DBRS Morningstar Confirms All Classes of CLNC 2019-FL1, Ltd.

DBRS Limited (DBRS Morningstar) confirmed the ratings on the following classes of notes (the Notes) issued by CLNC 2019-FL1, Ltd. (the Issuer):

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

All trends are Stable.

The rating confirmations reflect the overall stable performance of the collateral since issuance. The transaction benefits from its pool composition as only two properties, representing 19.9% of the current pool balance, are backed by hospitality properties, and no loans are backed by retail properties, which are vulnerable to prolonged depressed cash flows amid the current economic environment stemming from the Coronavirus Disease (COVID-19) pandemic restrictions. In addition, 12 loans, representing 52.5% of the current pool balance, are secured by properties in areas with a DBRS Morningstar Market Rank of 5, 6, 7, or 8, which are characterized as core market locations and are more urbanized or densely suburban in nature. These markets have historically benefitted from greater demand drivers and available liquidity.

In its analysis of the transaction, DBRS Morningstar applied probability of default adjustments to loans with confirmed issues related to the stressed real estate environment caused by the coronavirus 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.

The initial collateral consisted of 21 floating-rate mortgage loans secured by 39 mostly transitional properties with a cut-off balance totalling $1,006.5 million, excluding approximately $124.9 million of future funding commitments. Most loans are in a period of transition with plans to stabilize and improve the asset value. During the 24-month reinvestment period, the Issuer may acquire future funding commitments and additional eligible loans subject to the Eligibility Criteria. According to the October 2020 remittance, the trust consists of 21 loans with a current principal balance of $1,006.5 million. Since issuance, four loans have been repaid and four loans have been added to the pool during the reinvestment period. As of September 2020, the pool has $92.2 million of future funding commitments outstanding. The reinvestment period expires in October 2021, at which point the transaction will pay sequentially.

As of the October 2020 remittance, there are no loans on the servicer’s watchlist and no loans in special servicing. DBRS Morningstar remains concerned with the hospitality properties given the broader lodging industry’s exposure to the coronavirus pandemic. The second and third largest loans in the pool are secured by luxury hotel properties in California. The Fairmont San Jose loan (Prospectus ID#2, 9.9% of the current pool) is secured by a full-service hotel located in San Jose, California. The loan’s business plan entails various capital expenditure (capex) projects and strategic initiatives in order to increase performance. All contemplated capex have been completed; however, the property has been unable to leverage its 66,000 square feet of meeting space due to a lack of group events being booked throughout the pandemic. The loan has since been modified to allow the use of reserve funds for debt service payments as well as the waiver of monthly reserve deposits.

The Fairmont Claremont loan (Prospectus ID#3, 9.9% of the current pool) is secured by a full-service hotel located in Berkeley, California. The business plan is to stabilize performance; however, unlike Fairmont San Jose, no renovations were contemplated at issuance. The hotel has been severely affected by the pandemic and was closed from April through July 2020, with current room capacity noted between 20% to 30%. The borrower received a forbearance allowing it to temporarily forego furniture, fixtures, and equipment reserve deposits in exchange for a cash trap. Additionally, the mezzanine loan interest reserve was allowed to be used to pay senior debt service through July 2020. For additional information on these loans, please see the DBRS Viewpoint platform, for which information has been 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.

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 – Turing at the Fields (10.9% of the pool)
-- Prospectus ID#2 – Fairmont San Jose (9.9% of the pool)
-- Prospectus ID#3 – Fairmont Claremont (9.9% of the pool)
-- Prospectus ID#6 – Hill Carlsbad Office Portfolio (6.0% of the pool)
-- Prospectus ID#7 – Paragon LIC (5.9% of the pool)
-- Prospectus ID#8 – 1201 Connecticut (5.3% 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 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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