DBRS Morningstar Confirms Ratings on All Classes of Key Commercial Mortgage Trust 2019-S2

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on all classes of the Commercial Mortgage Pass-Through Certificates, Series 2019-S2 issued by Key Commercial Mortgage Trust 2019-S2 as follows:

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

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since issuance. As of the November 2021 remittance, all 29 of the original loans remain in the pool, with an aggregate trust balance of $152.5 million, representing a collateral reduction of approximately 2.7% since issuance because of scheduled loan amortization.
The transaction benefits from property type diversification, with the largest concentration being self-storage assets, representing 20.1% of the current trust balance, followed by office, retail, and mixed-use assets, which account for 16.0%, 13.4%, and 12.0% of the current trust balance, respectively. Only one loan, representing 8.3% of the current trust balance, is secured by hotel properties.

The South Campus – 140 & 160 High Street loan (Prospectus ID#16, 3.1% of the pool) represents the transaction’s only specially serviced loan. The $4.7 million loan is secured by a 183,940-sf Class B medical office property in Springfield, Massachusetts. The loan transferred to special servicing in July 2021 for imminent monetary default. The borrower requested Coronavirus Disease (COVID-19) relief, stating that it would be unable to support the loan. The special servicer is now pursuing foreclosure after rejecting the borrower’s discounted payoff request. The servicer’s motion for receivership was granted in October 2021.

The property has maintained stable performance to date as occupancy has remained unchanged since issuance at 88.2% as of the May 2021 rent roll. The year-end 2019 financials showed that cash flow was in line with issuance levels while covering at 1.34 times (x) coverage. At issuance, the collateral for the loan had an appraised value of $7.2 million, equating to a loan-to-value ratio (LTV) of 68%.

Four loans, representing 17.7% of the current trust balance, are being monitored on the master servicer’s watchlist. DBRS Morningstar’s primary concern is the pool’s second-largest loan, 180 North Wacker Drive (Prospectus ID#2, 7.1% of the pool). The $11.0 million loan is secured by the leasehold interest in a 72,088-square-foot (sf) office property in the West Loop submarket of downtown Chicago. The loan was added to the servicer’s watchlist in December 2020 for a low debt service coverage ratio (DSCR) of 0.54x based on the T-9 ended in September 2020, following an increase in vacancy. At issuance, the property was 97.3% occupied, but recent departures, including Bar Method (6.0%), which vacated in early 2019 ahead of its May 2022 lease expiration, and most recently Hub International (8.7%), which vacated upon its lease expiration in November 2020, have left the property 71.2% occupied as of December 2020. Rollover risk is concentrated between 2023 and 2024 when the leases of three of the property’s four tenants expire: PartsTrader LLC (15.8% NRA; November 2025), Thomas Interior Systems (8.4% NRA; May 2024), and Red Bull (7.8% NRA; July 2024). While DBRS Morningstar waits for an updated rent roll from the servicer it appears the property’s fifth-largest tenant, O’Malley Hansen, LLC (7.0%), renewed beyond its March 2021 lease expiration as the subject property continues to be listed as an active location on the company’s website. Despite the decrease in occupancy and cash flow, the loan remains current as of the November 2021 reporting.

The year-end 2019 reporting, which is the most recent on file, showed cash flow had declined 11% compared with issuance while still covering at a DSCR of 1.55x. At issuance, the collateral for the loan had an appraisal value of $18.9 million, equating to an LTV of 58%.

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 is an interest-only (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.

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

-- Prospectus ID#2 – 180 North Wacker Drive (7.1% of the pool)
-- Prospectus ID#16 – The South Campus – 140 & 160 High Street (3.1% 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 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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