DBRS Morningstar Discontinues One Rating of Benchmark 2019-B11 Commercial Mortgage Trust, Confirms Remaining Ratings

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on the following Commercial Mortgage Pass-Through Certificates, Series 2019-B11 issued by Benchmark 2019-B11 Commercial Mortgage Trust:

-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class X-B at A (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (sf)
-- Class X-D at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class X-F at BB (sf)
-- Class F at BB (low) (sf)
-- Class X-G at B (high) (sf)
-- Class G at B (sf)

In addition, DBRS Morningstar discontinued the rating on Class A-1 as it was fully repaid with the July 2022 remittance, following the early repayment of the Orchard Park Apartments (Prospectus ID #31) loan. DBRS Morningstar changed the trends on Classes X-F, F, X-G, and G to Stable from Negative. All other trends remain Stable.

The confirmations and Stable trends reflect the updated appraisal for the specially serviced Greenleaf at Howell (Prospectus ID#15, 2.4% of the pool) loan, which suggests a lower loss amount for the loan than previously analyzed by DBRS Morningstar as part of the October 2021 surveillance review. The rating actions with this review also reflect the improving performance of five of the loans on the servicer’s watchlist that are backed by hotel properties.

As of the July 2022 remittance, 39 of the original 40 loans remain in the pool, resulting in a 1.7% reduction since issuance. The transaction is concentrated in loans backed by office properties, representing 43.5% of the pool, with the next-largest concentrations in hotel properties, representing 14.9% of the pool, and multifamily properties, representing 14.4% of the pool. As of the July 2022 remittance, one loan, representing 2.4% of the pool, is in special servicing. Additionally, 13 loans, representing 27.3% of the pool, are on the servicer’s watchlist. Loans are on the servicer’s watchlist for various reasons including low debt service coverage ratios (DSCRs), servicing trigger events, deferred maintenance, and monitoring after a return from the special servicer.

The Greenleaf at Howell loan is secured by a 227,045-square-foot (sf) anchored retail center in Howell, New Jersey. At issuance, the center was 100% occupied, with the largest tenants including BJ’s Wholesale Club (39.9% of net rentable area (NRA)), Xscape Theatres (25.0% of NRA), LA Fitness (16.3% of the NRA), and ClimbZone (10.7% of the NRA). Xscape Theatres, which initially closed temporarily in 2020 in response to the Coronavirus Disease (COVID-19) pandemic, permanently closed and surrendered its space in October 2020. As of the March 2022 rent roll, occupancy had declined to 74.1%, following the theater vacating. Additionally, the servicer noted that while ClimbZone remains in occupancy and operating, it was delinquent on rent payments going back to May 2020 and remains in significant arrearage.

The loan transferred to the special servicer in September 2020 as a result of the pandemic, with the state of New Jersey issuing shutdown orders that directly affected Xscape Theatres and ClimbZone. The borrower has been negotiating with the special servicer and has submitted several forbearance requests, the latest of which remains under review nearly two years since the loan’s initial transfer. According to the YE2021 financials, the loan reported net cash flow (NCF) of $1.0 million, below the YE2020 NCF of $3.1 million and issuance NCF of $3.6 million. The YE2021 NCF figure equates to a DSCR of 0.34 times (x), compared with the YE2020 DSCR of 1.38x and issuance DSCR of 1.48x. The loan remains in cash management since the borrower stopped making debt service payments in November 2020; however, the July 2022 loan-level reserve report did not show any reserves for this loan. The July 2022 remittance report shows the loan remains more than 121 days delinquent, and the servicer is dual tracking continued negotiation regarding a modification as well as foreclosure proceedings, and it is seeking the appointment of a receiver. The servicer reports an April 2022 appraisal value of $34.7 million, up from $30.0 million in August 2021 and the December 2020 appraisal value of $32.9 million, but it is still well below the issuance value of $66.9 million. Based on the April 2022 value, DBRS Morningstar assumed a liquidation scenario with this review, with the resulting loss severity of approximately 45% below the loss severity in excess of 50% analyzed as part of the October 2021 review.

The largest loan on the servicer’s watchlist, the Arbor Hotel Portfolio (Prospectus ID#6, 4.6% of the pool) loan, is secured by six limited-service hotels in major cities, including Salt Lake City; Santa Barbara, California; Minneapolis; and Arlington, Texas. The borrower has been granted an initial forbearance and a subsequent extension of the forbearance since the start of the pandemic, the most recent of which was executed in June 2021. According to the terms of the forbearance extension, the servicer approved a waiver of all furniture, fixtures, and equipment (FF&E) reserve deposits for the entirety of 2021 and authorized the borrower to apply funds already in the FF&E reserve toward the monthly debt service payments. The borrower must repay all used FF&E reserves over a 12-month period beginning January 2022. As part of the forbearance, the borrower is required to maintain a $1.4 million letter of credit on file with the servicer until all reserves have been repaid. The borrower continues to comply with the terms of the granted modifications, and the loan has reported current or less than 30-days delinquent since the start of the pandemic.

As of the YE2021 financials, the servicer reported a consolidated NCF for the portfolio of $4.2 million and a DSCR of 0.84x, which remain below the issuer’s initial NCF of $6.8 million and DSCR of 1.70x. However the portfolio’s cash flow has improved markedly from the YE2020 NCF of approximately -$610,000 and DSCR of -0.12x. DBRS Morningstar requested updated STR reports, but the servicer reported the subservicer has not provided data for two of the hotels. For the properties that did report operating figures, performance continues to recover but remains below the portfolio’s weighted-average occupancy of 79.2%, average daily rate of $140.35, and revenue per available room of $111.20 at issuance.

Although the 101 California loan (Prospectus ID#4; 4.6% of the pool) is not on the servicer’s watchlist, DBRS Morningstar is monitoring it for occupancy concerns after the largest tenant, Merrill Lynch (8.2% of NRA), announced in February 2022 that it would vacate the property upon its October 2022 lease expiration and relocate to 555 California Street. The loan is backed by the borrower’s fee-simple interest in a 1.3 million-sf, Class A, LEED Platinum office in San Francisco. With the loss of Merrill Lynch, occupancy is likely to decline to 68.0% from its current level of 76.2%. The YE2021 NCF decreased 9.1% year over year and remains 14.6% below the issuer’s NCF at issuance. The loan had a DSCR of 1.77x as of YE2021.

With this review, DBRS Morningstar confirms the performance of the 3 Columbus Circle loan (Prospectus ID#1, 9.1% of pool) remains in line with the investment-grade shadow rating derived when DBRS Morningstar assigned ratings to the transaction in December 2019.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no environmental, social, and 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.

Classes X-A, X-B, X-D, X-F, and X-G 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 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 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].

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