DBRS Morningstar Confirms All Classes of BX Trust 2018-GW, Changes Trends on Six Classes to Stable from Negative

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

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

DBRS Morningstar also changed the trends on Classes A, B, C, X-EXT, D, and E to Stable from Negative. The trends on Classes F and G remain Negative as the underlying collateral continues to face performance challenges associated with the Coronavirus Disease (COVID-19) pandemic. These factors are reflected in the most recent revenue and occupancy figures reported for the property, as further discussed below.

The rating confirmations reflect DBRS Morningstar’s view that, despite a significant impact to revenue in 2020 related to the pandemic, the underlying hotel is generally well positioned to capture increased demand as travel begins to rebound. Before the pandemic, the loan maintained stable performance as the YE2019 net cash flow was up nearly 10% compared with the issuance figure. The YE2020 debt service coverage ratio was -0.25 times, the most recent the servicer reported. The loan has remained current throughout the pandemic, and the borrower has not requested any coronavirus relief to date.

The subject loan consists of a $510.5 million first mortgage, with $289.5 million in mezzanine debt held outside the Trust, for a total of $800.0 million. The collateral for this transaction is the Grand Wailea Maui, a Waldorf Astoria Resort, a 776-key luxury beachfront resort on the Hawaiian island of Maui. In addition to the collateral portion of the property, there are 120 villas that are third-party owned. However, 62 of the third-party owners participate in a rental management program whereby the hotel receives a fee for use of its amenity space. The underlying loan is interest-only (IO) throughout the initial 24-month term and all five one-year extension options. Since issuance, the borrower has exercised two extension options, most recently extending the maturity date to May 2022.

The Four-Diamond oceanfront resort was developed in 1991 and features 776 hotel keys, eight food and beverage outlets, 100,000 square feet (sf) of meeting/event space, a 50,000-sf spa, and a 20,000-sf recreation outlet center for children. Between 2013 and 2018, the hotel received renovations totaling more than $61.1 million to upgrade common areas and guest rooms.

The loan sponsor is Blackstone Real Estate Partners, which acquired the portfolio from GIC Private Limited. Loan proceeds facilitated the acquisition of the subject as part of a three-property portfolio transaction, which included the Arizona Biltmore and the La Quinta Resort & Club, for an aggregate purchase price of $1.6 billion, $980 million of which was for the subject. The hotel manager has been Waldorf Astoria, an affiliate of Hilton Worldwide Holdings Inc., since 2013, with the current management agreement running through 2024 with one 10-year extension option remaining.

The coronavirus pandemic severely affected traffic at the hotel for most of 2020, which was closed from March to November of that year. The prolonged lag in travel demand as a result of new coronavirus strains, and the travel restrictions implemented as a response, will continue to put significant stress on the hotel’s performance in the short to medium term. These impacts will be greater for international travelers, which represent a significant portion of the property’s historical customer base. In August 2021, the governor of Hawaii issued a statement urging tourists to limit travel to the islands to essential purposes only, but the state or local governments have not implemented formal travel to date.

As of the trailing 12 months ended June 2021 STR report, the subject reported an occupancy rate, average daily rate (ADR), and revenue per available room (RevPAR) of 25.7%, $773.70, and $199.11, respectively, compared with the competitive set’s average figures of 37.1%, $629.14, and $233.37, respectively. While the property outperformed its competitors in terms of ADR, with a penetration rate of 123.0%, the hotel is trailing its competition in both occupancy and RevPAR, with penetration rates of 69.4% and 85.3%, respectively.

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 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 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.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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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