DBRS Morningstar Confirms All Classes of BX Trust 2019-IMC, Trends Stable

DBRS Limited (DBRS Morningstar) confirmed the ratings of the Commercial Mortgage Pass-Through Certificates, Series 2019-IMC issued by BX Trust 2019-IMC as follows:

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

In addition, Classes E, F, G, and HRR were removed from Under Review with Negative Implications, where they were placed on April 24, 2020. DBRS Morningstar changed the trends for Classes A, B, X-NCP, C, and D to Stable from Negative. All other trends are Stable.

The rating confirmations and Stable trends reflect the generally improved outlook for the underlying collateral as compared with the uncertainty driven by the Coronavirus Disease (COVID-19) pandemic that drove the rating actions taken at last review when DBRS Morningstar placed the lowest-rated classes Under Review with Negative Implications and changed the trends on the remainder to Negative from Stable.

The collateral for the first-mortgage loan is a portfolio of 16 properties comprising 9.6 million square feet (sf) of premier showroom space situated across two campuses (or markets) in High Point, North Carolina, and Las Vegas, Nevada. The collateral represents 88.0% and 92.7% of the Class A trade show and showroom space in the High Point and Las Vegas markets, respectively, with the allocated loan balance split between the 13 High Point properties (50.1%) and the three Las Vegas properties (49.9%).

Each market holds biannual home and furnishings trade shows, staggered so that an event occurs once every quarter throughout the year with the spring and fall events held in High Point and the summer and winter events held in Las Vegas. The High Point market is convenient for its proximity to manufacturers, while the Las Vegas market serves as a regional hub for buyers in the western U.S. The quarterly events are the most important demand drivers for the portfolio, positioned as business-to-business trade shows focused on the home furnishings and decor as well as gift industries. The events are essential for buyers to efficiently access and view products in the highly fragmented industries with thousands of manufacturers and more than 60,000 commercial buyers attending each event.

While the coronavirus pandemic has had a significant effect on the trade shows, with the subject portfolio’s year-end (YE) 2020 weighted-average occupancy declining to 73.4% from 83.9% at YE2019, the overall impact was relatively minimal as only the Spring 2020 event at the High Point Market was outright canceled, with others postponed. Attendance at the August 2020 event (which was originally scheduled for July) at the Las Vegas market was reportedly down 80% compared with the previous year, but attendance at the April 2021 event at the Las Vegas market had surged 346% compared to the August 2020 figures. Organizers have also noted in an April 2021 press release that a recent surge in demand for home furnishings has led to more than 60 new, relocated, expanded, and recommitted showrooms at the International Home Furnishings Center property alone. That asset is the largest of the High Point properties and represents 27.8% of the total portfolio net rentable area. The summer event at the Las Vegas market is currently scheduled for August 22 to 26, 2021 (pushed from July), and coincides with two other trade shows in Las Vegas, the ASD Market Week at the Las Vegas Convention Center, and the HD Expo + Conference at the Mandalay Bay, a factor that should increase overall attendance.

The loan is sponsored by affiliates of the Blackstone Group Inc. (Blackstone), which began purchasing individual properties in the High Point market in 2011 and has owned all of the collateral properties since 2017, when it purchased the three World Market Center properties in Las Vegas and the 2.66 million-sf International Home Furnishings Center in High Point. Property management is provided by International Market Centers (IMC), an affiliate of Blackstone, which is the largest operator of premier showroom space for the furniture, gift, home decor, rug, and apparel industries in the world. Including its ownership of the non collateral AmericasMart Atlanta, the sponsor owns the majority of the Class A showroom space throughout the United States. At loan closing, Blackstone maintained $400.0 million of cash equity in the deal. The initial maturity was scheduled for April 2021, but the sponsor has exercised the first of three one-year extension options available.

In response to the ongoing pandemic, Blackstone increased the pace and emphasis of its digital strategies. IMC continues to develop and offer virtual experiences and buyer options. DBRS Morningstar expects these initiatives to work in concert with the physical quarterly events rather than compete with them directly as the in-person trade shows will likely continue to be the most important demand drivers for the collateral.

YE2020 net cash flow (NCF) was $153.3 million, up 18.3% from the DBRS Morningstar NCF of $129.6 million and up 8.0% from the issuer’s underwritten NCF of $142.0 million. The increase is largely the result of decrease in expenses, which declined 20.1% from the issuer’s NCF, while revenue remained in line with the issuer’s figure.

In its analysis, DBRS Morningstar utilized the DBRS Morningstar NCF derived at issuance and applied a cap rate of 10.5%, which resulted in a DBRS Morningstar value of $1.23 billion, a variance of -25.1% from the issuance appraised value of $1.65 billion. The DBRS Morningstar value implies a loan-to-value ratio (LTV) of 93.2% compared with the LTV of 69.8% using the issuance appraised value.

The cap rate DBRS Morningstar applied is at the higher end of the range of DBRS Morningstar Cap Rate Ranges for retail properties, reflecting the specialty use of the collateral as trade show and convention space.

DBRS Morningstar made positive qualitative adjustments to the final LTV sizing benchmarks used for this rating analysis, totaling 3.5% to account for property quality and market fundamentals.

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-NCP 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 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].

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577