DBRS Morningstar Confirms Ratings on all Classes of Bancorp Commercial Mortgage 2018 CRE3 Trust

DBRS Limited (DBRS Morningstar) confirmed the ratings on the following classes of Commercial Mortgage Pass-Through Certificates issued by Bancorp Commercial Mortgage 2018 CRE3 Trust as follows:

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

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since issuance. In its analysis of the transaction, DBRS Morningstar applied probability of default (POD) adjustments to loans with confirmed issues caused in part by the stressed real estate environment associated with the Coronavirus Disease (COVID-19) pandemic. Due to the transitional nature of the underlying collateral, proposed business plans that are necessary to bring the assets to stabilization may be delayed and, in some cases, borrowers may request relief from the Issuer. DBRS Morningstar has built additional POD stress into the analysis for this transaction and, given what is known today, we expect that the rated classes are insulated from adverse credit implications at this time, warranting the rating confirmations.

At issuance, the collateral consisted of 30 floating-rate mortgages secured by 35 transitional properties totaling approximately $304.3 million, excluding approximately $47.3 million of future funding commitments held outside the trust. As of the May 2020 remittance, 16 loans remain in the pool as there has been collateral reduction of 50.6% since issuance. There has been approximately $43.5 million of future funding commitments purchased by the Trust as of the April 2020 reporting from the collateral manager.

As of the May 2020 remittance, one loan, representing 5.4% of the pool, is in special servicing. The Staybridge Suites Conversion loan (Prospectus ID #16; 5.4% of the pool), secured by a 224-key limited service hotel in Kissimmee, Florida, was transferred to special servicing in April 2020 because of payment default as the borrower made a hardship request due to ongoing performance declines as a direct result of the pandemic, which has significantly affected the travel and lodging industry. The loan’s business plan centered around the conversion of the collateral from a Royale Parc Suites under the Quality Suites flag to a Staybridge Suites flagged under the InterContinental Hotels Group (IHG). The mandated property improvement plan (PIP) renovation, costing $7.5 million, began post-acquisition in September 2017. The PIP was completed in December 2019, at which point the collateral was officially flagged as a Staybridge Suites under IHG. During the construction process the collateral’s occupancy and financials suffered and the loan was subsequently transferred to the servicer’s watchlist in June 2019 for a low debt service coverage ratio (DSCR), which was anticipated. Construction concluded in December 2019 and, as the subject was poised to realize increased occupancy and daily rates as a result of the PIP, the coronavirus pandemic began to affect travel and hotel properties throughout the United States. As a result, the borrower has requested debt service relief from the lender and the loan is currently classified as 60 to 89 days delinquent. This loan was analyzed with an elevated POD to reflect DBRS Morningstar’s concerns about the hospitality industry and the ultimate delay in property stabilization.

As of the May 2020 remittance there are seven loans, representing 39.8% of the pool, on the servicer’s watchlist. The largest loan on the watchlist, Arbor Oaks Apartments (Prospectus ID#5; 10.1% of the pool) is being monitored for a low DSCR as the collateral continues to stabilize and increase its occupancy. Three loans, representing 16.0% of the pool, are being monitored for occupancy and DSCR related issues. One loan, Crossroads Centre (Prospectus ID#9; 8.5% of the pool), is on the servicer’s watchlist for late debt service payments from April and May. Two loans on the servicer’s watchlist, representing 5.2% of the pool, are being monitored for deferred maintenance . One of these is being monitored for minor deferred maintenance issue while the other, Tyndall Pointe Apartments (Prospectus ID#25; 2.7% of the pool), received significant damage during Hurricane Michael and had to terminate and relocate all residents.

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.

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

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:

-- Prospectus ID#1 – Hue at Cityplace (22.2% of the pool)
-- Prospectus ID#3 – Southfield & Cornerstone Medical Office Buildings (13.3% of the pool)
-- Prospectus ID#5 – Arbor Oaks Apartments (10.1% of the pool)
-- Prospectus ID#9 – Crossroads Centre (8.5% of the pool)
-- Prospectus ID#10 – Washington Corners (8.5% of the pool)
-- Prospectus ID#15 – 350-352 Bowery (5.9% of the pool)
-- Prospectus ID#16 – Staybridge Suites Conversion (5.4% of the pool)
-- Prospectus ID#20 – Vanderbilt Lodge (3.7% of the pool)
-- Prospectus ID#21 – The Addison (3.7% of the pool)
-- Prospectus ID#25 – Tyndall Pointe Apartments (2.7% of the pool)
-- Prospectus ID#29 – 348 Bowery (1.6% of the pool)

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com The platform includes issuer and servicer data for most outstanding CMBS transactions (including non-DBRS Morningstar rated), as well as loan-level and transaction-level commentary for most DBRS Morningstar-rated and -monitored transactions.

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

The principal methodology is North American CMBS Surveillance Methodology (March 6, 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 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 [email protected].

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. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS Morningstar 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.dbrsmorningstar.com or contact us at [email protected].

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