DBRS Morningstar Changes Trends on Two Classes, Confirms Ratings on All Classes of BBCMS Trust 2018-CBM

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2018-CBM issued by BBCMS Trust 2018-CBM (the Issuer) as follows:

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

With this review, DBRS Morningstar changed the trends on Classes E and F to Stable from Negative. All other trends are Stable. The confirmations and Stable trends reflect the overall improved performance of the underlying collateral for the hotel portfolio loan that backs this transaction, which has shown steady recovery from the Coronavirus Disease (COVID-19) pandemic.

The $415.0 million floating-rate mortgage loan that is part of the transaction is backed by a portfolio of 30 Courtyard by Marriott select-service hotels. Additional financing includes two mezzanine loans totaling $135.0 million, which are both held outside the trust. The mortgage loan had an initial two-year term with five one-year extension options and is interest only throughout the fully extended loan term. As of the August 2022 remittance, all 30 of the original properties remain in the pool, with no paydowns to any of the classes to date. The portfolio is geographically diverse, with hotels in 23 metropolitan statistical areas across 15 states. California accounts for the largest percentage of the pool, at 29.8% by allocated loan amount, followed by 10.8% in Michigan, and 9.6% in Florida. No property represents more than 6.6% of the total allocated loan amount.

The loan was in special servicing beginning in 2020 and was ultimately resolved when a new borrower assumed the loan and came to terms with the special servicer on a pandemic relief package. According to the August 2022 reporting, the loan was included on the servicer’s watchlist report because of the missed July 2022 maturity date. However, the loan remains current, and the servicer commentary noted the borrower intends to exercise its third one-year extension option. The reporting shows a nominal outstanding interest shortfall on Class F, in the amount of $2,961.48. The servicer attributed the shortfall to Libor-related work dating back to January and April 2021. The amount has remained static over the last 12 months, and the figure remains very small in comparison with the size of the bond in question.

DBRS Morningstar also notes the original loan sponsor, Colony Capital, Inc. (Colony), transferred 100% of its interests in the borrowers to a joint venture (JV) between Highgate Capital Investments, L.P. (Highgate) and Cerberus Real Estate Capital Management, LLC (Cerberus) in March 2021. As part of the transfer, the guarantor changed to CRE Credit Holdco II, LP from Colony Capital Operating Company, LLC. The transfer was part of a larger sale of six select-service hotel portfolios that Colony agreed to sell to the JV between Highgate and Cerberus. The sale included 197 properties, which were reportedly valued at more than $2.7 billion, for an aggregate sale price of $67.5 million and the assumption of the $2.7 billion outstanding mortgage debt on all 197 properties. There was no breakdown provided of the sale price by portfolio, or ultimately by individual asset in the transaction.

The servicer provided STR reports as of April 2022 for all 30 collateral properties. The trailing 12-month (T-12) ended April 30, 2022, average occupancy, average daily rate (ADR), and revenue per available room (RevPAR) were 60.7%, $118.69, and $72.48, respectively. The aggregate figures for the portfolio have all been rising but still remain below the servicer’s pre-pandemic YE2019 occupancy rate, ADR, and RevPAR of 68.6%, $133.14, and $91.68, respectively, and the Issuer’s figures of 73.5%, $134.64, and $99.70, respectively. The servicer reported a consolidated portfolio net cash flow (NCF) as of YE2021 of $12.8 million, compared with a NCF of $49.8 million at issuance and a NCF of $51.0 million as of YE2019. The T-12 ended March 31, 2022, financial reporting indicated further improvement in NCF, which increased to $20.1 million. While still below the pre-pandemic figures, NCF is climbing from the YE2020 low of -$9.4 million. Additionally, despite the decline in performance from pre-pandemic figures, relative to the competitive sets, RevPAR penetration rates have remained more than 100% including for the T-12 ended April 30, 2022, indicating that the properties are well positioned within their respective markets.

DBRS Morningstar’s rating on Class C had a variance that was generally lower than the results implied by LTV Sizing Benchmarks, which were based on a baseline valuation scenario. Given the low in-place cash flows and uncertain timeline for the collateral hotels’ stabilization, the variances were warranted.

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.

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.

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