DBRS Morningstar Changes Trends on Two Classes, Confirms Ratings on All Classes of CFCRE 2018-TAN, Removes Under Review with Negative Implications Status

DBRS Limited (DBRS Morningstar) confirmed the ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2018-TAN issued by CFCRE Trust 2018-TAN:

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

DBRS Morningstar changed the trends on Classes A and B to Stable from Negative. While the trend on Class C is Stable, the trends on Classes D, E, F, HRR, and X are Negative because of the continued negative impact of the Coronavirus Disease (COVID-19) pandemic on the underlying collateral. Additionally, DBRS Morningstar removed the ratings on Classes C, D, E, F, HRR, and X from Under Review with Negative Implications where they had been placed on October 14, 2020.

DBRS Morningstar also added the Interest in Arrears designation to the rating on Class HRR because of interest shortfalls reported in the latest remittance report. DBRS Morningstar notes that the interest shortfall is associated with the special servicing fee when the loan was transferred to the special servicer on February 24, 2021, as a result of the borrower's request to access the furniture, fixtures, and equipment reserve to pay monthly debt service. The borrower has since withdrawn the request and the loan will be returned to the master servicer.

The current rating actions reflect the overall performance of the transaction. The loan is current and the borrower has made all debt service payments in full and on time in 2020 and 2021, despite the severe impact of the pandemic that has led to a significant drop in revenue.

The subject loan is secured by a 411-key oceanfront hotel located on the island of Aruba. The hotel is situated on a 10.1-acre site on the northern end of the island along Palm Beach, a two-mile strip of beach known for its white sand and turquoise waters where the majority of the upscale hotels on the island are located. The subject is part of a larger Marriott campus that includes the Marriott Aruba Surf Club, Marriott Aruba Ocean Club, and two timeshare projects totalling 1,200 keys. The collateral includes nine food and beverage outlets, 93,269 square feet (sf) of meeting space, two outdoor pools, a fitness center, and four retail stores. Also included in the collateral is the 17,000-sf Stellaris Casino, the largest casino on the island, featuring 523 slot machines and 27 gaming tables. The property has undergone $51.9 million ($126,192 per key) in renovations since 2010, including a complete overhaul to comply with Marriott brand standards. The subject is currently encumbered by a ground lease with the Government of Aruba, which has an initial expiration date in 2052; however, the lessor has a statutory obligation to enter into a new lease when the ground lease expires. The sponsor for this loan represents a joint venture between DLJ Real Estate Investment Partners (DLJ) and MetaCorp International (MetaCorp). DLJ is a private equity real estate investment firm and MetaCorp is a real estate company based in Aruba.

DBRS Morningstar notes that the negative impact of the pandemic has constrained the property performance as evidenced by significant occupancy and revenue decline. The servicer reported a decrease in NCF to $8.5 million in YE2020 from $38.4 million in YE2019. Consequently, the debt service coverage ratio dropped to 0.77 times (x) in YE2020 from 2.99x in YE2019. Nevertheless, the subject has outperformed the competitive set according to the January 2021 Smith Travel Research report in which the subject reported trailing twelve-month and three-month occupancies of 34.2% and 35.0%, respectively, and revenues per available room of $165.70 and $163.10, respectively, compared with the competitive set average of 32.2% and 30.8% and $96.90 and $81.00, respectively, for the same periods. Furthermore, the subject property benefits from a dedicated sponsor that has been using its cash equity to make debt service payments to keep the loan current during the pandemic.

Considering the impact of the coronavirus pandemic on the subject and the uncertainty surrounding the recovery of Aruba’s tourism industry to pre-pandemic levels, DBRS Morningstar applied a stressed cap rate of 11.5% in its analysis, which resulted in a DBRS Morningstar Value of $227.7 million, a variance of 27.7% from the appraised value of $315.0 million at issuance. The DBRS Morningstar Value implies a loan-to-value ratio (LTV) of 85.6% compared with the LTV of 61.9% on the appraised value at issuance.

ESG CONSIDERATIONS
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 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 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 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.

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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