Press Release

DBRS Morningstar Confirms Ratings on UBSCM 2018-NYCH Mortgage Trust, Maintains Negative Trends on Two Classes

CMBS
August 31, 2021

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2018-NYCH, issued by UBSCM 2018-NYCH Mortgage Trust as follows:

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

DBRS Morningstar changed the trends on all classes to Stable, with the exception of Classes F and G, whose trends remain Negative to reflect the increased risk to the loan evidenced by the steep appraisal value decline and the residual effects of the Coronavirus Disease (COVID-19) global pandemic.

The transaction is collateralized by a $300.0 million, floating-rate, interest-only (IO) mortgage loan that is secured by the fee-simple interests on seven recently renovated limited-service and extended-stay hotels in New York City totaling 1,087 rooms. The loan had an initial term of three years with two one-year extension options with an initial maturity date of February 2021. Individual properties from the portfolio may be released subject to certain provisions including a paydown in principal on the loan equal to 115% of the allocated loan amount for the released hotel(s). As of the August 2021 remittance, no properties have been released.

As a result of the coronavirus pandemic and forced shutdown of the economy, the loan was transferred to special servicing in April 2020. The loan payments for Apriland May 2020, and subsequent months, were made by the mezzanine lender and the borrower requested a forbearance and an extension of the maturity date. Although the loan was structured with two conditional one-year extension options remaining, the collateral did not meet the required debt yield requirements to extend the maturity date.

The mezzanine lender ultimately foreclosed on the portfolio in early 2021. The mezzanine lender brought the senior loan payments current and received a modification in June 2021, extending the maturity date to February 2024. The modification required a paydown of $10.0 million and partial payment of default interest. Because of the low debt yield, the note is trapping cash, with $1.4 million set aside in a reserve account and an additional $6.0 million in a capital improvement reserve. According to servicer commentary, the note will return to the master servicer in September 2021 after three months of seasoning.

The seven hotels are in Manhattan submarkets that typically have very active lodging demand: Times Square (three hotels), the Financial District (two hotels), and one hotel in each Chelsea and Herald Square. The midmarket hotels are flagged with well-known brands: Hampton Inn (three hotels), Holiday Inn Express (two hotels), Holiday Inn, and Candlewood Suites. At issuance, occupancies at the properties ranged from 90% to 95% with average daily rates ranging from $198 to $229 per room, averaging $212 per room night. The sponsor invested $15.2 million, or $13,983 per room, for a portfoliowide property improvement plan renovation that took place from 2016 to 2017.

Although the portfolio has shown steady occupancy rates, the portfolio’s 2019 year-end (YE) net cash flow (NCF) declined 13% from the Issuer’s assumed NCF at issuance. During this time the portfolio’s weighted-average occupancy also declined to 91% from 95% as of YE2019. This resulted in a YE2019 debt service coverage ratio (DSCR) of 1.63x, compared with the DSCR at issuance of 2.18x.

The June 2021 appraisal reported a value of $357.5 million, representing a decline of 38.4% compared with the $580.7 million value at issuance. Even with this significant decline, the new value remains above the allocated loan balance, providing some insulation for the bottom-rated classes. Additionally, DBRS Morningstar finds comfort in the mezzanine lender’s commitment to the property.

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 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 21, 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. + (416) 593 5577

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.