DBRS Morningstar Confirms Ratings on All Classes of Real Estate Asset Liquidity Trust, Series 2019-1

DBRS Limited (DBRS Morningstar) confirmed its ratings on all Commercial Mortgage Pass-Through Certificates, Series 2019-1 issued by Real Estate Asset Liquidity Trust, Series 2019-1 as follows:

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

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since DBRS Morningstar’s last review. As of the March 2022 remittance, 46 of the original 48 loans remain in the pool, with an aggregate trust balance of $402.2 million, representing a collateral reduction of 9.9% since issuance as a result of the two loan repayments and scheduled loan amortization.

There are no loans in special servicing and there are eight loans on the servicer’s watchlist, representing 19.6% of the current trust balance. A majority of the watchlisted loans have been affected by the Coronavirus Disease (COVID-19) pandemic. Five of these loans, representing 6.1% of the current trust balance, are being monitored for a low debt service coverage ratio (DSCR) that can primarily be attributed to the effects of the pandemic. In total, six loans, representing 24.1% of the pool, received some form of loan modification or forbearance in response to the respective borrowers’ relief requests, including the largest loan in the pool, WSP Place (Prospectus ID#1, 8.9% of the pool).

The WSP Place loan is secured by an office property in downtown Edmonton, Alberta. The loan was added to the servicer’s watchlist in May 2020, as the borrower, who serves as the full recourse entity, requested coronavirus-related payment relief. In lieu of a short-term forbearance, the borrower was permitted to use leasing reserves to cover payments through July 2020, with the used funds to be replenished if the reserve balance were to fall below a designated threshold. The servicer has confirmed the terms of the loan modification have been met. In addition to the borrower’s relief request, the servicer has been monitoring the loan for delinquent property taxes and two outstanding mechanic’s liens. The property taxes are now confirmed to be current and, of the two outstanding liens, one was withdrawn in February 2022 and the other is expected to be resolved within the near term.

WSP Place lost its third-largest tenant at issuance, AIMCo (9% of the net rentable area (NRA)), which vacated at lease expiration in December 2019, leaving the property 82.0% occupied at the time. The two largest remaining tenants are WSP (18% of the NRA, expiring July 2026) and Alberta Health Servicers (24% of the NRA, expired September 2021). WSP, which previously occupied 36% of the NRA, downsized half of its space in early 2021, resulting in the occupancy falling to 67%. WSP’s lease modification in 2021 included the right to terminate its lease with 12 months’ notice at the end of 2021 or 2023, subject to $3.0 million and $2.0 million termination fees, respectively. Alberta Health Services (AHS), meanwhile, has no renewal options but has been a tenant at the subject since October 2004. According to the AHS website, the tenant remains in operation at the subject property as of March 2022, and an online listing by Avison Young for the property, updated as of February 2022, showed 28,173 square feet available across five suites, totaling 15.3% of the NRA. DBRS Morningstar has requested a leasing update and a current rent roll for the property and the servicer’s response is pending. Given the year-end 2020 DSCR was reported at 1.39 times, based on a cash flow that would have included WSP’s pre-downsize rent amount, DBRS Morningstar estimates the in-place DSCR is likely below breakeven.

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#1 – WSP Place (8.9% of the pool)

The DBRS Morningstar 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 4, 2022), 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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