DBRS Morningstar Confirms All Classes of Morgan Stanley Capital I Trust 2018-MP, Removes All Classes from UR-Neg.

DBRS, Inc. (DBRS Morningstar) confirmed the ratings on all classes of the Commercial Mortgage Pass-Through Certificates, Series 2018-MP issued by Morgan Stanley Capital I Trust 2018-MP as follows:

-- Class A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at A (high) (sf)
-- Class D at BBB (high) (sf)
-- Class E at BB (sf)

DBRS Morningstar removed the Under Review with Negative Implications designations that had been placed on all classes in September 2020, given the negative impact of the Coronavirus Disease (COVID-19) pandemic on the underlying collateral. The trends on all classes are Stable except Classes D and E, which carry Negative trends. The Negative trends reflect the significant exposure to the non-investment-grade tenants, Equinox Fitness and AMC Entertainment Holdings, Inc. (AMC), that have been greatly affected by the coronavirus pandemic.

The rating confirmations reflect the relatively stable performance of the transaction since the DBRS Morningstar ratings were assigned in September 2020. The subject whole loan consists of a $710.0 million first mortgage and a mezzanine loan in the amount of $280.2 million, which is held outside of the trust. Of the first mortgage amount, $225.9 million consists of non-pooled pari passu notes that were securitized in commercial mortgage-backed securities transactions. The trust amount includes $175.0 million of senior debt and $289.3 million of subordinate debt.

The loan is secured by the fee simple and leasehold interest in the Millennium Partners Portfolio, an eight-property portfolio of cross-collateralized retail and office condominiums located across dense urban locations including New York City, Boston, Miami, San Francisco, and Washington, D.C. The collateral consists of approximately 1.5 million square feet (sf) of space as well as parking garages included as collateral at Four Seasons Miami; Ritz-Carlton Washington, D.C.; and Ritz-Carlton Georgetown Retail. The loan sponsor is Millennium Partners, a Manhattan-based real estate development and management firm established in 2009. Millennium Partners places a focus on operating and developing luxury, mixed-use properties in gateway cities across the United States. At issuance, the sponsor’s portfolio was valued at more than $2.2 billion and included more than 3,200 condominium units, 10 luxury hotels, 1.4 million sf of office space, 0.9 million sf of retail space, five movie theaters, and five health clubs.

The properties are in desirable central business district markets and most of the condominium properties are part of larger, higher-end luxury uses and include quality fit-outs. All eight properties are subject to complex condominium structures, which are not controlled by the borrowers. The portfolio is geographically diverse as the properties are located in four states and the District of Columbia. There is relatively low lease rollover risk, with 48.1% of the portfolio’s net rentable area (NRA) scheduled to expire during the loan term. The whole loan loan-to-value ratio (LTV) totaled 141.6%, based on the DBRS Morningstar value of $822.7 million, while the total mortgage debt amounts to an LTV of 101.5%.

The loan reported YE2020 net cash flow (NCF) of $57.5 million, which is in line with the DBRS Morningstar NCF of $55.9 million, but well below the YE2019 NCF of $72.7 million. The occupancy rate has been holding steady at 92.6%, per the April 2021 rent rolls, compared with the 94.3% occupancy rate at issuance. There is minimal lease rollover risk in the near term with eight tenants, representing 3.7% of NRA, having lease expirations in 2021 and an additional eight tenants, representing 2.4% of NRA, having lease expirations in 2022.

The primary risk with this portfolio is the exposure to Equinox Fitness and AMC, which represent 26.0% and 14.3% of NRA, respectively. Equinox Fitness agreed to several lease modifications last year that deferred rent payments until 2021; however, there are several articles throughout 2021 indicating that Equinox Fitness has not honored similar agreements at other noncollateral locations and those landlords are suing Equinox Fitness. In addition, Equinox Fitness carries a highly speculative credit rating because of its high leverage and weak liquidity position. AMC has rebounded in 2021, given the substantial amount of capital it has been able to raise through issuance of new shares and the sale of company-owned stock during peaks of volatile market pricing. AMC no longer appears to be on the verge of filing bankruptcy; however, the credit rating for the company is still speculative despite the improvement.

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 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 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 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.

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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