DBRS Morningstar Confirms All Classes and Assigns Negative Trend to Ready Capital Mortgage Trust 2019-6

DBRS, Inc. (DBRS Morningstar) confirmed all ratings on the following classes of the Commercial Mortgage Pass-Through Certificates (the Certificates) issued by Ready Capital Mortgage Trust 2019-6 (the Issuer):

-- Class A Certificates at AAA (sf)
-- Class IO-A Certificates at AAA (sf)
-- Class B Certificates at AAA (sf)
-- Class IO-B/C Certificates at AA (sf)
-- Class C Certificates at AA (low) (sf)
-- Class D Certificates at A (low) (sf)
-- Class E Certificates at BBB (low) (sf)
-- Class F Certificates at BB (low) (sf)
-- Class G Certificates at B (low) (sf)

DBRS Morningstar assigned a Negative trend to the Class G Certificates, while all other trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since issuance. DBRS Morningstar assigned a Negative trend to the Class G Certificates because of the number of recent loan transfers to the special servicer, which totaled 10 loans (19.0% of the trust balance) per the June 2020 remittance report. At issuance, the trust consisted of 89 fixed- and floating-rate mortgages secured by 110 stabilized and transitional properties with a trust balance of $430.7 million, excluding approximately $5.6 million of future funding commitments related to five loans. Per the June 2020 remittance, there were 88 loans secured by 109 properties totaling $425.8 million remaining in the trust, representing a 1.1% collateral reduction since issuance. The pool contains a mix of stabilized properties seeking short-term bridge financing, loans backing properties that are in a period of transition with plans to stabilize and improve the asset value, and long-term stabilized loans. Although the majority of the loans are fixed-rate, the loans backing transitional properties have a hybrid interest-rate structure that features a fixed rate for the loan portion held within the trust but a floating rate for the future funding component outside of the trust.

The collateral is generally secured by traditional property types with very limited exposure to hospitality properties (3.5% of the pool balance) and student-housing properties (2.6% of the pool balance). Per the June 2020 remittance, there were 26 loans, representing 45.2% of the pool balance, that have DBRS Morningstar Market Ranks of five or greater. The loan pool is also very granular as the top 15 largest loans encompass 54.8% of the trust balance.

As previously mentioned, the June 2020 remittance report showed 10 loans had transferred to the special servicer, which all occurred between March 2020 and May 2020. Most of the transfers were related to cash flow concerns driven by the Coronavirus Disease (COVID-19) pandemic recession. The largest loan (Prospectus ID#1 – Houston Portfolio (6.2% of the pool balance)) transferred to the special servicer in May 2020 after the sponsor requested a forbearance as property operations were considerably affected by the pandemic. The loan is secured by eight Class C multifamily properties totaling 415 units in Houston, Texas. The portfolio was stabilized at issuance, and the sponsor planned to hold the properties for the long term and may sell the properties individually under favorable circumstances. The sponsor reported monthly rent collections were approximately 80% and the sponsor offered to use security deposits to cover past-due rents. The forbearance request was later withdrawn by the sponsor and loan payments were made current as of June 2020. Despite the withdrawal of the forbearance request, this loan may stay with the special servicer until rent collections return to historical levels.

In addition, one loan (Prospectus ID#44 – Glowzone (0.7% of the pool balance)) became real estate owned after the foreclosure process was completed in June 2020. Glowzone is a Class B single-tenant retail property in Houston, Texas, that was formerly owner-occupied. Loan payments were delinquent beginning in November 2019 as the tenant unexpectedly vacated the property and the loan transferred to the special servicer in March 2020 as the sponsor did not notify the special servicer of the major tenant event. A liquidation analysis was applied to the loan based on the “dark” value from the issuance appraisal of $4.1 million, resulting in a loss severity of approximately 10.0%. DBRS Morningstar believes the stabilization of the property could be prolonged as the subject is currently built-out as a special purpose use as experiential retail and this product type faces specific re-leasing challenges caused by the coronavirus pandemic.

The probability of defaults were adjusted accordingly for the remainder of the specially serviced loans based on the increased risk since issuance. Waypoint – Main Street Crossroads (Prospectus ID#12 – 2.7% of the pool balance) was added to the DBRS Morningstar Hotlist as the loan exemplifies increased probability of default characteristics. The loan is secured by a ground lease on a anchored retail property in Carson, California, that is anchored by a Chuze Fitness and Big Air Trampoline, representing 62.8% of NRA. These tenants are anticipated to remain nonoperational as the state of California has ordered fitness centers in the subject county to close as coronavirus cases are resurging. The June 2020 remittance report also showed 16 loans, representing 25.8% of the pool balance, on the servicer’s watchlist as borrowers indicated stressed cash flow caused by the coronavirus pandemic.

ESG CONSIDERATIONS
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 IO-A and IO-B/C 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.

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

-- Prospectus ID#1 – Houston Portfolio (6.2% of the pool)
-- Prospectus ID#2 – 1001 Ross (5.8% of the pool)
-- Prospectus ID#5 – 777 E 12th Street (4.5% of the pool)
-- Prospectus ID#7 – Springhill Suites at The Rim (3.5% of the pool)
-- Prospectus ID#12 – Waypoint – Main Street Crossroads (2.7% of the pool) – DBRS Morningstar Hotlist
-- Prospectus ID#15 – Ebb and Flow (1.7% of the pool)
-- Prospectus ID#19 – Broad Street Crossing (1.3% of the pool)
-- Prospectus ID#20 – Hermosa Hotel and Apartments (1.3% of the pool)
-- Prospectus ID#44 – Glowzone (0.7% 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.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

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.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

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

DBRS, Inc.
22 West Washington Street
Chicago, IL 60602 USA
Tel. +1 312 696-6293