DBRS Morningstar Confirms Ratings on BANK 2018-BNK14

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2018-BNK14 issued by BANK 2018-BNK14 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-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (high) (sf)
-- Class X-B at A (high) (sf)
-- Class C at A (sf)
-- Class D at BBB (high) (sf)
-- Class X-D at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class X-F at BB (high) (sf)
-- Class F at BB (sf)
-- Class X-G at BB (low) (sf)
-- Class G at B (high) (sf)

DBRS Morningstar also removed the ratings on Classes X-F, F, X-G, and G from Under Review with Negative Implications, where they were placed on August 6, 2020. The trends on Classes X-F, F, X-G, and G are Negative while the trends on all other classes remain Stable.

The Negative trends reflect the generally increased risks for the transaction since issuance with three specially serviced loans, representing 6.9% of the pool, as of the December 2020 remittance, all of which are secured by hotel or retail properties and two of which are in the top 20.

At issuance, the trust consisted of 62 fixed-rate loans secured by 136 commercial, hospitality, and multifamily properties with an original trust balance of $1.38 billion. As of the December 2020 remittance report, all of the original loans remain in the pool. Since issuance in September 2018, there has been minimal collateral reduction of 1.6% as 22 of the loans, representing 59.7% of the current trust balance, were structured as interest only (IO) and 14 loans, representing 16.5% of the current trust balance, were structured as partial IO. Loans backed by retail properties represent the largest property type concentration for the pool, with 17 loans representing 36.2% of the current trust balance. The second-largest concentration is office, with 10 loans representing 22.6% of the current trust balance. Seven loans are secured by lodging properties, representing 17.2% of the current trust balance. The retail and hotel concentrations are noteworthy, given the additional stress on these property types amid the Coronavirus Disease (COVID-19) pandemic, with the most immediate and sharpest impacts on hotel properties across the United States.

At issuance, DBRS Morningstar assigned an investment-grade shadow rating to six loans, representing 25.6% of the current trust balance, including four of the 15 largest loans: Prospectus ID#1 – 685 Fifth Avenue Retail (7.4% of the pool); Prospectus ID#2 – Aventura Mall (7.4% of the pool); Prospectus ID#9 – Millennium Partners Portfolio (3.7% of the pool); Prospectus ID#10 – 1745 Broadway (3.7% of the pool); Prospectus ID#18 – CoolSprings Galleria (2.1% of the pool); and Prospectus ID#19 – Pfizer Building (1.4% of the pool). With this review, DBRS Morningstar confirmed that each of these loan’s respective performance remains consistent with the characteristics of an investment-grade loan.

As of the December 2020 remittance period, 16 loans were on the servicers’ watchlists, representing 16.4% of the current trust balance, including 11 cooperative housing (co-op) properties representing a combined 5.7% of the current trust balance. Of the five loans backed by non-co-op properties, three were backed by lodging properties (including two portfolio loans), one by a retail property, and one by a multifamily property. These five loans are being monitored for a variety of reasons, including low debt service coverage ratios (DSCR) and the respective borrowers’ requests for coronavirus relief.

The three loans in special servicing are Prospectus ID#12 – Doubletree Grand Naniloa Hotel (3.6% of the pool); Prospectus ID#16 – Shoppes at Chino Hills (2.6% of the pool); and Prospectus ID#36 – Hyatt Place Raleigh Midtown (0.7% of the pool).

The largest loan in special servicing, DoubleTree Grand Naniloa Hotel, is secured by the borrower’s leasehold interest in a 388-key, full-service hotel in Hilo, Hawaii. The property was built in 1966 and fully renovated from 2015 to 2018. The loan transferred to special servicing in June 2020 due to the borrower’s imminent monetary default declaration, citing the coronavirus pandemic. The loan remains outstanding for the July 2020 payment and all scheduled payments thereafter; however, the loan was already on the servicer’s watchlist prior to the coronavirus pandemic for a low DSCR. The servicer reported a trailing 12-month period ended March 31, 2020, (T-12) DSCR of 0.54 times while an October 2020 Smith Travel Research report showed a T-12 occupancy rate of 50.1%, an average daily rate of $138.90, and a revenue per available room rate of $69.55. DBRS Morningstar received a November 2020 appraisal, which concluded an as-is value of $55.0 million, a 45.1% decline in value from the issuance appraised value of $100.1 million. Given this loan’s underperformance compared with issuer expectations since issuance, its five-year term maturing in September 2023, and the prospects for a fly-to destination hotel amid the coronavirus, DBRS Morningstar is concerned about the near- and longer-term risks for this loan.

The second-largest loan in special servicing, Shoppes at Chino Hills, is secured by a retail property in Chino Hills, California. The loan transferred to the special servicer in July 2020, given the ongoing effects of the coronavirus pandemic. The collateral property is a mixed-use lifestyle retail and office complex constructed in 2008. The subject benefits from a diverse tenant roster that includes national and local businesses with granular tenancy. The loan advanced to 121+ days past due in December 2020 and the servicer reported that a loan modification closed in October 2020 to bring the loan current with funds from the reserve as well as new borrower equity. As such, the loan is expected to be brought current in the near term and returned to the master servicer for monitoring. Although the loan modification reduces the near-term risks for this loan, DBRS Morningstar remains concerned about the longer-term prospects, given the concentration of near-term rollover and the sponsor’s cash flow difficulties that prompted the default on the loan.

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.

DBRS Morningstar materially deviated from its North American CMBS Insight Model when determining the rating assigned to Class B as the quantitative results suggested a lower rating on the class. The material deviation is warranted given the uncertain loan-level event risk.

Classes X-A, X-B, X-D, X-F, and X-G are 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#12 – Doubletree Grand Naniloa Hotel (3.6% 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 at dbrsmorningstar.com/about/methodologies. 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 [email protected].

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.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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