DBRS Morningstar Downgrades Two Classes of CSAIL 2019-C15 Commercial Mortgage Trust
CMBSDBRS Limited (DBRS Morningstar) downgraded the ratings of the Commercial Mortgage Pass-Through Certificates, Series 2019-C15 issued by CSAIL 2019-C15 Mortgage Trust as follows:
-- Class F-RR to BB (sf) from BB (high) (sf)
-- Class G-RR to B (sf) from B (high) (sf)
In addition, DBRS Morningstar confirmed the remaining classes 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 A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AA (high) (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class X-D at A (low) (sf)
-- Class D at BBB (high) (sf)
-- Class E-RR at BBB (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 for Classes E-RR, F-RR, and G-RR are Negative. All other trends are Stable.
The rating downgrades and Negative trends reflect the increased risk of loss to the trust for some of the loans in the pool, most notably in the largest loan in special servicing, Nebraska Crossing (Prospectus ID#15, 2.8% of the pool), which recently showed an appraised value decline for the collateral outlet mall of 46.1% from issuance. DBRS Morningstar also notes significantly increased risks for the Continental Towers loan (Prospectus ID#13, 3.0% of the pool), which is backed by an suburban office property within the Chicago metropolitan statistical area that showed an availability rate of nearly 40.0% in an online leasing flyer located by DBRS Morningstar, suggesting the second-largest tenant with 11.6% of the net rentable area (NRA) will vacate at lease expiry in July of this year.
The rating confirmations for the remaining classes reflect the overall stable performance of the transaction since issuance. As of the February 2021 remittance, all 36 of the original loans remain in the pool. There are 14 loans, representing 36.1% of the current trust balance, on the servicer’s watchlist. The servicer is monitoring these loans for a variety of reasons, including low debt service coverage ratios (DSCRs) and occupancy issues; however, the primary reason for the high concentration of loans on the watchlist is the Coronavirus Disease (COVID-19) pandemic-driven stress for lodging properties, with watchlisted loans backed by that property type generally reporting a low DSCR. Additionally, the transaction has a higher concentration of loans secured by lodging and retail properties, representing 23.7% and 23.2% of the pool, respectively, and loans backed by these property types are among those most significantly affected by the pandemic, with borrowers more likely to be requesting relief from the servicers.
As of the February 2021 remittance, the pool has two loans, representing 4.5% of the pool, in special servicing: the previously mentioned Nebraska Crossing and the Brooklyn Multifamily Portfolio loan (Prospectus ID#23, 1.7% of the pool). The Nebraska Crossing loan is a pari passu loan secured by an outdoor mall located in Gretna, Nebraska, roughly 20 miles southeast of Omaha. The loan transferred to special servicing in May 2020 due to coronavirus-related stress, with payments after May 2020 outstanding as of the February 2021 remittance. In October 2020, the property was reappraised for a value of $80.8 million, down 46.1% from the issuance value of $150.0 million, but still slightly above the outstanding principal balance for the whole loan of $71.5 million.
Although the sharp value decline is suggestive of significantly increased risks for this loan from issuance, there are mitigating factors in the servicer’s commentary that suggests a loan modification and return to master servicing is imminent for this loan, and the stable historical performance of the property should incentivize the sponsor to comply with the terms of the modification and cure the outstanding defaults for the loan. Given the high implied loan-to-value ratio for the August 2020 valuation, the loan was analyzed with a probability of default (POD) penalty to significantly increase the expected loss in the analysis for this review.
The other large loan contributing to the rating downgrades for this pool is the Continental Towers pari passu loan, which is not on the servicer’s watchlist or in special servicing, but has been placed on the DBRS Morningstar Hotlist. The collateral property is a 910,717-square-foot Class B office property located in Rolling Meadows, approximately 25 miles northwest of the Chicago central business district. Reis reports that the subject’s northwest suburbs submarket has been quite soft for the last decade, holding near 25.0% for the first half of the last 10 years before ticking up in 2015 through the end of 2020, when the vacancy rate was reported at 31.6%. These dynamics will be particularly challenging for this property, which showed an availability rate of 36.1% in a LoopNet listing last updated March 4, 2021. This availability rate appears inclusive of the vacancy that was existing at issuance and more recently available space including the Komatsu America Corporation (Komatsu) space, which represents 11.6% of the NRA and was vacated in 2020, and the former Ceannate Corp space, which represents 8.2% of the NRA and appears to have been vacated at or even ahead of the September 2020 termination option. It was known at issuance that Komatsu would vacate the space, with the tenant to pay rent through the July 2021 lease expiry. The issuance documents state Ceannate Corp would be required to pay a termination fee of $2.4 million if the option was exercised. The servicer’s loan level report for the companion loan transaction, CSAIL 2018-C14 (not rated by DBRS Morningstar), shows $5.0 million in tenant reserves on the loan.
The property was 89.0% occupied at issuance and the current availability rate of 36.1% is well above the projected availability rate of 22.6% when factoring in the known Komatsu exit at issuance. The servicer most recently reported an occupancy rate of 74.0% as of June 2020, which appears to count the Komatsu space as occupied but the Ceannate Corp space as vacant. Excluding Komatsu implies a physical occupancy rate of 62.4%, which is in line with the rate suggested by the LoopNet listing. Given the increase in vacancy, DBRS Morningstar estimates the DSCR to be approximately 1.79 times (x), compared with the YE2019 DSCR of 2.23x. However, the occupancy rate could fall even further within the near term as there is also another top five tenant with a lease expiry in July 2021—Rational Cooking Systems Inc. (2.9% of the NRA)—and another rolling next year, Panasonic Corporation of North America (5.2% of the NRA, expiring in December 2022). Although the substantial tenant reserves, as well as the sponsor’s substantial equity infusion at the acquisition funded by the subject loan, are mitigating factors worth noting, the already challenged submarket and the additional stress of the ongoing coronavirus pandemic are indicative of significantly increased risks for this loan. As such, a POD penalty was applied to increase the expected loss in the analysis for this review.
At issuance, DBRS Morningstar shadow-rated three loans, representing 15.6% of the current pool balance, as investment grade. These loans include SITE JV Portfolio (Prospectus ID#3, 6.1% of the pool), 787 Eleventh Avenue (Prospectus ID#4, 5.5% of the pool), and 2 North 6th Street (Prospectus ID#8, 4.1% of the pool). With this review, DBRS Morningstar confirms 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 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.
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. The material deviation is warranted given the uncertain loan-level event risk with the loans in special servicing and on the servicer’s watchlist.
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#13 – Continental Towers (3.0% of the pool)
-- Prospectus ID#15 – Nebraska Crossing (2.8% 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.
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.
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.
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