DBRS Morningstar Upgrades Ratings on Remaining Two Classes of COMM 2019-WCM Mortgage Trust

DBRS Limited (DBRS Morningstar) upgraded its ratings on the remaining two classes of Commercial Mortgage Pass-Through Certificates, Series 2019-WCM issued by COMM 2019-WCM Mortgage Trust as follows:

-- Class F to AAA (sf) from BB (high) (sf)
-- Class G to AA (sf) from B (low) (sf)

All trends are Stable.

The rating upgrades reflect the increased credit support to the bonds as a result of property releases and prepayments, as well as the results of the stressed scenario DBRS Morningstar considered as part of this review, as further described below. Since DBRS Morningstar’s last review in January 2022, the former largest parcel (by allocated loan amount (ALA)) was released from the trust, providing principal proceeds of $89.1 million, sufficient to repay Classes B, C, D, and E in full, and reduce the outstanding balance of Class F considerably. According to the December 2022 reporting, seven properties had been released since issuance, resulting in total principal prepayment of $357.9 million (representing collateral reduction of 85.5%). The portfolio continues to perform in line with issuance expectations.

At issuance, the collateral for the underlying interest-only (IO) loan consisted of the fee-simple interests in 10 multifamily properties totaling 2,297 units across seven markets in three states including Washington, California, and Arizona. The $415.0 million loan was used to refinance $305.0 million of existing debt, pay closing costs of $7.2 million, and return equity of $102.8 million. The sponsor for this transaction is Blackstone Inc. (Blackstone), a large global alternative asset manager. The IO loan had a two-year initial term and three one-year extension options. The borrower has exercised its second one-year extension option, extending the loan’s maturity to October 2023. The mortgages are cross-collateralized and cross-defaulted.

The three properties remaining in the trust total 358 units and are located in desirable markets in California, including Walnut Creek, Riverside, and Los Angeles, which reported Q3 2022 vacancy rates, as reported by Reis, of 4.6%, 2.9%, and 3.5%, respectively. These strong market fundamentals are reflected in the stable performance of the portfolio as a whole, with the remaining properties all reporting physical occupancy rates above 92.0% as of the June 2022 reporting.
The servicer-reported consolidated net cash flow (NCF) totalled $4.7 million for the trailing-12-month (T-12) period ended June 2022, with a weighted average debt service coverage ratio of 4.1 times.

In the analysis for this review, DBRS Morningstar considered an upgrade stress on the property values for the remaining collateral. The upgrade stress assumed a 20.0% haircut to the T-12 ended June 2022 NCF figure to account for the possibility of adverse selection and increased concentration risk. The resulting value of $58.4 million is a -37.2% variance from the aggregate appraised value of the remaining properties at issuance, reflecting an implied cap rate of 6.4% and a loan-to-value ratio (LTV) of 97.8%. DBRS Morningstar also made positive qualitative adjustments to the final LTV sizing benchmarks used for this rating analysis, totalling 3.0% to account for cash flow volatility, property quality, and market fundamentals. Based on the LTV sizing benchmarks resulting from the stressed analysis and the qualitative adjustments, the upgrades to Classes F and G were warranted.

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/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022).

All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is the North American CMBS Surveillance Methodology (October 3, 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].

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