contains a description of the information that a third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While due diligence services outlined in Form-15E do not constitute part of DBRS Morningstar’s methodology, DBRS Morningstar used the data file outlined in the independent accountant’s report in its analysis to determine the ratings referenced herein.

The principal methodology is the North American Single-Asset/Single-Borrower Ratings Methodology (March 1, 2020), which can be found on dbrsmorningstar.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 Morningstar Global Structured Finance Related Methodologies document, which can be found on dbrsmorningstar.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.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar 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 [email protected].

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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