DBRS Morningstar Confirms Ratings for 11 Classes of CD 2019-CD8 Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed the ratings on the following 11 classes of the Commercial Mortgage Pass-Through Certificates, Series 2019-CD8 issued by CD 2019-CD8 Mortgage Trust:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-M at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AAA (sf)
-- Class X-B at AA (sf)
-- Class C at AA (low) (sf)
-- Class D at A (low) (sf)

The trends for the classes listed above are Stable.

The ratings for six classes (Classes X-D, E, X-F, F, G-RR, and H-RR) were placed Under Review with Negative Implications as part of a bulk rating action taken by DBRS Morningstar on August 6, 2020. Those rating actions were the result of DBRS Morningstar’s stress analysis as outlined in its June 29, 2020, commentary entitled “CMBS Conduit Exposure to Coronavirus Disease (COVID-19) Implications.” That analysis applied cash flow stresses to loans backed by retail, hotel, office, and multifamily properties, with the highest level of stress assumed for retail and hotel property types that have been most significantly affected thus far amid the pandemic. As noted in the August 6, 2020, press release, while DBRS Morningstar typically endeavors to resolve an Under Review rating action within 90 days, the circumstances surrounding these rating actions, including the unknown length of the pandemic-related downturn, may result in a longer resolution period.

With this review, DBRS Morningstar looked at the most recent servicer-provided performance information for the underlying loans in the subject transaction and applied multipliers to the probability of default (PoD) in the analysis to increase the expected loss for those loans exhibiting increased risks from issuance. The subject pool features a sizeable concentration of higher risk property types, with loans secured by retail and hospitality properties representing 29.7% and 18.1% of the pool, respectively. As DBRS Morningstar has maintained these property types have been the most affected thus far by the effects of the pandemic-related economic downturn, loans backed by those property types comprised the bulk of the loans adjusted to increase the expected loss, particularly when there was servicer-provided information that suggested increased risks from issuance.

This transaction closed in August 2019, with an original trust balance of $811.1 million. At issuance, the collateral consisted of 33 loans secured by commercial and multifamily properties. As of the August 2020 remittance, all loans remain in the pool with an aggregate principal balance of $809.8 million, representing a collateral reduction of 0.2% since issuance. At issuance, the transaction had a healthy weighted average (WA) debt service coverage ratio (DSCR) of 2.34 times and a WA debt yield of 10.3%.

At issuance, DBRS Morningstar assigned investment-grade shadow ratings for three loans, representing a combined 16.3% of the pool, including Woodlands Mall, Moffett Towers II Buildings 3 & 4, and Crescent Club. In the analysis for this review, DBRS Morningstar maintained the respective shadow ratings for the Moffett Towers II Buildings 3 & 4 and Crescent Club loans, secured by an office property in Sunnyvale, California, and a multifamily property in Long Island City, New York, respectively. However, the shadow rating for the Woodlands Mall loan, secured by a regional mall within the Houston region, was not considered in the analysis given the collateral property type in a regional mall and the existence of a relief request under review by the servicer, submitted by the sponsor as a result of the coronavirus pandemic. The analysis was relatively conservative for that loan as DBRS Morningstar has noted the most immediate and sharpest effects of the pandemic to property cash flows have been seen in hospitality and retail properties and has also noted the Houston area is particularly vulnerable to economic stress given the region’s concentration of jobs and businesses within the energy industries that have been negatively affected amid the economic downturn. DBRS Morningstar does note that the Woodlands Mall loan remained current as of the July 2020 remittance and benefits from mitigating factors in the very low loan to value of 26.0% on the senior debt, the strong sponsorship in Brookfield Property REIT, and historically strong performance of the collateral mall, which is located in an affluent area and features many higher-end retailers.

As of the August 2020 remittance, there is one loan in special servicing and eight loans are on the servicer’s watchlist, representing 2.3% and 30.6% of the pool, respectively. Six of the eight loans on the servicer’s watchlist are being monitored for coronavirus relief requests, while the remaining two, including Uline Arena (Prospectus #4, 5.2% of the pool) and The Real Real (Prospectus #21, 1.8% of the pool), are being monitored for low DSCRs.

Five loans on the servicer’s watchlist, representing 22.5% of the pool balance, are secured by retail or hospitality properties. The largest hospitality loan on the watchlist is Hilton Penn’s Landing (Prospectus #3, 8.6% of the pool), backed by a full service hotel located along the Delaware River waterfront in Philadelphia. Reflagged as a Hilton in 2015, the property underwent a total overhaul due to $13.9 million ($39,750 per key) in contributions from the sponsor, allowing it to remain as a premiere hotel within its local market, outperforming its competitive set. The other hospitality property-backed loans on the watchlist include Hilton Garden Inn Sugarland (Prospectus #19, 2.1% of the pool), Visions Hotel Portfolio II (Prospectus #18, 2.1% of the pool), and Holiday Inn Express – Bluffton (Prospectus #25, 1.1% of the pool). Given the general unknowns for the hospitality and retail sectors and the possibility that these sponsors are particularly cash strapped amid the current environment, DBRS Morningstar generally applied a PoD stress for these loans to increase the expected loss as part of this review.

The loan in special servicing, 63 Spring Street (Prospectus #17, 2.3% of the pool), is secured by a mixed use (retail and office) property in New York and was recently transferred to special servicing in June 2020. The loan was over 90 days delinquent as of August 2020 reporting. This loan was analyzed with significantly elevated PoD levels with this review and is further detailed in the loan commentary in the DBRS Viewpoint platform, for which information is provided, below.

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 X-A, X-B, X-D, and X-F 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 #2 – Woodlands Mall (8.6% of the pool)
-- Prospectus ID #17 – 63 Spring Street (2.3% 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.

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 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@dbrsmorningstar.com.

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 info@dbrsmorningstar.com.

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