DBRS Morningstar Places All Classes of Natixis Commercial Mortgage Securities Trust 2019-MILE Under Review with Negative Implications, Confirms All Classes

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2019-MILE issued by Natixis Commercial Mortgage Securities Trust 2019-MILE (the Issuer) as follows:

-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class F at B (low) (sf)

DBRS Morningstar also placed all classes Under Review with Negative Implications. Classes D, E, and F had previously carried Negative trends because of the general exposure to WeWork; the Under Review with Negative Implications designations are a result of the unexpected termination of one of WeWork’s existing leases at the property and uncertainty as to how that was accomplished. As a result of placing the classes Under Review with Negative Implications, DBRS Morningstar removed all current trends.

At issuance, WeWork leased 335,386 square feet (sf; 31% of the net rentable area (NRA)) that was split into two phases. Phase 1 totaled 158,663 sf on a lease that commenced in May 2020, while the lease for Phase 2, totaling 176,723 sf, was scheduled to commence in August 2020. According to published reports, the tenant vacated approximately 160,000 sf of space in July 2020. The loan had been added to the servicer’s watchlist in June 2020 after the borrower entered into an amendment of the WeWork lease without lender consent but was removed from the watchlist two months later. A February 2021 rent roll confirmed that occupancy has fallen to 73% and shows WeWork occupying only the 176,723-sf Phase 2 space. At issuance, WeWork posted two letters of credit (LOCs) as security deposits. The first LOC for $3.5 million pertained to the 158,663 sf identified as the original premises, while the second LOC for $11.8 million pertained to the 176,723 sf of new premises, both of which would reduce in phases. Further, the parent company of WeWork provided a lease guarantee up to $17.9 million.

The servicer subsequently confirmed that WeWork terminated its lease for the Phase 1 space in conjunction with a $6.5 million termination payment. This termination payment is being held in the tenant improvement/lease commission reserve that now totals nearly $44.0 million. The corresponding $3.5 million LOC was released, but the other remains in place as does the full lease guarantee. DBRS Morningstar has requested updated information from the servicer regarding the mechanics of the lease termination and placed all classes Under Review with Negative Implications while it awaits this information and ascertains the impact on the loan’s performance and on the property’s value.

The transaction is backed by the fee simple and leasehold interests in Wilshire Courtyard, which comprises two six-story, LEED Gold-certified office buildings with an aggregate of 1,061,144 sf in Los Angeles. The ground-leased parcel is 3.5% of the property’s total site area with a current ground rent of $215,066 through 2066 that increases every 10 years based on cumulative CPI increases. The trust’s assets consist of a $408,165,894 fully funded floating-rate mortgage loan with a 36-month initial term and two 12-month extension options. In addition to the trust debt, there is mezzanine financing in the amount of $69.4 million.

Besides WeWork, the property’s second-largest tenant is IPG Mediabrands, which leases 8.4% of the NRA through June 2023. The third-largest tenant is Twentieth Television, Inc., occupying 7.1% of the NRA under a lease that expires in July 2022.

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.

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 issuance metrics and all historical surveillance commentary on 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 North American CMBS Surveillance Methodology (March 26, 2021), 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.

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.

This rating is Under Review with Negative Implications. Generally, the conditions that lead to the assignment of reviews are resolved within a 90-day period.

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

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