DBRS Morningstar Confirms All Classes with Negative Trends for Morgan Stanley Capital I Trust 2019-PLND

DBRS Limited (DBRS Morningstar) confirmed the ratings of the Commercial Mortgage Pass-Through Certificates, Series 2019-PLND issued by Morgan Stanley Capital I Trust 2019-PLND as follows:

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

All trends are Negative.

The ratings for Classes D, E, F, and G were placed Under Review with Negative Implications when the DBRS Morningstar ratings were assigned in September 2020, reflecting concerns with the hotel market amid the Coronavirus Disease (COVID-19) pandemic and particularly the collateral hotels for the underlying loan, which are in the downtown core of Portland, Oregon. With this review, these ratings have been removed from Under Review with Negative Implications. The Negative trends on all classes reflect the continued stress for the collateral hotels and the unknowns surrounding the workout for the loan, which is in special servicing and has been delinquent for over a year.

The rating confirmations are supported by the most recently available valuation information for the collateral hotels. At issuance, the collateral was valued at a combined $340.6 million, and the initial appraisal obtained by the special servicer showed an as-is value of $267.3 million and a stabilized value of $350.7 million as of August 2020. A second appraisal obtained by the special servicer, as of April 2021, showed a slight as-is value improvement, to $277.0 million, with a stabilized value estimate of $365.6 million. Although the appraised value has declined significantly from issuance, the most recently reported as-is figure remains above the DBRS Morningstar value derived in September 2020 of $221.0 million.

As suggested by the appraised value declines from issuance, the underlying hotel properties have been significantly challenged amid the coronavirus pandemic, which has caused declines in demand for hotel properties across the country, and challenged by the ongoing civil unrest in Portland that contributed to the closure of both of the subject hotels in 2020 and others in the area. In addition, the loan has been delinquent for more than a year, and the sponsor’s commitment to the loan and properties remains unclear. The foreclosure moratorium previously in place in Oregon stalled the workout progression, with the servicer’s most recent commentary stating that a foreclosure resolution is being dual tracked with other options being considered, including a potential loan modification. The Negative trends through the stack reflect these increased risks, and DBRS Morningstar will be monitoring the situation closely for developments.

The transaction is secured by a $240.0 million first-lien mortgage loan that is secured by two Hilton-branded full-service hotels, with 782 rooms, approximately 63,000 square feet (sf) of meeting space, three food and beverage outlets, and 143 parking spaces. The loan refinanced $225.9 million of existing debt, with $10.4 million of equity returned to the sponsor. The loan benefits from strong sponsorship in Brookfield Asset Management Inc. (rated A (low) with a Stable trend by DBRS Morningstar), which is a top-tier institutional real estate investor with more than $109 billion in assets.

The loan transferred to the special servicer in June 2020 for monetary default, with the April 2020 payment and all due thereafter outstanding at the time of the loan’s transfer to special servicing. The loan has also passed its initial maturity date of May 2021. Both the borrower and the special receiver agreed to a receiver, which was appointed on December 4, 2020, following the removal of the temporary moratorium on commercial property foreclosures in Oregon. The special servicer has provided minimal information to date with regard to the status of discussions with the sponsor.

The 455-key Hilton Downtown Portland (Hilton Downtown) was built in 1963 and contains 60,000 sf of meeting space, a fitness center, a lobby workstation, a UPS store, and a retail store. Approximately $35,000 per room was spent on the Hilton Downtown’s improvements in 2017 including reconfiguring the lobby, updating meeting rooms, and outfitting the guest rooms with new case goods and soft goods. The 327-key Duniway was built in 2002 as the Executive Tower for the Hilton Downtown. After an extensive renovation of $63,000 per room, the property reopened in 2017 as the Duniway Portland. This property has been repositioned as a luxury boutique hotel, and, since reopening, operates separately from the Hilton; however, guests can enjoy amenities at both hotels.

During the pandemic, the Duniway was closed for a short period while the Hilton Downtown was closed from April 2020 through part of July 2021. The hotel appears to have reopened, with rooms available to book on the property’s website as of a July 28, 2021, search by DBRS Morningstar. It is also important to note that the properties were not only significantly affected by pandemic-related disruptions but also the riots that occurred in Portland in 2020 and 2021. The properties are well located in the Portland central business district; however, they were in the middle of the riots, with the Hilton Downtown Portland being boarded up in 2020 to protect the asset from damages. The lingering effects of these events are expected to continue to affect both leisure and business travel into the city, even with increased demand that is expected with the relaxing of social distancing measures as vaccination rates have ticked up.

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-EXT is an interest-only (IO) certificate that references 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.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

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

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