DBRS Morningstar Changes Trends on Two Classes, Confirms Ratings on UBSCM 2018-NYCH Mortgage Trust

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

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

DBRS Morningstar changed the trends on Classes F and G to Stable from Negative. All other classes have Stable trends. The rating confirmations and trend changes reflect the overall improved performance of the collateral as it continues to recover from the effects of the Coronavirus Disease (COVID-19) pandemic.

The transaction is collateralized by a $300.0 million floating-rate, interest-only (IO) mortgage loan that is secured by the fee-simple interests on seven recently renovated limited-service and extended-stay hotels in New York City totalling 1,087 rooms. The loan had an initial term of three years with two one-year extension options with an initial maturity date of February 2021. Individual properties in the portfolio may be released subject to certain provisions, including a paydown in principal on the loan equal to 115% of the allocated loan amount for the released hotel(s). As of the July 2022 remittance, no properties have been released.

As a result of the coronavirus pandemic and its forced shutdown of the economy, the loan was transferred to special servicing in April 2020. The loan payments for April and May 2020, and subsequent months, were made by the mezzanine lender and the borrower requested a forbearance and an extension of the maturity date. Although the loan was structured with two conditional one-year extension options remaining, the collateral did not meet the required debt yield requirements to extend the maturity date.

The mezzanine lender ultimately foreclosed on the portfolio in early 2021. The mezzanine lender brought the senior loan payments current and received a modification in June 2021, extending the maturity date to February 2024. The modification required a paydown of $10.0 million and partial payment of default interest. The loan was returned to the master servicer in September 2021 as a corrected mortgage because the borrower brought the loan current, according to the servicer. The loan has remained on the servicer’s watchlist since September 2021 because of sustained cash flow declines resulting from the residual effects of the pandemic. Because of the low debt yield, the note is trapping cash and, as of the July 2022 reporting, the loan reported $9.0 million in the capital reserve account and an additional $6.9 million in the other reserve account.

The seven hotels are in Manhattan submarkets that typically have very active lodging demand: Times Square (three hotels), the Financial District (two hotels), and one hotel in each of Chelsea and Herald Square. The midmarket hotels are flagged with well-known brands: Hampton Inn (three hotels), Holiday Inn Express (two hotels), Holiday Inn, and Candlewood Suites. At issuance, occupancy rates at the properties ranged from 90% to 95% with average daily rates (ADR) ranging from $198 to $229 per room, and revenue per available room (RevPAR) of $212. The sponsor invested $15.2 million, or $13,983 per room, for a portfolio-wide property improvement plan renovation that took place from 2016 to 2017.

According to the most recent reporting, occupancy, ADR, and RevPAR metrics have improved, yet remain below pre-pandemic levels. The portfolio reported an occupancy rate of 51.2% as of March 2022, which is an improvement from the June 2021 occupancy rate of 40%. As of the March 2022 Operations Statement, the portfolio reported year-to-date (YTD) ADR and RevPAR of $128.46 and $65.81, respectively, compared with its YTD March 2021 ADR and RevPAR of $115.10 and $36.19, respectively. The Q2 2021 debt service coverage ratio (DSCR) was reported at -0.50 times (x), compared with the DSCR at issuance of 2.18x. However, the loan has remained current since September 2021.

The June 2021 appraisal reported a value of $357.5 million, representing a decline of 38.4% compared with the $580.7 million value at issuance. Even with this significant decline, the new value remains above the outstanding loan balance, providing some insulation for the bottom-rated classes. Additionally, DBRS Morningstar finds comfort in the mezzanine lender’s commitment to the property.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance (ESG) 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.

Class X-NCP is an 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 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.

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].

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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