DBRS Morningstar Upgrades Three Classes of BX Commercial Mortgage Trust 2018-IND

DBRS Limited (DBRS Morningstar) upgraded its ratings on three classes of the Commercial Mortgage Pass-Through Certificates, Series 2018-IND issued by BX Commercial Mortgage Trust 2018-IND as follows:

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

In addition, DBRS Morningstar confirmed its rating on the following class:

-- Class H at B (low) (sf)

All trends are Stable. The ratings on Classes A, B, C, D, and X-NCP have been discontinued as of this review as those classes have been repaid in full.

The rating upgrades reflect the significant paydown and stable performance of the collateral portfolio since issuance.
As of the October 2021 remittance, 50 of the original 171 properties remain in the transaction with an outstanding loan balance of $635.7 million, representing a collateral reduction of 74.6% since issuance.

The tenants in the portfolio are diversified across a broad spectrum of industries, with the largest concentrations in food and beverage, auto, and distribution. As of the trailing six months ended June 2021, the servicer reported an occupancy rate of 97.5% and an annualized net cash flow (NCF) of $108.5 million, compared with the YE2020 NCF of $116.2 million. For this review, the DBRS Morningstar NCF derived at issuance was adjusted to reflect the property releases since the last rating action, with an additional 20.0% haircut applied to capture an upgrade stress, which resulted in an analyzed DBRS Morningstar NCF figure of $47.6 million. The previous DBRS Morningstar Cap Rate of 7.25% was maintained, resulting in a DBRS Morningstar value of $656.5 million. DBRS Morningstar maintained its positive qualitative adjustments to the loan-to-value sizing benchmarks used for this rating analysis, totalling 4.5% to account for cash flow volatility, property quality, and market fundamentals.

The subject transaction is structured with a partial pro rata/sequential-pay structure, with principal repayments made on a pro rata basis across the bond stack for the first 30.0% of unpaid principal balance. As the underlying loan has since been repaid below the 30.0% threshold, principal repayments are now distributed on a sequential basis. The underlying release provisions for the release of individual assets require repayment at 105.0% of the allocated principal balance for the first 25.0% of the original full principal balance and 110.0% thereafter. The floating-rate loan is structured with an initial two-year term with three one-year extension options, of which the second extension was exercised, with the loan now due in October 2022. The loan is interest only for the fully extended term. In addition to the stable performance, the transaction also benefits from strong sponsorship for the underlying loan, which is made up of affiliated entities of Blackstone Real Estate Partners.

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.

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.

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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