DBRS Morningstar Confirms Ratings on CD 2019-CD8 Mortgage Trust

DBRS, Inc. (DBRS Morningstar) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2019-CD8 issued by CD 2019-CD8 Mortgage Trust as follows:

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

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which is in line with DBRS Morningstar’s expectations during its last review. As of the March 2022 remittance, all 33 of the original loans remain in the pool. There are 12 loans, representing 37.3% of the current trust balance, on the servicer’s watchlist, with the primary contributing factor being Coronavirus Disease (COVID-19) pandemic-driven stress for mixed-use buildings with retail as well as lodging properties. Watchlisted loans backed by those two property types generally have been reporting low debt service coverage ratios (DSCRs) or upcoming rollovers. There are also two loans, representing 11.0% of the pool, in special servicing; however, the larger loan is current on payments and expected to be returned to the master servicer in the near term following a modification.

The smaller of the two loans in special servicing is 63 Spring Street (Prospectus ID#17, 2.3% of the pool), secured by a 5,540-square-foot (sf) mixed-use building containing four high-end residential units and 1,100 sf of ground-floor retail space. At issuance, DBRS Morningstar noted that the retail portion of the property represented approximately 76% of the base rent.

The loan transferred to special servicing in June 2020 for payment default, with the April 2020 and all subsequent debt service payments outstanding. The property became nearly vacant in 2020 and remained so into 2021, though occupancy has increased slightly. According to the January 2022 rent roll, two of the three retail units are now occupied, while two of the four residential units have been leased. However, rental income remains stunted as one of the in-place retail tenants is nonpaying while the other retail tenant is on a short-term lease and pays only percentage rent. According to the most recent reporting, the negative DSCR of -0.05 times (x) for the trailing six months ended June 30, 2021, compared with 0.44x at YE2020, and 1.66x at YE2019 and issuance. The most recent appraised value of $15.4 million, dated September 2021, represents a 48.3% decline in value from the $29.8 million value at issuance. Given the extended delinquency and the significant stress for New York retail that will limit recovery options for the near to medium term, DBRS Morningstar liquidated the loan from the trust as part its review, resulting in a loss severity of approximately 24.0%. The projected loan level losses are contained to the unrated certificate.

The largest nonspecially serviced loan on the DBRS Morningstar Hotlist is 171 N Aberdeen (Prospectus ID#5, 5.1% of the pool), which is secured by the borrower’s fee-simple interest in a 120,020-sf mixed-use property in Chicago’s Fulton Market. The property contains an office segment, multifamily units, and retail space on the ground floor. At issuance, the tenancy at the property was largely made up of coworking and coliving tenants. The largest tenant, Medici Living Group (Medici; doing business as Quarters), a coliving service company, master leased the entire residential component, representing 53.2% of net rentable area (NRA). The second-largest tenant, Industrious, is a provider of coworking office space and occupied the entire office component, representing 34.7% of NRA.

The loan was added to the servicer’s watchlist in March 2021 for a low DSCR and, according to the latest servicer commentary, neither Medici nor Industrious is paying rent. Medici declared Chapter 7 bankruptcy in January 2021, and the servicer commentary indicated that Industrious has defaulted on its lease. The DSCR for the trailing nine months ended September 30, 2021, dropped to 0.50x from 1.86x at issuance, while occupancy declined to 81.2% as of November 2021 from 100% at issuance. DBRS Morningstar’s analysis includes an increased probability of default for this loan to reflect the increased risk profile based on the status of the two largest tenants.

Overall, DBRS Morningstar notes that the transaction has a higher concentration of loans backed by retail assets, with eight loans representing 29.9% of the pool. Retail operators have been among the most significantly affected by the pandemic, and those borrowers have been more likely to request relief from servicers.

At issuance, DBRS Morningstar assigned investment-grade shadow ratings to three loans, representing a combined 16.3% of the pool, including Woodlands Mall (Prospectus ID#2, 8.7% of the pool), Moffett Towers II Buildings 3 & 4 (Prospectus ID#10, 4.3% of the pool), and Crescent Club (Prospectus ID#12, 3.4% of the pool). With this review, DBRS Morningstar maintains that the performance of these loans remain consistent with investment-grade loan characteristics.

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, X-D, and X-F 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 – 171 N Aberdeen (5.1% of the pool)
-- Prospectus ID#17 – 63 Spring Street (2.3% of the pool)

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 the 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 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].

DBRS, Inc.
22 West Washington Street
Chicago, IL 60602 USA
Tel. +1 312 332-3429