DBRS Morningstar Confirms ACAM 2019-FL1, Ltd. with Stable Trends

DBRS Limited (DBRS Morningstar) confirmed the ratings on the following classes of the Commercial Mortgage-Backed Notes issued by ACAM 2019-FL1, 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. The transaction benefits from the location of its collateral in core markets as the pool reported a weighted-average (WA) DBRS Morningstar Market Rank of 5.3. Seven loans, representing 44.3% of the current trust balance, have collateral in markets with a DBRS Morningstar Market Rank of 7 or 8, which are characterized as urban market locations. The locations in these Market Ranks have historically benefitted from greater demand drivers and available liquidity. Additionally, 11 loans, representing 52.9% of the current trust balance, represent acquisition financing, which generally resulted in the respective sponsor(s) contributing material cash equity as a source of funding in conjunction with the mortgage loan at closing.

In its analysis of the transaction, DBRS Morningstar applied probability of default (POD) adjustments to loans with confirmed issues 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.

The initial collateral consisted of 21 floating-rate mortgages secured by 35 mostly transitional properties with a cut-off balance totalling $400.3 million that excluded $87.4 million of future funding commitments. Most loans are in a period of transition with plans to stabilize and improve asset value. During the 24-month reinvestment period, the Issuer may acquire future funding commitments and additional eligible loans subject to the Eligibility Criteria. The deal pays sequentially after the reinvestment period expires in December 2021. Per the October 2020 remittance, there are 19 loans with a current trust balance of $397.5 million in the pool. In the past month, the Issuer has bought out two loans from the trust at par: Prospectus ID#5 – Marriott Winston-Salem and Prospectus ID#10 – One Hanson Place, at a cumulative balance of $46.0 million. These loans were secured by hotel and retail collateral, which have been disproportionately and negatively affected by the ongoing coronavirus pandemic. Additionally, the 95 Greene loan (Prospectus ID#22; 9.1% of the current trust balance), which is secured by an office property in Jersey City, New Jersey, was contributed to the pool with the October 2020 remittance.

Four loans, representing 20.9% of the current trust balance, are secured by hospitality assets, which are vulnerable to prolonged depressed cash flows amid the current economic environment stemming from the coronavirus pandemic restrictions. The four properties that provide collateral for these loans are situated in markets that have a DBRS Morningstar Market Rank ranging from 5 to 8 and, based on issuance appraisal values, reported a WA as-is loan-to-value ratio of 60.8%. The moderate leverage at issuance mitigates the credit risk for the collateral as the properties continue to face the headwinds brought on by coronavirus. Thirteen loans, representing 69.8% of the current trust balance, are on the servicer’s watchlist including four loans, representing 33.4% of the current trust balance, that are on the given upcoming initial maturity dates through the beginning of 2021. Nine loans, representing approximately 43.7% of the current trust balance, were reviewed for declining cash flow performance and delinquency; DBRS Morningstar generally analyzed these loans with elevated PODs where applicable.

Three loans, representing 11.2% of the current trust balance, are currently in forbearance periods and all are secured by hospitality properties. All three loans were granted debt service payment relief for periods that range from three to six months, with each respective loan required to repay deferred debt service in 12 equal monthly instalments. The borrower for the St. Clair Hotel loan (Prospectus ID#6; 5.0% of the current trust balance) was able to obtain a $394,600 Paycheck Protection Program loan but was required to contribute an additional $560,000 in equity to fund debt service and operating expense shortfalls from June 2020 through December 2020. The borrower for the Candlewood Suites Anaheim loan (Prospectus ID#12; 3.8% of the current trust balance) was required to post an additional $110,000 of equity for shortfalls. Additionally, the Issuer does not expect the sponsor to grant additional debt service deferral given the sponsors having sufficient cash on hand to fund debt service payments. The borrower for the Hilton Newark Penn Station loan (Prospectus ID#18; 2.5% of the current trust balance) was granted a longer deferral period extending from August 2020 through January 2021; however, it was required to contribute a higher amount of equity over multiple periods, totalling approximately $1.2 million.

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.

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 – 4500 Leeds (10.2% of the current trust balance)
-- Prospectus ID#2 – Oak Street Retail (9.8% of the current trust balance)
-- Prospectus ID#3 – James Hotel NYC (9.7% of the current trust balance)
-- Prospectus ID#4 – Valencia Corporate Plaza (7.7% of the current trust balance)
-- Prospectus ID#6 – St. Clair Hotel (5.0% of the current trust balance)
-- Prospectus ID#8 – Interchange Office Center (5.1% of the current trust balance)
-- Prospectus ID#9 – Elliott Center (4.8% of the current trust balance)
-- Prospectus ID#11 – 2700 North Central (4.7% of the current trust balance)
-- Prospectus ID#12 – Candlewood Suites Anaheim (3.8% of the current trust balance)
-- Prospectus ID#18 – Hilton Newark Penn Station (2.5% of the current trust balance)
-- Prospectus ID#22 – 95 Greene (9.1% of the current trust balance)

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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