DBRS Morningstar Upgrades Ratings on Five Classes of COMM 2019-WCM Mortgage Trust

DBRS Limited (DBRS Morningstar) upgraded its ratings on five classes of Commercial Mortgage Pass-Through Certificates, Series 2019-WCM, issued by COMM 2019-WCM Mortgage Trust as follows:

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

DBRS Morningstar also confirmed its rating on one class as follows:

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

All trends are Stable.

The ratings upgrades are reflective of the release of collateralized properties and the resultant principal prepayments to the trust. At issuance, the collateral for the underlying loan consisted of the fee-simple interests in 10 multifamily properties totaling 2,297 units across seven markets in three states: Washington (43% of the portfolio), California (42% of the portfolio), and Arizona (15% of the portfolio). Six properties have been released since issuance, reducing the deal’s balance by 64.8%, resulting in $268.8 million in proceeds passing through the trust’s waterfall. With the most recent release and prepayment, finalized with the October 2021 remittance, Class A was repaid in full and Class B was considerably paid down. The loan is interest only throughout, with a two-year initial term and three one-year extension options. The mortgages are cross-collateralized and cross-defaulted.

The sponsor for this transaction is Blackstone Inc. (Blackstone), a large global alternative asset manager. Affiliates of Blackstone Real Estate Partners Fund VIII acquired the properties between December 2015 and November 2016. Blackstone continues to demonstrate its broad experience and ability to identify opportunistic assets and invest the resources necessary to improve performance.

The remaining properties are in markets that have historically shown strong multifamily fundamentals with an average vacancy rate of 5.3% based on appraisal data. Market fundamentals within the portfolio have remained stable during the Coronavirus Disease (COVID-19) pandemic. The four properties remaining in the trust total 680 units and are generally located in desirable markets in California, including San Diego, Walnut Creek, Riverside, and Los Angeles, which are displaying Q4 2021 vacancy rates, as reported by Reis, of 4.5%, 4.9%, 5.0%, and 4.5%, respectively. The Reis data suggests that the markets for the subject properties have performed well amid the disruptions of the coronavirus pandemic. These trends also appear to be reflected in the stable occupancy rates for the portfolio as a whole, with three of the remaining properties reporting occupancy rates above 93.0%, as of the most recent September 2021 rent rolls provided by the servicer. As such, DBRS Morningstar expects the portfolio to continue to generate sustainable cash flow over the loan term. According to the servicer, the borrower exercised its first one-year extension to extend the maturity to October 2022.

For the purposes of this analysis, DBRS Morningstar considered an upgrade stress on the property values for the remaining collateral. The resulting value is $157.3 million, a -34.2% variance from the aggregate appraised value of the remaining properties at issuance. The DBRS Morningstar net cash flow (NCF) for the remaining properties is $10.5 million, a -4.7% variance from the Issuer’s NCF, and implies an 6.7% weighted-average cap rate on the pool. The upgrade stress assumed a 20.0% haircut given the increased concentration risk for the remaining collateral.
DBRS Morningstar made positive qualitative adjustments to the final loan-to-value sizing benchmarks used for this rating analysis, totalling 3.0% 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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