DBRS Morningstar Confirms All Ratings of LoanCore 2019-CRE2 Issuer Ltd.

DBRS Limited (DBRS Morningstar) confirmed the ratings on the following classes of floating-rate notes issued by LoanCore 2019-CRE2 Issuer Ltd. (the Issuer):

-- 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 (high) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class G at B (low) (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 partially related to the stressed real estate environment caused by the Coronavirus Disease (COVID-19) pandemic. Because of 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 have requested relief from the issuer. DBRS Morningstar has built an additional POD stress into its analysis of this transaction and, based on currently available information, expects the rated classes to be insulated from adverse credit implications at this time, warranting the rating confirmations.

At issuance, the pool consisted of 33 floating-rate mortgages secured by 49 transitional properties totaling approximately $1,057 million, excluding approximately $120.2 million of future funding commitments. The transaction is structured with an initial 24-month Reinvestment Period whereby the Issuer may acquire additional loans or include additional future funding participations and funded companion participations, with principal repayment proceeds. As of the May 2020 remittance, the trust consists of 29 loans with an aggregate principal balance of $1,050 million and approximately $99.4 million in unfunded future funding commitments. There are 18 loans, representing 67.9% of the aggregate principal balance, that are pari passu notes securitized in the LoanCore 2019-CRE3 transaction, also rated by DBRS Morningstar. To date, 22 of the original 33 loans, representing 77.6% of the current transaction balance, remain in the pool. There have been seven newly acquired loans that have been added to the trust since issuance, along with two loans that have contributed additional companion participations to the trust.

Per the May 2020 remittance, there are no loans in special servicing; however, there are two loans (2.8% of the pool) on the servicer’s watchlist. According to the latest reporting, one loan (1.5% of the pool) is listed as 30 to 59 days delinquent. The loans on the watchlist, The Cigar Factory (Prospectus ID#26, 1.3% of the pool) and 955 East Arques (Prospectus ID#28, 1.2% of the pool), were flagged for upcoming maturity dates in June and July 2020, respectively. Both loans have 12-month extension options available to the borrower; however, DBRS Morningstar is awaiting confirmation from the collateral manager regarding the borrowers’ plans. The delinquent loan, 100 Lincoln Road (Prospectus ID#23, 1.5% of the pool), is secured by a 15,895-sf retail property in Miami Beach, Florida, which is 100% vacant. The borrower has requested relief on payments after Five Guys indicated it would be extending its lease commencement date by up to nine months, for a 4,020-sf corner space at the property.

DBRS Morningstar is also monitoring other pivotal loans in the transaction surrounding potential challenges in the execution of business plans to achieve stabilization. The largest loan, 183 Madison Avenue (Prospectus ID#2, 8.8% of the pool), is secured by a 266,418-sf office property in Midtown Manhattan. While the property has experienced an increase in occupancy to 86.9% from 74.1% at issuance, the collateral manager has indicated that only 65% of tenants paid rent in April 2020. While specifics on rent collections have not yet been confirmed, the property has a notable concentration of fashion-, design-, and decor-related tenants, in addition to WeWork, Inc. (11.7% of the net rentable area), whose future remains unclear amid location closures and ongoing issues with its controlling member, Softbank Group Corp. (Softbank). The borrower requested full forbearance for May, June, and July 2020 debt service payments.

The Austin Ballpark loan (Prospectus ID#18, 1.9% of the pool) is secured by a 2,286-bed student-housing portfolio in the East River Corridor (ERC) of Austin, Texas. The borrower recently received approval from the city council to increase development on its portfolio of assets that includes the three properties securing this loan. The sponsor was planning to convert the existing portfolio into traditional multifamily assets given the competitive ERC market conditions for student housing; however, the business plan remains unclear in the interim. The portfolio experienced a decline in occupancy to 77.5% in February 2020, while cash flow declined to $1.2 million, representing a 77.6% variance from the Issuer’s Stabilized NCF of $6.9 million given the increases in operating expenses and a decline in effective gross income.

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 – Exhibit on Superior (8.0% of the pool)
-- Prospectus ID#10 – El Centro (6.6% of the pool)
-- Prospectus ID#2 – 183 Madison Avenue (8.9% of the pool)
-- Prospectus ID#11 – Florida Retail Portfolio (4.7% of the pool)
-- Prospectus ID#5 – 457-459 North Rodeo Drive (5.4% of the pool)
-- Prospectus ID#8 – Luxor Club Apartments (4.8% of the pool)
-- Prospectus ID#13 – Sunset PCH (3.0% of the pool)
-- Prospectus ID#23 – 100 Lincoln Road (1.5% of the pool)
-- Prospectus ID#18 – Austin Ballpark (1.9% of the pool)
-- Prospectus ID#6 – AVE Union (5.2% of the pool)
-- Prospectus ID#9 – Spring Mill Corporate Center (4.8% of the pool)
-- Prospectus ID#31 – 580 8th Avenue (1.0% of the pool)
-- Prospectus ID#26 – The Cigar Factory (1.3% of the pool)
-- Prospectus ID#21 – Kimpton Palladian Hotel (1.3% 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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