DBRS Morningstar Upgrades All Ratings of Natixis Commercial Mortgage Securities Trust 2018-RIVA, Changes Trends on Six Classes to Stable From Negative

DBRS Limited (DBRS Morningstar) upgraded its ratings on all classes of the Commercial Mortgage Pass-Through Certificates, Series 2018-RIVA issued by Natixis Commercial Mortgage Securities Trust 2018-RIVA as follows:

-- Class D to AA (sf) from A (low) (sf)
-- Class E to AA (low) (sf) from BBB (low) (sf)
-- Class F to BBB (high) (sf) from BB (low) (sf)
-- Class V1-D to AA (sf) from A (low) (sf)
-- Class V1-E to AA (low) (sf) from BBB (low) (sf)
-- Class V1-F to BBB (high) (sf) from BB (low) (sf)
-- Class V1-XF to BBB (high) (sf) from BB (low) (sf)
-- Class V2-A to BBB (high) (sf) from BB (low) (sf)
-- Class V2-XF to BBB (high) (sf) from BB (low) (sf)
-- Class X-F to BBB (high) (sf) from BB (low) (sf)

In addition, DBRS Morningstar changed the trends on Classes F, V1-F,V1-XF, V2-A, V2-XF, and X-F to Stable from Negative. All other trends remain Stable. The rating upgrades and Stable trends reflect the significant paydown for the loan following the release of the Scottsdale property and increasing performance across the remaining properties.

Loan proceeds of $179.0 million, subordinate debt of $40.0 million, and sponsor equity of $115.3 million were used to acquire the portfolio and fund reserves. The interest-only (IO) loan had an initial term of 36 months with two one-year extension options. The loan recently exercised its final extension option, extending the loan maturity through February 2023. The sponsor for this loan is Junson Capital, a Hong Kong-based real estate investment company.

At issuance, the collateral was backed by a portfolio of four full-service hotels totalling 1,265 keys in Newport, Rhode Island (320 keys); Alexandria, Virginia (319 keys); Chicago (300 keys); and Scottsdale, Arizona (326 keys). Three of the four hotels operate under the Marriott International, Inc. (Marriott) and Hilton Worldwide Holdings Inc. brands. Marriott manages the Newport Marriott and Westin Alexandria hotels, which are not subject to franchise fees. Destination Hotels, the largest independent hospitality management company in the United States, manages the Scottsdale Resort at McCormick Ranch, the lone independent hotel in the portfolio. Both of the existing Marriott management agreements for these hotels expire over the fully extended loan term. Hilton Management LLC directly manages the Hilton Rosemont hotel under a management agreement and been renewed beyond the initial December 2020 expiration.

The Scottsdale Resort at McCormick Ranch property in Scottsdale, Arizona, was sold to Driftwood Capital, a hospitality investment company, for $113.0 million in February 2022 and was subsequently released from the portfolio. Per the loan agreement, 80.0% of net sale proceeds were used to pay down the loan. As a result, the loan has paid down by $96.1 million as of August 2022, significantly higher than the allocated loan balance of $45.5 million, reflecting a reduction of more than 50.0% of the unpaid principal balance from issuance.

The loan transferred to special servicing in April 2020 for imminent default, at which point the borrower requested a loan modification because of the negative impact of the Coronavirus Disease (COVID-19) pandemic. The borrower subsequently withdrew the request and has kept the loan current. The loan returned to the servicer’s watchlist in June 2021 for decreased financial performance resulting from the pandemic.

Although Hilton Rosemont and Westin Alexandra reported negative cash flows, as of year-end (YE) 2021, both properties are seeing significant improvement when compared with YE2020. Hilton Rosemont reported trailing 12-month (T-12) YE2021 occupancy, average daily rate (ADR), and revenue per available room (RevPAR) figures of 46.0%, $136, and $63, respectively, increasing from 22.1%, $114, and $25, respectively, at YE2020. Westin Alexandra reported T-12 YE2021 occupancy, ADR, and RevPAR figures of 43.3%, $122, and $53, respectively, increasing from 27.4%, $122, and $33, respectively, at YE2020.

As of the January 2022 STR report, Marriott Newport reported T-12 occupancy, ADR, and RevPAR figures of 68.4%, $286, and $196, respectively, with a T-12 revenue per available room penetration rate of 119.1%. The YE2021 net cash flow for the property increased 105.4% when compared with YE2020 and exceeded pre-pandemic levels. The portfolio reported a weighted-average whole loan debt service coverage ratio of 1.77 times (x), including the Scottsdale property, at YE2021, a significant increase from -0.90x at YE2020.

Given the property release and partial paydown of the loan, DBRS Morningstar analyzed the recent cash flows to derive a current value for the portfolio. While the upcoming loan maturity in February 2023 is a concern, the decreasing leverage, even after applying a 20% stress factor to the newly derived value, and the improving performance of each of the properties support the ratings upgrades. The DBRS Morningstar value implies a loan-to-value ratio of 42.9%, down from 74.9% at issuance.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) 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-F 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.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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