DBRS Morningstar Upgrades Ratings on Three Classes and Confirms Three Classes of The Bancorp 2018-CRE4 Trust

DBRS Limited (DBRS Morningstar) upgraded its ratings on three classes of Commercial Mortgage Pass-Through Certificates, Series 2018-CRE4 issued by The Bancorp Commercial Mortgage 2018-CRE4 Trust (the Issuer) as follows:

-- Class B to AAA (sf) from AA (low) (sf)
-- Class C to AA (sf) from A (low) (sf)
-- Class D to A (sf) from BBB (low) (sf)

In addition, DBRS Morningstar confirmed its ratings on the three remaining classes as follows:

-- Class A-S at AAA (sf)
-- Class E at BB (low) (sf)
-- Class F at B (sf)

All trends are Stable.

The rating upgrades generally reflect the significant paydowns to the transaction since issuance as well as the stable outlook for the remaining loans in the pool. In additional, there is a $30.7 million nonrated class in the first-loss position that further enhances credit support throughout the stack.

At issuance, the collateral consisted of 45 floating-rate mortgages secured by 50 transitional properties totaling $341.0 million based on the trust cut-off balances ($515.2 million including funded pari passu participation interests) and $568.8 million based on fully funded loan amounts. As of the April 2021 remittance, 20 loans remain in the pool and there has been a collateral reduction of 54.0% since issuance. As of April 2021, the servicer reported all future funding has been funded with the exception of $366,000 for Butterfield Office Plaza (Prospectus ID#17). The loans were structured with three-year initial terms that are scheduled to mature by September 2021, and all loans feature two one-year extension options that are subject to performance hurdles.

As of the April 2021 remittance, four loans, representing 3.2% of the pool, are in special servicing and another 12 loans, representing 73.3% of the pool, are on the servicer’s watchlist, primarily being monitored for upcoming maturities and low cash flow. In general, probability of default (POD) penalties were applied to increase the expected loss for these loans in the analysis for this review. Although some of these loans have characteristics suggesting increased risks from issuance, no significant losses are expected, based on information known as of this review.

The Staybridge Suites Conversion loan (Prospectus ID#36; 1.6% of the pool) is the largest loan in special servicing. It is secured by a 224-key limited-service hotel in Kissimmee, Florida, and was transferred to special servicing in April 2020 because of payment default. The borrower submitted a relief request, citing hardship amid the Coronavirus Disease (COVID-19) pandemic. The loan was originally scheduled to mature in October 2020 and, as part of the loan modification approved by the special servicer, a one-year extension was granted along with a short-term forbearance. The special servicer obtained an updated appraisal dated July 2020 that showed an as-is value of $21.3 million, up from $13.3 million at issuance and well in excess of the fully funded loan balance of $15.5 million. As of the April 2021 remittance, the loan was reported current and the special servicer’s commentary notes the loan remains in special servicing for monitoring to ensure the terms of the loan modification are being met. As of January and February 2021, the collateral reported an occupancy rate of 43.6% and 45.3%, respectively. Although the challenges in depressed occupancy rates are expected to persist through the near to medium term, DBRS Morningstar notes the value improvement from issuance and the sponsor’s apparent commitment to the property as factors for consideration as well.

Two other loans, Hotel Indigo Detroit (Prospectus ID#5, 9.5% of the pool) and DoubleTree Columbia (Prospectus ID#16, 5.9% of the pool), were granted forbearances and loan modifications as a result of challenges arising from the coronavirus pandemic. Hotel Indigo Detroit, secured by a 241-key lodging property in the Detroit central business district, was added to the servicer’s watchlist for low debt service coverage ratio (DSCR) and coronavirus relief. The loan was modified in July 2020 with the special servicer approving a forbearance of six months from June 2020 through November 2020, in addition to a maturity extension to May 2022. The borrower requested a second forbearance in December 2020, which was approved through March 2021. Post-forbearance debt service payments commenced in April 2021. The borrower remains optimistic that performance will improve following a wider distribution of vaccines and the reopening of restaurants and sporting venues.

DoubleTree Columbia, secured by a 152-key, full-service hotel in Columbia, Maryland, was added to the servicer’s watchlist for low DSCR and coronavirus relief. The loan previously performed well with a DSCR of 1.78 times (x) in 2019 but struggled in 2020 due to the pandemic. The special servicer approved a loan modification that deferred various reserve payments from April 2020 to September 2020. Reserve payments were to be repaid by December 2020 and the servicer’s commentary states that all loan payments are current and all deferred payments have been repaid. DBRS Morningstar increased the POD for these loans as part of the review to reflect the increased default risk for each of these stressed loans.

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 ratings assigned to Classes E and F, as the quantitative results suggested a higher rating on the classes. The material deviations are warranted given the uncertain loan-level event risk with the loans in special servicing and the potential for adverse selection as loans continue to pay off.

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 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 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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