DBRS Morningstar Confirms All Ratings on BDS 2020-FL5 Ltd.

DBRS, Inc. (DBRS Morningstar) confirmed the ratings on the following classes of notes (the Notes) issued by BDS 2020-FL5 Ltd.:

-- Class A Notes at AAA (sf)
-- Class A-S Notes at AAA (sf)
-- Class B Notes as AA (low) (sf)
-- Class C Notes at A (low) (sf)
-- Class D Notes at BBB (high) (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 ratings confirmations reflect the overall stable performance of the Notes since issuance. At issuance, the trust consisted of 24 floating-rate mortgage loans secured by 26 transitional real estate properties with a cut-off pool balance of $492.2 million. The $57.8 million ramp-up period ended in August 2020, increasing the pool balance to $550.0 million. Per the December 2020 remittance report, the trust comprised 27 loans secured by 29 properties. The transaction features a two-year reinvestment period that is scheduled to expire in February 2022. Reinvestment is subject to eligibility criteria, which includes a rating agency confirmation for funded companion participations that are being acquired for more than $1.5 million and for any other mortgaged assets. DBRS Morningstar analyzed the pool using the most conservative loan metrics to forecast an adverse selection scenario for acquired companion participations of less than $1.5 million.

The loans are generally secured by traditional property types with only two loans, representing 6.9% of the pool balance, secured by hospitality properties and one loan, representing 4.5% of the pool balance, secured by a student housing property. The trust primarily comprises multifamily properties, which secure 22 loans representing 79.4% of the pool balance. Multifamily properties have generally been more resilient during the Coronavirus Disease (COVID-19) pandemic relative to other property types. Most of the multifamily properties in the transaction are in a transitional phase that commenced prior to the coronavirus pandemic; however, the pandemic has delayed some of the original completion timelines, which could ultimately affect the collaterals’ stabilization process prior to the respective initial loan maturities.

Per the December 2020 remittance report, eight loans, representing 27.0% of the pool balance, are on the servicer’s watchlist primarily for financial performance declines. Forbearance agreements related to the coronavirus pandemic were granted to sponsors of the Park Long Beach Portfolio, The Normandy Hotel, Obispo & Coronado Portfolio, and Carte Hotel San Diego Downtown loans. The forbearance agreements generally allowed deferral of debt service payments that are scheduled to be repaid over the loan term.

Forbearance agreements were executed for the two hospitality properties, Carte Hotel San Diego Downtown (Prospectus ID#10; 3.6% of the pool balance) and The Normandy Hotel (Prospectus ID#14; 3.2% of the pool balance). The Carte Hotel San Diego Downtown loan is secured by a 246-key full-service hotel near San Diego’s Little Italy neighborhood. The sponsor developed the property and delivered it to the market in September 2019. The sponsor’s business plan was to stabilize hotel and food and beverage operations by capturing business from the transient and group segments. Travel restrictions resulting from the coronavirus pandemic have significantly affected operations and the borrower has been covering the debt service payments, despite the collateral’s cash shortfalls. A forbearance agreement was agreed upon that allowed the deferral of interest payments for 90 days beginning with the November 2020 monthly payment, which will be repaid in monthly installments over the subsequent 12 months. The servicer has the option to extend the forbearance period by an additional 90 days. As of December 2020, the recent resurgence of coronavirus outbreaks in California has further restricted travelers and the hotel’s services and amenities are limited at this time. DBRS Morningstar continues to monitor the coronavirus situation in California, which considerably affects the collateral’s performance.

The Normandy Hotel loan is secured by a 75-key limited-service boutique hotel near Embassy Row in Washington, D.C. Major demand drivers for the hotel include visitors to the local embassies, overflow guests from nearby larger convention hotels, and business travelers. The sponsor’s business plan was to stabilize hotel operations after completing a guest-room renovation in late 2018. The coronavirus pandemic has significantly affected the hotel; according to the September 2020 Smith Travel Research report, the subject’s occupancy rate has been less than 15.0% since April 2020. A forbearance agreement was executed that originally allowed deferral of interest payments and furniture, fixture, and equipment deposits between May 2020 and July 2020. A 90-day extension was approved with payments and deposits deferred through October 2020. The borrower requested an additional 180-day extension through March 2021, which is currently under review. DBRS Morningstar is monitoring the status of the forbearance extension and the ultimate repayment plan of the deferred interest payments. If the current terms are extended through March 2021, the accrued interest payments may not be fully repaid over the subsequent 12 months.

BDS 2020-FL5 Retention Holder, LLC, a subsidiary of the advancing agent, was initially slated to acquire the Class F Notes, Class G Notes, and the Preferred Shares, which represent 18.25% of the pool balance.

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 – Cobalt Springs (8.0% of the pool)
-- Prospectus ID#3 – 3500 The Vine (6.7% of the pool)
-- Prospectus ID#5 – The Collective (formerly known as (fka) Burlington Apartments) (6.5% of the pool)
-- Prospectus ID#7 – Tiger Towne Apartments (4.5% of the pool)
-- Prospectus ID#9 – The Life at Greenbriar (fka Pines at Greenbriar) (3.7% of the pool)
-- Prospectus ID#10 – Carte Hotel San Diego Downtown (3.6% of the pool)
-- Prospectus ID#11 – The Life at Pine Grove (fka Laurel Park Apartments) (3.3% of the pool)
-- Prospectus ID#14 – The Normandy Hotel (3.2% 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 the 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.

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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