DBRS Morningstar Downgrades Seven Classes of CSAIL 2018-CX12

DBRS, Inc. (DBRS Morningstar) downgraded the ratings on seven classes of the Commercial Mortgage Pass-Through Certificates, Series 2018-CX12 issued by CSAIL 2018-CX12 Commercial Mortgage Trust as follows:

-- Class X-B to A (high) (sf) from AA (low) (sf)
-- Class C to A (sf) from A (high) (sf)
-- Class X-D to A (sf) from A (high) (sf)
-- Class D to A (low) (sf) from A (sf)
-- Class E-RR to BBB (sf) from BBB (high) (sf)
-- Class F-RR to BB (high) (sf) from BBB (low) (sf)
-- Class G-RR to B (high) (sf) from BB (sf)

DBRS Morningstar also confirmed the ratings on the following classes:

-- 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 A-S at AAA (sf)
-- Class B at AA (sf)
-- Class X-A at AAA (sf)

With this review, DBRS Morningstar removed the ratings on Classes D, E-RR, F-RR, G-RR, and X-D from Under Review with Negative Implications, where they were placed on August 6, 2020. The trends on Classes X-B, C, X-D, D, E-RR, F-RR, and G-RR are Negative while all other trends are Stable. The rating downgrades reflect ongoing performance issues with select loans, specifically those in special servicing and those secured by hotel and retail properties, which the ongoing Coronavirus Disease (COVID-19) pandemic has disproportionately affected. As of the January 2021 reporting, there are four loans secured by hotel properties in special servicing, which combined account for 9.5% of the current trust balance. Additionally, 19 loans, representing 45.8% of the current trust balance, are on the servicer’s watchlist. These loans are being monitored for a variety of reasons, including low debt service coverage ratio, occupancy, and deferred maintenance issues.

The transaction is concentrated by property type as 12 loans, representing 36.6% of the current trust balance, are secured by retail assets, whereas 11 loans, representing 26.7% of the current trust balance, are secured by lodging assets. Multifamily collateral makes up the third-largest concentration, representing nine loans and 14.5% of the current trust balance. According to the January 2020 remittance, four loans, representing 9.5% of the current trust balance, were in special servicing. The four loans — the SIXTY Hotel Beverly Hills (Prospectus ID#6; 6.0% of the current trust balance), Galveston Hotel Portfolio (Prospectus ID#14; 2.1% of the current trust balance), Hyatt Place Santa Fe (Prospectus ID#28; 0.8% of the current trust balance), and Red Roof PLUS+ Poughkeepsie (Prospectus ID#36; 0.5% of the current trust balance) — are all secured by lodging properties.

The SIXTY Hotel Beverly Hills is secured by a 118-key full-service hotel property in Beverly Hills, California, and was transferred to the special servicer in September 2020 as a result of the ongoing effects of the coronavirus pandemic. While the loan was classified as current as of the January remittance, the borrower had not made the December payment. This represents the first missed debt service payment since an initial forbearance was granted and the special servicer is in discussions with the borrower on longer term modifications. The subject recently received an updated appraisal that reported an October 2020 value of $55.4 million (a -34.8% variance from the issuance value of $85.0 million), implying a current loan-to-value ratio (LTV) of 72.2%. Given that short-term demand remains suppressed, DBRS Morningstar analyzed the loan with an elevated probability of default.

The Galveston Hotel Portfolio is secured by two full-service hotel properties totaling 173 keys in Galveston, Texas, and was transferred to the special servicer in June 2020, also because of the effects of the coronavirus pandemic. As of January 2020, the servicer reported the workout strategy to be foreclosure and the loan remains delinquent. The subject recently received an updated appraisal that reported a September 2020 value of $14.6 million (a -39.7% variance from the issuance value of $24.2 million), implying a current LTV of 103.8%. Given these increased risks from issuance, the loan’s delinquency status, and concerns with borrower’s commitment to the property, DBRS Morningstar liquidated the loan in the analysis for this review. In this scenario, the loan incurred an implied loss severity of 28.4%.

All 41 original loans remain in the pool, with a collateral reduction of 1.2% since issuance as a result of scheduled loan amortization. No loans have been defeased.

DBRS Morningstar maintains an investment-grade shadow rating on 20 Times Square (Prospectus ID#1; 9.6% of the pool), Aventura Mall (Prospectus ID#3; 7.5% of the pool), and the Queens Place (Prospectus ID#5; 6.3% of the pool) loans. DBRS Morningstar confirmed that the performance of these loans remains consistent with investment-grade loan characteristics.

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, and X-D 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 this transaction.

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes loan-level 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.

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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