DBRS Morningstar Confirms All Classes of Ready Capital Mortgage Trust 2019-6

DBRS, Inc. (DBRS Morningstar) confirmed all ratings on the following classes of Commercial Mortgage Pass-Through Certificates (the Certificates) issued by Ready Capital Mortgage Trust 2019-6 (the Issuer):

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

The trend for Class G was changed to Stable from Negative as the number of specially serviced loans has decreased considerably in recent months as forbearance requests were either executed or withdrawn by the respective borrowers. All remaining trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction. At issuance, the trust comprised 89 fixed- and floating-rate mortgages secured by 110 stabilized and transitional properties. The trust had an initial cut-off balance of $430.7 million, excluding $5.6 million of future funding commitments related to five loans. Per the June 2021 remittance, there were 78 loans secured by 96 properties remaining in the trust, which totaled $388.7 million, representing a 9.5% collateral reduction since issuance. The pool contains a mix of stabilized properties with short-term bridge financing, loans backing properties that are in a period of transition with plans to stabilize and improve the asset value, and long-term stabilized loans. Although the majority of the loans are fixed rate, the loans backing transitional properties have a hybrid interest-rate structure that features a fixed rate for the loan portion held within the trust but a floating rate for the future funding component outside of the trust.

The loans are generally secured by traditional property types with very limited exposure to hospitality properties (one loan; 3.7% of the trust balance), and student housing properties (two loans; 2.8% of the trust balance). The pool is also very granular as the 10 largest loans represent 46.8% of the trust balance. A considerable portion of collateral properties are located in urban areas as there are 24 loans, representing 48.3% of the pool balance, that have DBRS Market Ranks of 5 or greater.

Per the June 2021 remittance report, there are three loans, representing 2.7% of the trust balance, that have transferred to the special servicer. The largest specially serviced loan, Broad Street Crossing (Prospectus ID#19 – 1.4% of the trust balance) is secured by a retail property in Mansfield, Texas and has been with the special servicer because of a nonmonetary default event. The cause of the default has since been resolved and the loan is expected to transfer back to the master servicer. Glowzone (Prospectus ID#44 – 0.7% of the pool balance) is a vacant single-tenant retail building in Houston that became real estate owned in June 2020. A hypothetical liquidation analysis was applied to the loan based on the “dark” value from the issuance appraisal of $4.1 million. DBRS Morningstar believes the stabilization of the property could be prolonged as the subject is currently built-out as a special purpose use as experiential retail and this product type faces specific re-leasing challenges caused by the Coronavirus Disease (COVID-19) pandemic.

An additional 20 loans, representing 27.9% of the pool balance, were on the servicer’s watchlist as of June 2021. Most watchlist loans were a result of the borrower indicating cash flow concerns caused by the coronavirus pandemic. The probability of defaults for the sampled loans were appropriately adjusted to account for the increased risk. The largest watchlist loan, 1001 Ross (Prospectus ID#2 – 6.4% of the trust balance), is secured by a mixed-use property consisting of 204 multifamily units and 30,164 square feet (sf) of ground level retail located in downtown Dallas. The sponsor’s business plan is to implement a $3.5 million capital expenditure plan to modernize interior and exterior finishes, which includes $2.4 million ($16,597 per unit) for apartment interiors. CVS (38.0% of retail net rentable area) was the anchor retail tenant at closing; however, it vacated upon its lease expiration in January 2020. The loan was added to the servicer’s watchlist in March 2021 because of a decline in debt service coverage ratio (DSCR) and loan payments remain current as of June 2021. The loan reported an annualized T-3 ending March 31, 2021, net cash flow (NCF) of $1.28 million (1.02 times (x) DSCR), compared with the year end (YE) 2020 NCF of $690,679 (0.55x DSCR) and Issuer-underwritten NCF of $1.12 million. The December 2020 rent roll showed the multifamily portion was 92.2% occupied with an average rent of $1,328 per unit compared with the March 2020 rent roll occupancy rate and average rent per unit of 70.6% and $1,276, respectively. Per Q1 2021 Reis data, the average asking rent and vacancy rate for the Central Dallas submarket were $2,246 per unit and 8.4%, respectively. Similar vintage properties had an average asking rent of $2,032 per unit and an average vacancy rate of 7.2%. Reis projects the average rents to increase to $2,405 per unit and for the vacancy rate to decrease to 7.5% by Q4 2022. Approximately 1,149 units of new inventory will be added in 2021 with an additional 701 units delivered in 2022. The December 2020 rent roll showed the retail portion was 42.9% occupied with an average rent of $21.47 per sf (psf) compared with the March 2020 occupancy rate and average rent of 38.9% and $19.48 psf, respectively. There have been no material leasing updates provided regarding the former CVS suite.

DBRS Morningstar is also closely monitoring the second largest watchlist loan, 777 E 12th St (Prospectus ID#5 – 5.0% of the trust balance), which is secured by a four-story mixed-use property in the Fashion District of Los Angeles. The borrower originally purchased the property in 1998 and converted the subject into its current use in 2006. Ground-floor spaces are leased to tenants in the wholesale retail market with spaces generally ranging in size from 700 sf to 2,000 sf. The loan was added to the servicer’s watchlist in October 2020 for a decline in occupancy rate and a life safety issue that was discovered during the servicer’s site inspection. Per a collection report dated January 2020 through August 2020, a majority of tenants did not make rent payments in April, May, and June 2020; however loan payments remained current through June 2021. The loan reported a YE2020 NCF of $1.12 million (1.14x DSCR) compared with the YE2019 NCF of $1.70 million (1.73x DSCR) and Issuer-underwritten NCF of $1.71 million. The January 2021 rent roll showed the property was 70.5% occupied with an average rent of $55.13 psf, compared to the March 2020 occupancy rate and average rent of 83.6% and $53.30 psf, respectively. The largest tenants at the property include Pacific City Bank (18.8% of NRA; lease expiration of December 2021), Che Ran Jung Moon (9.8% of NRA), and Jea Whan You (5.6% of NRA). The tenant base primarily primarily operates on month-to-month leases, resulting in fluctuating occupancy rates. The property’s NCF was considerably lower in 2020 during the pandemic and the occupancy rate continued to decline given the flexible lease terms. The largest tenant has an upcoming lease expiration date in December 2021, which would further stress the property performance should the tenant vacate. It should be noted there is another bank branch location approximately one mile north of the subject, which could be at risk of branch consolidation.

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.

Classes IO-A and IO-B/C 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 Morningstar 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 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.

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

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