DBRS Morningstar Confirms All Ratings on Benchmark 2018-B5 Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2018-B5 issued by Benchmark 2018-B5 Mortgage Trust as follows:

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

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since last review, despite more recent challenges that have generally been driven by the effects of the Coronavirus Disease (COVID-19) pandemic. At issuance, the transaction consisted of 55 fixed-rate loans secured by 219 commercial and multifamily properties, with a trust balance of $1.04 billion. According to the December 2021 remittance report, all 55 loans remain within the transaction, with no losses to date. Collateral reduction as a result of scheduled amortization has been minimal with a 1.3% decrease since issuance, lowering the trust balance to $1.03 billion.

The transaction is concentrated with loans backed by retail, office, and lodging property types, representing 33.9%, 26.0%, and 16.2% of the current trust balance, respectively. According to the December 2021 remittance report, three loans are in special servicing. There are 16 loans, representing 22.3% of the current trust balance, on the servicer’s watchlist. These loans are on the watchlist for a variety of reasons, including low debt service coverage ratios (DSCRs), low occupancy, and tenant rollover concerns. However, the primary drivers are lodging and retail properties, which continue to suffer from sustained downward pressure on operational performance as a result of ongoing disruptions related to the pandemic. Where applicable, DBRS Morningstar applied probability of default adjustments to reflect the individual risk profile of underlying loans.

The largest loan on the servicer’s watchlist, Renaissance Tampa International Plaza Hotel (Prospectus ID#5; 4.3% of the pool), is secured by the borrower’s leasehold interest in a 293-key full-service hotel in Tampa. A ground lease extends through 2080. The loan was added to the servicer’s watchlist in December 2020 as a result of declining performance, caused primarily by coronavirus-related restrictions. The financials for the trailing 12 months ended September 30, 2021, indicate a marginal improvement in occupancy and DSCR to 49.80% and 0.91 times (x), as compared with YE2020 figures of 40.2% and 0.08x, respectively. In addition, the servicer noted that the borrower would begin remitting deferred furniture, fixtures, and equipment reserve payments over a period of 12 months beginning in January 2022. Although the subject benefits from its location and proximity to two major demand drivers in the Tampa International Airport and the 1.2 million-square-foot (sf) International Plaza shopping centre, DBRS Morningstar expects performance to remain subdued over the near to moderate term because of uncertainty surrounding the resumption of corporate and leisure travel. Moreover, the loan’s weak sponsorship is a concern. Should cash flow remain depressed, the sponsor’s commitment to the asset could be challenged.

The largest specially serviced loan, NY & CT NNN Portfolio (Prospectus ID#2; 5.6% of the pool), is secured by a cross-collateralized portfolio of nine retail properties totalling 70,333 sf across the greater New York metro area. The loan has been delinquent several times since October 2019, most recently transferring to the special servicer in August 2020 for payment default and failure to abide by cash management provisions. The lender and borrower subsequently met for two settlement conferences with a magistrate judge in September 2021 and October 2021, but no settlement was reached at either meeting. March 2021 financials indicate a portfolio occupancy of 100% with a DSCR of 1.08x, a reduction from the YE2020 DSCR of 1.18x. As of the December 2021 remittance, the loan remained current. Although historical payment defaults and delinquency are indicative of increased risks for this loan, DBRS Morningstar notes a primary mitigating factor in the roughly 83.5% of the portfolio’s total net rentable area that is leased to investment-grade-rated tenants including Bank of America, TD Bank, JPMorgan Chase, Walgreens, and CVS. As such, recent payment defaults appear to be sponsor-related, rather than a performance-driven issue.

The second-largest specially serviced loan, Valley Mack Plaza (Prospectus ID#25; 1.3% of the pool), is secured by a 126,493-sf shopping centre in Sacramento, California. The loan transferred to the special servicer in June 2020 with the borrower negotiating a potential loan modification, but the special servicer notes that all other remedies will be tracked as well. According to the June 2021 financial reporting, the property is operating at capacity with 100% occupancy. Nonetheless, the DSCR is depressed at 0.93x, lower than both YE2019 and YE2020 figures of 1.53x and 1.02x, respectively. There is minimal tenant rollover in the next year, suggesting that the occupancy rate should remain stable through the near term. Despite the high occupancy rate, the loan has remained delinquent and in special servicing for an extended period of time. In addition, a November 2020 appraisal obtained by the special servicer showed an as-is value of $11.0 million, down from $19.0 million at issuance and below the trust exposure for this loan. Given these increased risks, DBRS Morningstar assumed a liquidation scenario for the loan based on a haircut to the most recent appraised value, which resulted in a loss severity of approximately 42%.

At issuance, DBRS Morningstar shadow-rated five loans—Aventura Mall (Prospectus ID#1; 10.0% of the pool), eBay North First Commons (Prospectus ID#3; 5.0% of the pool), Workspace (Prospectus ID#4; 4.9% of the pool), Aon Center (Prospectus ID#7; 4.2% of the pool), and 181 Fremont Street (Prospectus ID#8; 3.9% of the pool)—as investment grade, supported by the loans’ strong credit metrics, strong sponsorship strength, and historically stable collateral performance. With this review, DBRS Morningstar confirms that the characteristics of these loans remain consistent with the investment-grade shadow ratings.

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, X-B, and X-D 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#5 – Renaissance Tampa International Plaza Hotel (4.3% of the pool)
-- Prospectus ID#25 – Valley Mack Plaza (1.3% 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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