DBRS Morningstar Confirms Ratings on BBCMS Mortgage Trust 2018-C2
CMBSDBRS Limited (DBRS Morningstar) confirmed the ratings of the Commercial Mortgage Pass-Through Certificates, Series 2018-C2 issued by BBCMS Mortgage Trust 2018-C2 as follows:
-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class X-B at AA (sf)
-- Class C at AA (low) (sf)
-- Class D at A (sf)
-- Class X-D at BBB (high) (sf)
-- Class E at BBB (sf)
-- Class X-F at BBB (low) (sf)
-- Class F at BB (high) (sf)
-- Class X-G at BB (low) (sf)
-- Class G at B (high) (sf)
-- Class H-RR at B (low) (sf)
All trends are Stable.
Classes F, G, H-RR, X-F, and X-G were removed from Under Review with Negative Implications where they were placed on August 6, 2020.
As of the December 2020 remittance, all 44 original loans remain in the pool. There are 12 loans, representing 23.8% of the current trust balance, on the servicer’s watchlist. These loans are generally being monitored for a low debt service coverage ratio (DSCR) and/or occupancy issues that have generally been driven by disruptions related to the Coronavirus Disease (COVID-19) pandemic. As of the December 2020 reporting, there are no delinquent loans and no loans in special servicing.
Five of the loans on the watchlist (12.2% of the pool) are secured by lodging properties, while two loans are secured by retail properties (1.8% of the pool). Three of the loans backed by hospitality properties have been flagged for coronavirus relief requests, with those borrowers typically seeking temporary payment relief. Although the need for relief, as well as the pandemic-related stress on hospitality properties across the country, is undoubtedly affecting the collateral hotels in this pool and is generally indicative of increased risks from issuance, the mitigating factors in the historically strong performance of the underlying hotels prior to the pandemic and the lack of delinquency were noted as stabilizing factors for this review. DBRS Morningstar will continue to monitor those loans for developments.
At issuance, four loans, representing 12.7% of the current pool balance, were shadow-rated investment grade. These loans include Christiana Mall (Prospectus ID #2; 6.2% of the pool); Moffett Towers – Buildings E,F,G (Prospectus ID 125; 2.8% of the pool); Moffett Towers II – Building 1 (Prospectus ID #16; 2.5% of the pool); and Fair Oaks Mall (Prospectus ID #30; 1.2% of the pool). With this review, DBRS Morningstar confirms that the performance of these loans remains consistent with investment-grade loan characteristics.
Although the overall performance of the pool has remained stable from issuance, DBRS Morningstar continues to monitor the performance of the underlying collateral, much of which has been affected by the pandemic. DBRS Morningstar notes that the pool has a moderate concentration of hospitality properties, representing 19.1% of the pool. Hospitality properties have been the most severely affected by the initial impact of the coronavirus pandemic. The hotel concentration includes the largest loan in the pool, Dream Inn (Prospectus ID#1; 6.2% of the pool), which is secured by a 165-key full-service beachfront hotel in Santa Cruz, California. The 10-year loan is IO for the entire term. A full hotel renovation, which included rooms, lobby, public space, and amenities, was completed in 2017, at a total cost of $8.6 million ($52,107 per key). In July 2020, the borrower requested coronavirus related relief as a result of the large decline in leisure travel. Although cash flow is expected to be depressed in the short term, DBRS Morningstar notes the property’s ideal beachfront location, very limited supply in the market, and strong historical performance as mitigating factors for the near- to moderate-term risks amid the pandemic.
The pool is also concentrated in loans secured by retail properties, which represent 23.7% of the current pool balance. Much like hospitality properties, retail properties have been among the most significantly affected by the pandemic and those loans are being monitored closely as well. In general, DBRS Morningstar noted mitigating factors in property locations, tenant rosters and healthy historical performance as stabilizing factors for the bulk of the retail concentration in the larger loans in the pool and will continue to monitor as the pandemic progresses.
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, X-F, and X-G 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–Dream Inn (6.2% 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 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.
A new model was not run as performance was deemed to be generally in line with expectations at the last review. As of the previous actions published on January 20, 2020, a material deviation from the predictive model was reported on Classes B, C, and D. The material deviations were warranted given the sustainability of loan performance trends were not demonstrated.
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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