DBRS Morningstar Changes Trends on Three Classes, Confirms Ratings on All Classes of CFCRE Trust 2018-TAN

DBRS Limited (DBRS Morningstar) confirmed the ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2018-TAN issued by CFCRE Trust 2018-TAN:

-- Class A at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (high) (sf)
-- Class D at A (low) (sf)
-- Class E at BB (sf)
-- Class F at BB (low) (sf)
-- Class HRR at B (high) (sf)
-- Class X at A (sf)

With this review, DBRS Morningstar changed the trends on Classes D, E, and X to Stable from Negative. In addition, DBRS Morningstar maintained the Negative trends on Classes F and HRR and the Stable trends on Classes A, B, and C. Class HRR continues to carry the Interest in Arrears designation. The interest shortfall is associated with the special servicing fee when the loan transferred to the special servicer in February 2021 upon the borrower’s request to use the furniture, fixtures, and equipment reserve to pay monthly debt service; however, the request was withdrawn and the loan returned to the master servicer in June 2021.

The rating confirmations and trend changes reflect the overall improved performance as the collateral continues to recover from the effects of the Coronavirus Disease (COVID-19) pandemic; however, DBRS Morningstar maintained the Negative trends on Classes F and HRR considering that performance has yet to rebound to issuance levels, the near-term maturity in February 2023, and the general sovereign risk with Aruba.

The loan is secured by a 411-key oceanfront hotel on the island of Aruba, situated along Palm Beach, a two-mile strip known for its white sand and turquoise waters where the majority of the island’s upscale hotels are located. The subject is part of a larger Marriott campus that includes the Marriott Aruba Surf Club, Marriott Aruba Ocean Club, and two timeshare projects totalling 1,200 keys. The collateral includes nine food and beverage outlets, 93,269 square feet (sf) of meeting space, two outdoor pools, a fitness center, and four retail stores. Also included in the collateral is the 17,000-sf Stellaris Casino, the largest casino on the island. The subject is encumbered by a ground lease with the Government of Aruba, which has an initial expiration date in 2052; however, the lessor has a statutory obligation to enter into a new lease when the ground lease expires.

The loan is currently on the servicer’s watchlist because of a low debt service coverage ratio, with the YE2021 net cash flow (NCF) at $16.0 million (1.24 times (x)), compared with the YE2020 NCF of $12.9 million (0.66x) and YE2019 NCF of $38.4 million (2.99x). The loan is cash managed with an outstanding balance in the cash management account of $9.0 million as of June 2022.

According to STR, Inc.'s March 2022 report, the property reported an occupancy rate, average daily rate, and revenue per available room (RevPAR) of 67.3%, $454.71, and $306.05, respectively, for the trailing-12-month (T-12) period ended March 30, 2022, with a RevPAR penetration rate of 147.9%. This is a significant improvement from the RevPAR of $165.70 for the T-12 period ended January 30, 2021, but is below the RevPAR of $406.73 for the T-12 period ended September 30, 2019.

The improvements in NCF and performance metrics are positive developments, but performance continues to lag behind pre-pandemic levels. In addition, there is increased refinance risk with the loan maturity in February 2023 and the sovereign risk associated with Aruba. Aruba is heavily reliant on tourism and was severely affected by the pandemic, but the industry is recovering as travel has picked up in the past year. However, there continue to be challenges associated with Aruba’s relatively high debt levels for a small island economy and its reliance on its long-standing institutional relationship with the Netherlands.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

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 this transaction.

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.

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.

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].

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577