DBRS Morningstar Confirms All Ratings on SG Commercial Mortgage Securities Trust 2020-COVE

DBRS Limited (DBRS Morningstar) confirmed its ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2020-COVE issued by SG Commercial Mortgage Securities Trust 2020-COVE as follows:

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

All trends are Stable.

The rating confirmations and stable trends reflect the overall stable performance of the transaction which remains relatively in line with DBRS Morningstar’s expectations at issuance. The property benefits from its waterfront location, superior amenities, and strong submarket fundamentals.

The transaction is secured by a 283-unit Class A luxury multifamily property situated on 20 acres along the waterfront in Tiburon, California, directly across the bay from downtown San Francisco. The property received approximately $50.4 million ($178,041 per unit) in renovations from 2012 to 2018 and offers extensive water-focused activities for tenants, including a private beach and an on-site marina. Additional amenities include three pools, two spas, a playground, a clubhouse, and a fitness center. Tenant services include on-site fitness classes and a personal trainer, housekeeping, dry cleaning, firewood delivery, and package drop-off and pick-up. The loan is sponsored by Maximus Real Estate Partners, an established San Francisco Bay Area investor.

The trust debt of $160.0 million is a pari passu participation in a whole loan totaling $210.0 million. The loan is interest only (IO) throughout its five-year loan term with a scheduled maturity in March 2025.

According to the most recent rent roll, dated June 2022, the property was 91.9% occupied, a marginal increase from 89.4% at YE2021 and below 96.0% at issuance. The June 2022 occupancy figure does not include six units with future lease dates. The rent roll indicated an average rental rate of $5,852, reflecting continued rent growth at the property. The property benefits from its location within the South Marin submarket, which offers a limited supply of multifamily properties given the lack of vacant land and environmental constraints on further development, resulting in historically low submarket vacancy. According to Reis, the South Marin submarket reported Q3 2022 vacancy and average rental rates of 3.2% and $4,341 per month for Class A multifamily properties, respectively.

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 (May 17, 2022).

Class X 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.

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

The principal methodology is 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].

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