DBRS Confirms Ratings on All Classes of Benchmark 2018-B4 Mortgage Trust, Removes Two Classes From Under Review with Negative Implications

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass Through Certificates, Series 2018-B4 issued by Benchmark 2018-B4 Mortgage Trust as follows:

-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class X-A at AAA (sf)
-- Class A-M at AAA (sf)
-- Class X-B at AA (high) (sf)
-- Class B at AA (sf)
-- Class C at A (high) (sf)
-- Class X-D at A (sf)
-- Class D at A (low)(sf)
-- Class E-RR at BBB (sf)
-- Class F-RR at BB (high) (sf)
-- Class G-RR at B (high) (sf)

With this review, DBRS Morningstar removed Classes F-RR and G-RR from Under Review with Negative Implications where they were placed on August 6, 2020. The trends on these classes are now Negative. In addition, the trend on Class E-RR is now Negative. All other trends remain Stable.

The Negative trends reflect the increased risk to the pool resulting from five loans having transferred to the special servicer combined with the continued performance challenges facing the underlying collateral, much of which has been driven by the impact of the Coronavirus Disease (COVID-19). In addition to the five loans (9.2% of the current pool balance) with the special servicer, which all transferred following the outbreak of the pandemic, there are 11 loans (20.2% of the current pool) on the servicer’s watchlist as of the January 2021 remittance. Seven of these loans (11.1% of the current pool balance) were watchlisted as a result of recent performance declines, reporting a weighted average (WA) debt service coverage ratio (DSCR) of 0.70 times (x) based on the most recent financials available, compared with the year-end 2019 figure of 1.70x.

All 44 of the original loans remain in the pool with an aggregate principal balance of $1.13 billion, representing a 2.1% collateral reduction since issuance as a result of loan amortization and a partial loan repayment. No loans have been defeased and there have been no losses to the trust. The pool is concentrated by office, retail, and hospitality properties, representing 29.4%, 27.4%, and 15.2% of the current pool balance, respectively.

The JAGR Hotel Portfolio loan (Prospectus ID#15, 2.9% of the current pool balance) is the largest loan in special servicing and is secured by three, full-service hotels totaling 721 keys, located in secondary markets in three different states: Hilton Jackson (276 keys), DoubleTree Grand Rapids (226 keys), and DoubleTree Annapolis (219 keys). The loan was transferred to special servicing for imminent default in August 2020 after the borrower indicated its inability to continue supporting property operations. The loan is 60-plus days delinquent as of the January 2021 reporting and the servicer has presented draft modification terms to the borrower. Based on financials as of June 2020, the loan reported a T-12 net cash flow (NCF) figure of $1.2 million (a 0.47x DSCR), compared with the year-end 2019 figure of $5.4 million (2.12x), reflecting a 77.9% NCF decline year-over-year (YoY), primarily as a result of departmental revenue loss. The portfolio’s performance metrics followed a similar negative trend, with T-12 occupancy, average daily rate (ADR), and revenue per available rooms (RevPAR) figures as of June 2020 of 50.3%, $112, and $56, respectively, compared with year-end 2019 figures of 65.5%, $117, and $76, respectively. Demand segmentation for the portfolio was 43.7% commercial demand, 33.1% meeting, and 23.2% leisure at issuance. Considering the loan’s current struggles amid the pandemic, DBRS Morningstar increased the probability of default for this loan in its analysis to reflect the increased credit risk to the trust.

The Atlantic Times Square loan (Prospectus ID#25, 1.6% of the current pool balance) is secured by a mixed-use (retail and multifamily) complex in Monterey Park, California. The retail component totals 212,800 square feet (sf), while the multifamily component comprises 100 Class A units; there are also 110 condo units at the property that do not serve as collateral. The loan was transferred to special servicing in November 2020 for payment default and is currently 90-plus days delinquent. As of Q3 2020, the loan reported a T-9 NCF of $2.9 million (0.69x), compared with the year-end 2019 figure of $9.8 million (2.05x), reflecting a 70.2% NCF decline YOY, mainly driven by the 47.0% decline in rental revenue. Rental collections are undoubtedly an issue at the property, with the largest two tenants, AMC Theatres (19.8% of the net rentable area (NRA), expiring August 2030) and 24 Hour Fitness (8.1% of the NRA, expiring August 2025) currently closed. Both of these tenants have been particularly affected by the coronavirus pandemic as they both had financial issues at the corporate level above and beyond the store closures at the subject. According to the servicer, 24 Hour Fitness has proposed a lease amendment that is being reviewed, while the borrower has continued dialogue with AMC. To account for the possible credit risk this loan presents to the trust, DBRS Morningstar increased the probability of default to more accurately reflect the current credit profile of the loan.

At issuance, DBRS Morningstar assigned an investment-grade shadow rating to six loans: Aventura Mall (Prospectus ID#1, 10.1% of the current pool balance), 181 Fremont Street (Prospectus ID#2, 7.0% of the current pool balance), Marina Heights State Farm (Prospectus ID#3, 5.3% of the current pool balance), The Gateway (Prospectus ID#5, 4.4% of the current pool balance), Aon Center (Prospectus ID#6, 4.4% of the current pool balance), and 65 Bay Street (Prospectus ID#9, 3.5% of the current pool balance). DBRS Morningstar confirmed that the performance of these loans remains consistent with the 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 the following loans in the transaction:
-- Prospectus ID#10 – Sheraton Music City (3.4% of the current pool balance)
-- Prospectus ID#15 JAGR Hotel Portfolio (2.9% of the current pool balance)
-- Prospectus ID#25 Atlantic Times Square (1.6% of the current pool 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 not 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.

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 info@dbrsmorningstar.com.

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