DBRS Morningstar Confirms Ratings on All Classes of Benchmark 2020-IG2 Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed its ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2020-IG2 issued by Benchmark 2020-IG2 Mortgage Trust as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-M at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (sf)
-- Class UBR-B at AA (low) (sf)
-- Class UBR-C at A (low) (sf)
-- Class UBR-D at BBB (low) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which remains in line with DBRS Morningstar’s expectations at the last rating action. The transaction is a pooled securitization of 11 fixed-rate noncontrolling (with the exception of 1501 Broadway) pari passu senior notes with an aggregate cut-off pooled balance of $639.1 million. At issuance, the collateral consisted of 11 mortgage loans secured by 79 properties, with significant concentrations in California (nine properties; 49.2% of the pool) and New York (five properties; 27.8% of the pool). All 11 of the loans in the transaction are interest only (IO) during their entire loan terms and, as of the January 2023 remittance, there have been no prepayments or amortization.

Classes UBR-B, UBR-C, and UBR-D are loan-specific certificates that are collateralized by two subordinate companion notes in an aggregate amount of $155 million on the Chase Center Tower I/II properties. The loan-specific certificates are an asset of the issuing entity but are not being pooled with the other mortgage loans and are only entitled to payments of interest and principal from the subordinate companion notes.

The pool benefits from the high concentration of investment-grade assets. All 11 of the senior notes that serve as the collateral for the pooled component of the transaction are shadow-rated investment grade and exhibit investment-grade credit characteristics on a stand-alone basis. The weighted-average (WA) credit profile of the underlying collateral is approximately A (sf)/A (low) (sf), with a WA in-trust DBRS Morningstar loan-to-value ratio (LTV) of 59.5% and an Issuer LTV of 35.5%, both of which are substantially below the leverage point of traditional pools. Additionally, given the lack of the pool’s exposure to lodging properties and very limited exposure to retail properties (representing only 1.4% of the pool), the trust has so far been resilient to the effects of the Coronavirus Disease pandemic.

As of the January 2023 remittance report, three loans, representing 20.5% of the pool, are on the servicer’s watchlist. However, the servicer is monitoring these loans predominantly for informational reasons rather than credit concerns. The smallest loan in the pool, 181 West Madison (Prospectus ID#12; 2.2% of the pool), is currently in special servicing. The loan is secured by a Class A office building in the West Loop neighborhood of downtown Chicago and had transferred to special servicing November 2021 after the sponsor, HNA Group, filed for bankruptcy. The collateral was later put up for auction in July 2022, although no bids were made. Per the servicer commentary, while the borrower and the special servicer had reached an agreement to allow an HNA entity to remain as the equity holder, non-HNA entities filed an objection in October 2022. According to the servicer, the loan's return to the master servicer is dependent on when and how the objection can be resolved. In spite of the ongoing dispute, the sponsor remains committed to the property, the loan is current, and its credit profile remains strong to-date based on its low LTV figure of 28.8%, relative to the property’s issuance value of $375.3 million.

The largest loans on the servicer’s watchlist are the Chase Center Towers I/II loans (Prospectus IDs#1 and #2; 15.8% of the pool), secured by two 11-story Class A office buildings totaling more than 586,000 square feet in the Mission Bay district of San Francisco. Both buildings were constructed in 2019 and are LEED Gold certified. The buildings are part of the larger Chase Center/Golden State Warriors Complex, which includes the Chase Center and an 18,000-seat indoor arena that serves as the new home for the Golden State Warriors NBA team. Both office buildings are fully leased to Uber Technologies, Inc. through September and October 2039. For the year-to-date ended June 30, 2022, the combined net cash flow was reported to be $45.9 million, in line with previous years, with a debt service coverage ratio above breakeven.

The loans were put on the servicer’s watchlist in January 2021 as a result of outstanding landlord obligation reserve funds, with the final due date for obligations detailed in the loan agreement of September 2020. At loan closing, a landlord obligation reserve was put in place, totaling $62.7 million. Of that figure, $15.2 million was allocated for outstanding repairs and $47.5 million was tagged for a tenant improvement allowance. According to the January 2023 reserves report, the loans have approximately $4.0 million of remaining balance in the tenant reserves, suggesting the work to be done is substantially complete. According to the August 2022 site inspection reports, there are no capital expenditures or deferred maintenance items outstanding.

ENVIRONMENTAL, SOCIAL, 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 (May 17, 2022).

Class X-A 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 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. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower.

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

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