DBRS Morningstar Upgrades Ratings on Four Classes of CSWF Trust 2018-TOP

DBRS Limited (DBRS Morningstar) upgraded its ratings on four classes of Commercial Mortgage Pass-Through Certificates, Series 2018-TOP issued by CSWF Trust 2018-TOP as follows:

-- Class E to AAA (sf) from AA (sf)
-- Class F to A (high) (sf) from BBB (high) (sf)
-- Class G to BBB (sf) from BB (sf)
-- Class H to BB (low) (sf) from B (low) (sf)

All trends are Stable. DBRS Morningstar also discontinued the rating on Class D due to full repayment with the September 2021 remittance.

The ratings upgrades are reflective of the continued release of collateralized properties and the resultant prepayments to the trust. In total, nine properties have been released since issuance, reducing the deal’s balance by 71.8%. One of those properties was released since DBRS Morningstar’s most recent review in July 2021, resulting in $25.6 million passing through the trust’s waterfall, repaying Class D in full, and considerably paying down Class E.

The loan and deal structures include a number of features that were designed to adjust as the loan pays down. At the deal level, prepayment proceeds on the first 20.0% of the pool balance were to be distributed pro rata, with proceeds above that threshold to be distributed sequentially. With the repayments as of April 2021, the 20.0% threshold was met and the sequential payment structure is now being followed. In addition, there was a tiered property release premium that was increased from the initial requirement of 105.0% of the allocated principal balance to 115.0% of the allocated principal balance with the property releases as of April 2021.

The transaction sponsor, TPG Real Estate’s TPG Real Estate Partners Fund II, used the collateral loan to acquire and recapitalize the fee-simple and leasehold interests in a portfolio of 15 mostly single-tenant Class A office properties totaling 3.1 million square feet (sf) in 11 states. The loan facilitated the sponsor’s (1) buyout of Gramercy Property Trust’s (GPT) interest in Strategic Office Partners, a joint venture between the sponsor and GPT, and (2) its acquisition of four of the original assets included in the portfolio. The six properties remaining in the trust total 1.4 million sf and are primarily located in secondary markets across the U.S. including Charlotte, North Carolina; San Bernardino, California; Tampa, Florida; Tempe, Arizona; San Antonio, Texas; and Lawrenceville, Georgia. Major tenants in the remaining properties include Bank of America; Wells Fargo; Bristol Myers Squibb Company; and Amazon.com, Inc. According to the servicer, the borrower exercised its second one-year extension to extend the maturity to August 2022.

For the purposes of this analysis, DBRS Morningstar considered both a base-case stress and an upgrade stress on the property values for the remaining collateral. The base-case stress was based on the values derived by DBRS Morningstar as part of the rating actions taken in April 2020, when DBRS Morningstar assigned the ratings. The resulting value is $223.2 million, a -13.6% variance from the aggregate appraised value of the remaining properties at issuance. The DBRS Morningstar net cash flow (NCF) for the remaining properties is $18.4 million, a -4.6% variance from the Issuer’s NCF, and implies an 8.2% weighted-average cap rate on the pool. The upgrade stress assumed a 20.0% haircut to the base-case values given the increased concentration risk for the remaining collateral and the continued unknowns posed by the Coronavirus Disease (COVID-19) pandemic.

DBRS Morningstar made negative qualitative adjustments to the final loan-to-value sizing benchmarks used for this rating analysis, totaling -4.0% to account for cash flow volatility, 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.

All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform.

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 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.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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