DBRS Morningstar Confirms Ratings on CD 2019-CD8 Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2019-CD8 issued by CD 2019-CD8 Mortgage Trust 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-M at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AAA (sf)
-- Class X-B at AA (sf)
-- Class C at AA (low) (sf)
-- Class D at A (low) (sf)
-- Class X-D at A (low) (sf)
-- Class E at BBB (high) (sf)
-- Class X-F at BBB (low) (sf)
-- Class F at BB (high) (sf)
-- Class G-RR at BB (sf)
-- Class H-RR at B (low) (sf)

All trends are Stable.

With this review, DBRS Morningstar removed Classes E, F, X-D, X-F, G-RR, and H-RR from Under Review with Negative Implications, where they were placed on August 6, 2020.

The rating confirmations reflect the overall stable performance of the transaction, which remains in line with DBRS Morningstar’s expectations. As of the April 2021 remittance, all 33 of the original loans remain in the pool. There are 10 loans, representing 30.7% 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 mixed-use with retail and lodging properties. Watchlisted loans backed by those property types generally have been reporting a low DSCR or upcoming rollover. Two loans backed by these property types are in special servicing, as further detailed below.

DBRS Morningstar also notes that the transaction has a higher concentration of loans secured by retail properties, representing 29.8% of the pool. As loans backed by this property type have been among the most significantly affected by the pandemic, those borrowers are more likely to request relief from the servicers.

At issuance, DBRS Morningstar assigned investment-grade shadow ratings to three loans, representing a combined 16.3% of the pool, including Woodlands Mall (Prospectus ID#2, 8.7% of the pool), Moffett Towers II Buildings 3 & 4 (Prospectus ID#10, 4.3% of the pool), and Crescent Club (Prospectus ID#12, 3.4% of the pool). With this review, DBRS Morningstar confirms that the performance of these loans remain consistent with investment-grade loan characteristics.

As of the April 2021 remittance, the pool has two loans, representing 10.9% of the pool, in special servicing: Hilton Penn’s Landing (Prospectus ID#3, 8.7% of the pool) and 63 Spring Street (Prospectus ID#17, 2.3% of the pool).

Hilton Penn’s Landing is secured by a 350-key, full-service hotel situated along the Delaware River waterfront in Philadelphia. The property was originally constructed as a Hyatt in 2000 and was later reflagged as Hilton in February 2015. The loan displayed strong performance prior to the pandemic, with a YE2019 DSCR of 2.27 times (x), compared with 2.12x at issuance. Additionally, the most recent Smith Travel Research report on file from May 2019 shows the subject was outperforming the competitive set. The loan received a three-month forbearance back in May 2020 and the 12-month repayment period commenced with the September 2020 payment. However, the loan was eventually transferred to special servicing in December 2020 for delinquency, with payments after October 2020 outstanding. According to the April 2021 reporting, the borrower has requested another short-term forbearance and negotiations are ongoing. The loan was analyzed with an elevated probability of default to account for delinquency and ongoing performance concerns amid the pandemic.

The 63 Spring Street loan is secured by a 5,540-square-foot (sf) mixed-use building containing four free market residential units and 1,100 sf of ground-level retail space. The property, located in the desirable SoHo neighborhood in Manhattan, was built in 1910 and underwent a $6.0 million renovation between 2014 and 2015. At YE2019, the retail portion of the property was fully leased to three retail tenants: L'Occitane, Brodo Bone Broth Company, and Baked by Melissa. Additionally, the residential portion was also 100% leased as high-end residential units with average in-place rent of $6,825 per unit. At issuance, DBRS Morningstar noted that the retail portion of the property represented approximately 76% of the base rent.

The loan transferred to special servicing in June 2020 for delinquency, with payments after April 2020 outstanding. According to the January 2021 rent roll, the property was nearly fully vacant, with Baked by Melissa (representing 0.9% of the overall net rentable area through January 2029) the sole tenant remaining at the property. With the loss in tenancy, the property’s annual rents appear to total approximately $311,000 with income from the remaining retail tenant, a cell tower lease, and a billboard lease. That figure is insufficient to cover the annual debt service requirement of approximately $780,000. According to the servicer, the borrower requested a modification but has yet to submit financial information requested by the servicer to support the relief request. The collateral was reappraised in August 2020 for a value of $17.8 million, down 40.3% from the $29.8 million value at issuance. Given the extended delinquency and the significant stress for New York retail that will limit recovery options for the near to medium term, DBRS Morningstar liquidated the loan from the trust as part of the analysis for this review, resulting in a loss severity of approximately 24.0%. With this scenario, losses are contained to the unrated certificate.

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-A, X-B, X-D, and X-F 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.

The DBRS Viewpoint platform provides additional information on this transaction and underlying loans including DBRS Morningstar metrics, commentary, servicer-reported cash flows, and other performance-related data.

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 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 [email protected].

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 [email protected].

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