DBRS Morningstar Confirms Ratings on All Classes of SBALR Commercial Mortgage 2020-RR1 Trust

DBRS Limited (DBRS Morningstar) confirmed all ratings of the Commercial Mortgage Pass-Through Certificates, Series 2020-RR1 issued by SBALR Commercial Mortgage 2020-RR1 Trust as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-AB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class X-B at A (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class F at B (low) (sf)

DBRS Morningstar changed the trends on Classes E and F to Negative from Stable, reflecting the concerns surrounding the increased credit risk of the two loans in special servicing, representing 4.7% of the current pool balance, which are anticipated to incur losses to the trust upon resolution. All other trends are Stable. In addition, DBRS Morningstar removed the Interest in Arrears Designation from Class F.

As of the October 2021 remittance, 58 of the original 59 loans remained in the pool, with an aggregate principal balance of $392.6 million, representing a collateral reduction of 1.9% since issuance as a result of loan amortization and the repayment of one loan.

There are currently seven loans, representing 11.7% of the pool balance, on the servicer’s watchlist primarily for cash-flow-related items stemming from struggles amid the ongoing Coronavirus Disease (COVID-19) pandemic. One of the loans, Best Western Cooperstown Inn & Suites (Prospectus ID#22; 1.9% of the current pool balance), received a loan modification in June 2020, converting the loan to interest-only (IO) payments for 12 months and deferring reserve payments. According to the servicer, the borrower performed under the loan modification and amortization payments have resumed. During Q3 2021, performance was expected to improve given the number of events planned.

The two loans in special servicing are both secured by hotel properties. Receivers are in place at each property with foreclosure actively being pursued. Updated values were received for each property in the second half of 2020, reflecting 30% declines over the respective issuance values. Based on the value declines and total exposure of each loan, in addition to anticipated servicer advances, DBRS Morningstar expects the trust to both incur a loss upon each loan’s resolution.

The larger of these two loans is the Clarion Suites Anchorage loan (Prospectus ID#4, 3.5% of the pool), which is secured by a 112-room limited-service hotel in Anchorage, Alaska. The loan transferred to the special servicer in October 2020 because of a coronavirus-relief request, and the lender subsequently modified the loan to IO payments for one year, which ended in April 2021. While this likely provided immediate relief, loan performance has not recovered and the lender has since obtained a final foreclosure judgement, with a sale scheduled for late November 2021. As of November 2020, the property was valued a $15.5 million, reflecting a 30% decline from the issuance appraised value of $22.0 million.

The Wingate Arlington Heights loan (Prospectus ID#31, 1.2% of the pool) transferred to special servicing in June 2020 also because of pandemic-related performance concerns. The loan is secured by an 80-room hotel in Arlington Heights, Illinois, which is about 10 miles northwest of O’Hare International Airport. As of August 2020, the property was valued at $5.2 million, reflecting a 30% decline from the issuance appraised value of $7.4 million.
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.

Classes X-A and X-B are interest-only (IO) certificates that reference 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.

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:

-- Prospectus ID#4 – Clarion Suites Anchorage (3.5% of the pool)

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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