DBRS Morningstar Confirms All Classes of Real Estate Asset Liquidity Trust, Series 2020-1

DBRS Limited (DBRS Morningstar) confirmed its ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2020-1 issued by Real Estate Asset Liquidity Trust, Series 2020-1 as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class B at AA (sf)
-- Class X at A (high) (sf)
-- Class C at A (sf)
-- Class D-1 at BBB (sf)
-- Class D-2 at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (sf)
-- Class G at B (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since issuance. As of the January 2021 remittance, all 52 of the original loans remain in the pool, with an aggregate trust balance of $522.2 million, representing a collateral reduction of approximately 1.8% since issuance as a result of loan amortization. The transaction is concentrated by property type, as 16 loans, representing 34.9% of the current trust balance, are secured by retail assets, while 19 loans, representing 34.3% of the current trust balance, are secured by multifamily properties. All loans in the pool amortize through their respective loan terms, while 40 loans, representing 65.7% of the current trust balance, benefit from some level of meaningful recourse to the loan’s sponsor.

According to the January 2021 remittance report, there are no loans in special servicing and none are delinquent, but there are six loans on the servicer’s watchlist, representing 23.2% of the current trust balance. All six of these loans have been affected by the ongoing difficulties caused by the Coronavirus Disease (COVID-19) pandemic, and all have received various forms of short-term forbearances and are making payments based on the terms of their respective forbearances. The two largest loans on the watchlist, representing 15.2% of the current trust balance, are also the two largest loans in the pool.

The Sheraton Gateway Hotel Toronto A-1 (Prospectus ID#1, 8.2% of the current trust balance) is secured by a 474-key full-service hotel connected to Toronto Pearson International Airport in Mississauga, Ontario. The loan was added to the servicer’s watchlist in May 2020 after a request for mortgage relief because of the decline in traveller demand and has subsequently had two loan modifications, allowing the borrower to use capital expenditure reserve funds to pay principal and interest payments through March 2021, with the reserve to be replenished over a 24-month period starting in April 2021. As of January 2021, the borrower had a total of $10.6 million in capital expenditure reserves. At issuance, the borrower was beginning a $35.0 million brand-mandated property improvement plan, of which $15.0 million was reserved upfront, with an expectation that renovations would be completed in approximately 12 months. While no details on the renovations have been provided to date, Knightstone Capital Management (the sponsor) indicates on its website that renovations are ongoing and scheduled to be completed in 2021. Although the loan is nonrecourse, the sponsor is a well-known Canadian developer, with $65.0 million of equity contributed at issuance to help finance the acquisition of the property and the planned renovations.

LBC Carrefour Retail (Prospectus ID#2, 7.0% of the current trust balance) is secured by an anchored retail complex in Trois-Rivières, Québec, roughly 130 kilometres (km) southwest of Québec City and 138 km northeast of Montréal. The loan was added to the servicer’s watchlist in May 2020 after a request for mortgage relief; the loan was subsequently changed from amortizing to interest only for three months through July 2020, with deferred payments to be repaid over the ensuing six months through December 2020. According to servicer commentary, the property is currently 94.3% occupied by 28 tenants, of which 16 were not able to make payments under the provincial government’s mandatory closures for nonessential businesses. During the lockdown, only Walmart (32.8% of the net rentable area (NRA)) and Uniprix (2.5% of the NRA) were open for business; however, as of February 8, 2020, all nonessential stores were permitted to reopen as restrictions eased.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Class X is an interest-only (IO) certificate that references 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 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 Canadian 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 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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