DBRS Morningstar Changes Trends on Two Classes, Confirms Ratings on All Classes of A10 Bridge Asset Financing 2019-B, LLC

DBRS Limited (DBRS Morningstar) confirmed the ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2019-B issued by A10 Bridge Asset Financing 2019-B, LLC (the Issuer):

--Class A at AAA (sf)
--Class A-S 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 (sf)
--Class F at B (sf)

The trends on Classes D and E have been changed to Stable from Negative while the trend on Class F remains Negative. The trends on all other classes in the transaction are Stable.

DBRS Morningstar had previously changed the trends on Classes D, E, and F to Negative from Stable as multiple loans in the transaction were either delinquent or individual borrowers had received a forbearance as a result of the Coronavirus Disease (COVID-19) pandemic. While there are currently two specially serviced loans in the pool (11.2% of the current trust balance) and three loans on the servicer’s watchlist (15.8% of the current trust balance), the overall credit profile of the transaction has recently shown signs of improvement. Most notably, the transaction has experienced a collateral reduction of 15.6% in recent months, contributing to increased credit enhancement across the capital stack. Additionally, one loan of concern identified during DBRS Morningstar’s previous review, 500 Dekalb Ave (4.9% of the issuance trust balance), was repaid in full in April 2021.

The initial collateral consisted of 36 fixed-rate and eight floating-rate mortgages secured by mostly transitional properties with a cut-off balance of $281.1 million, excluding approximately $83.3 million of future funding commitments. At issuance, the pool had a maximum balance of $320.0 million, inclusive of $38.9 million of future funding companion participations. While the Reinvestment Period does not end until September 2021, $50.0 million of principal paydown has been contributed to the trust over the past year, reducing the maximum balance to $270.0 million. According to the June 2021 remittance report, there are 29 loans in the pool with a current principal balance of $221.3 million and an outstanding balance of unfunded future funding obligations of $33.5 million for capital expenditures as well as tenant improvement and leasing commission costs. The trust currently has a reinvestment account of $48.7 million available. By property type, 13 loans, representing 40.3% of the principal balance, are secured by multifamily, industrial, or self-storage assets, while 16 loans, representing 51.3% of the principal balance, are secured by retail and office assets; the remainder of the pool is secured by mixed-use assets.

The larger of the two loans in special servicing, Gowanus Assemblage (6.1% of the current trust balance), is secured by four adjacent mixed-use buildings, totalling 57,418 square feet (sf), in Brooklyn, New York. At origination, the borrower’s business plan consisted of completing $1.5 million of capital improvements across three of the four buildings to improve occupancy. As a result of the mandated construction moratoriums in New York, however, construction was delayed at the property, which significantly affected leasing momentum. The loan was transferred to special servicing in August 2020 and is more than 121 days delinquent as of the June 2021 reporting. Given the sponsor’s illiquid position with financial pressure from other near-term maturities, alternative financing was sought to delay the resolution process; however, such funding did not materialize and as a result the property was listed for sale in January 2021. According to the servicer, The Yard (44.7% of the net rentable area (NRA), lease expiring April 2028) remains operational, but there have been issues with rent collections. Collective Arts (23.7% of the NRA, lease expiring June 2029) has not yet taken occupancy, however, the tenant reportedly remains committed to its space. Based on the September 2020 appraisal, the property was valued at $19.5 million, below the issuance value of $31.0 million, reflecting a 37.0% decline in value. DBRS Morningstar liquidated this loan from the trust in its analysis for this review, resulting in a hypothetical loss severity in excess of 30.0%.

The largest loan both on the servicer’s watchlist and in the transaction, Janss Marketplace (7.6% of the current trust balance), is secured by a 449,829-sf anchored retail property in Thousand Oaks, California. The borrower was previously granted forbearance in May 2020, which was extended in January 2021. The borrower has cooperated with the terms of the agreement and the loan is now current. While the servicer reports that a few tenants are still operating through rental deferral arrangements, the majority of tenants appear to be operational with an occupancy rate of 83.4% as of March 2021. The delivery of Aldi’s space (5.0% of the NRA, lease expiring May 2030) was significantly delayed, but the tenant opened for business in January 2021. In addition, the borrower has reportedly signed four new leases and an extension with Gold’s Gym (currently 7.0% of the NRA, lease expiring August 2023), which will also expand its footprint at the property. While the property has experienced cash flow disruption with the Q2 2020 annualized figure falling to $476,052, below the DBRS Morningstar Stabilized figure of $5.0 million, rental collections appear to be normalizing with a large pool of prospective tenants interested in available space at the property.

The two smaller loans on the servicer’s watchlist have both faced challenges with increased vacancy rates and the timeliness of debt service payments. While the 2929 N Central Expressway (2.1% of the current trust balance) is more than 60 days delinquent as of the June 2021 reporting, the servicer indicates that the borrower is in the final stages of lease negotiations with a major tenant that is expected to execute a lease in July 2021. The borrower’s investor group has noted that the default will be cured and the expected buildout and leasing package will be funded if the lease is executed. DBRS Morningstar will continue to monitor both 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.

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 the 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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