DBRS Morningstar Confirms All Classes of Benchmark 2018-B7 Mortgage Trust

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2018-B7 issued by Benchmark 2018-B7 Mortgage Trust as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class X-A at AAA (sf)
-- Class A-M at AAA (sf)
-- Class B at AA (sf)
-- Class X-B at A (high) (sf)
-- Class C at A (sf)
-- Class D at BBB (high) (sf)
-- Class X-D at BBB (high) (sf)
-- Class E at BBB (sf)
-- Class X-F at BB (high) (sf)
-- Class F at BB (sf)
-- Class G-RR at B (high) (sf)
-- Class H-RR at B (low) (sf)

Classes B, X-B, C, D, X-D, E, X-F, F, G-RR, and H-RR continue to carry Negative trends. The trends on all other classes are Stable

The rating confirmations reflect the relatively stable performance of the collateral amid the ongoing performance challenges driven, in part, by the impact of the global Coronavirus Disease (COVID-19) pandemic. Three loans, representing 6.2% of the pool, are in special servicing as of the October 2021 remittance. Since DBRS Morningstar’s prior review of this transaction, two previously specially serviced loans, Aston Street (Prospectus ID#17; 2.2% of the pool) and The Center at Carbon Beach (Prospectus ID#32; 1.1% of the pool), were returned to the master servicer. DBRS Morningstar notes that the pool has a high concentration of retail and hotel properties, collectively representing more than 45.0% of the pool. In general, the coronavirus pandemic continues to affect retail and hotel properties and, as such, the high concentration of loans backed by retail properties suggests increased risks for the pool since issuance, particularly for the lower rating categories.

As of the October 2021 remittance, all 51 of the original loans remain in the pool, with a collateral reduction of 0.9% since issuance as result of loan amortization. Twelve loans, representing 31.0% of the current trust balance, are on the servicer’s watchlist. The servicer is monitoring these loans for a variety of reasons, including low debt service coverage ratio (DSCR) and occupancy issues; however, the primary reason for the increased number of loans on the servicer’s watchlist is the coronavirus-driven stress on retail and hospitality properties as the watchlisted loans secured by those property types are generally reporting a low DSCR.

The largest loan in the pool and on the servicer’s watchlist is the DUMBO Heights Portfolio (Prospectus ID#1; 5.9% of the pool). The trust debt is an $80 million pari passu participation in a $180.0 million whole loan secured by the borrower's fee-simple interest in a portfolio of four Class A office properties totaling 753,074 square feet (sf) within the DUMBO neighborhood of Brooklyn, New York. The property includes about 35,509 sf of street-level and below-grade retail space. Occupancy has been trending downward slightly in recent years. As of the June 2021 rent rolls, the portfolio was 89.0% occupied, which is down from 94% as of YE2020 and 97% at issuance. The YE2020 net cash flow (NCF) was down 4.4% compared with issuance because of an increase in operating expenses as revenue was in line with the issuance levels. The loan was added to the servicer’s watchlist in May 2021 because its low DSCR of 1.08 times (x) as of YE2020 fell below the trigger of 1.10x. However, there have been significant revenue-led improvements in the property performance since then that have resulted in the DSCR increasing to 1.40x as of August 2021.

The largest loan in special servicing is the Outlets Shoppes at El Paso (Prospectus ID#14; 3.0% of the pool). The $34.4 million loan is secured by the borrower's fee-simple interest in a 433,849-sf outlet mall in Canutillo, Texas. The loan transferred to special servicing in November 2020 after the borrower's parent company, CBL Properties, filed for Chapter 11 bankruptcy. CBL Properties emerged from bankruptcy in November 2021.

The property does not have an anchor tenant but is occupied by several key national brands, such as H&M (5.1% of net rentable area (NRA); lease expiry in January 2025), Old Navy (4.1% NRA; January 2023), Nike (3.7% NRA; October 2022) Gap (3.4% NRA; January 2023), and Lee Wrangler (3.3% NRA; January 2022). The property was 90.2% occupied according to the July 2021 rent roll, and YE2020 financials reported a DSCR of 1.47 x compared with the YE2019 DSCR of 1.69x. At issuance, the property was appraised at $127.38 million, which represented a going-in loan-to-value ratio (LTV) of 59%.

The second-largest loan in special servicing, Courtyard Edgewater (Prospectus ID#16; 2.5% of the pool), is secured by a 156 key, limited-service hotel situated on the Hudson River in Edgewater, New Jersey. The loan transferred to special servicing in October 2020 for payment default after the borrower requested pandemic-related relief. In May 2021, the loan was modified to include waiving the cash management provisions through June 2022 and waiving default interest and late fees. As a condition of the modification, the borrower brought the loan current. Prior to the pandemic, loan performance showed some volatility, primarily stemming from a decline in revenue as the YE2019 NCF was down 15.0% compared with issuance. The most recent appraisal (dated December 2020) valued the property at $32.0 million, down 28.8% from the appraised value of $45.0 million at issuance. The updated value reflects an 89.2% LTV.

At issuance, DBRS Morningstar assigned an investment-grade shadow rating to six loans: DUMBO Heights Portfolio (Prospectus ID#1; 6.9% of the current pool balance), Moffett Towers – Buildings E, F, G (Prospectus ID#2; 4.3% of the current pool balance), Aventura Mall (Prospectus ID#3; 4.3% of the current pool balance), AON Center (Prospectus ID#9; 3.7% of the current pool balance), Workspace (Prospectus ID#10; 3.4% of the current pool balance), and 636 11th Avenue (Prospectus ID#11; 3.4% of the current pool balance). DBRS Morningstar confirmed that the performance of these loans remains consistent with the investment-grade loan characteristics.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Classes X-A, X-B, X-D, and X-F 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#1 – DUMBO Heights Portfolio (6.9% of the pool)
-- Prospectus ID#14 – Outlets Shoppes at El Paso (3.0% of the pool)
-- Prospectus ID#16 – Courtyard Edgewater (2.5% 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 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.

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. 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.

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.

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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