DBRS Morningstar Upgrades Two Ratings of A10 Bridge Asset Financing 2019-B, LLC

DBRS, Inc. (DBRS Morningstar) upgraded its ratings on two classes of Commercial Mortgage Pass-Through Certificates, Series 2019-B issued by A10 Bridge Asset Financing 2019-B, LLC as follows:

-- Class C to AAA (sf) from AA (sf)
-- Class D to A (sf) from BBB (high) (sf)

DBRS Morningstar also confirmed the ratings on three as follows:

-- Class B at AAA (sf)
-- Class E at BB (high) (sf)
-- Class F at B (high) (sf)

All trends are Stable.

The rating upgrades reflect the increased credit support to the bonds as successful loan repayments continue to insulate the remaining rated bonds from potential adverse impacts from the ultimate resolution of specially serviced loans. As of January 2023 reporting, the transaction had amortized 72.7% since issuance and there were three loans, representing 42.6% of the current outstanding trust balance, in special servicing. In conjunction with this press release, DBRS Morningstar has published a Surveillance Performance Update report with in-depth analysis and credit metrics for the transaction and with business plan updates on select loans. For access to this report, please click on the link under Related Documents below or contact us at [email protected].

The initial collateral pool consisted of 44 loans secured by cash-flowing assets, many of which were in a period of transition with plans to stabilize and improve the asset value. The transaction included a 24-month reinvestment period that expired in September 2021, at which point the bonds began to amortize sequentially with loan repayment and scheduled loan amortization. As of January 2023, the transaction consisted of 10 loans, secured by 10 properties, with a cumulative trust balance of $87.5 million.

Six of the remaining loans, representing 52.2% of the current trust balance, are secured by office properties while two loans, representing 22.4% of the current trust balance, are secured by multifamily properties. The remaining collateral include a mixed-use property and an industrial property. In terms of property location, three loans are in urban markets with a DBRS Morningstar Market Rank of 7 and 8. While properties in urban markets have historically benefited from greater liquidity and investor demand, two of these loans, representing 34.7% of the current trust balance, are currently in special servicing and have been delinquent since May 2020. Most of the remaining collateralized properties are in suburban markets (six loans, representing 43.5% of the current trust balance).

Nine of the 10 remaining loans were structured with future funding components totaling $17.4 million to assist the individual borrowers in the respective business plans, which included funds for property renovations, accretive leasing costs, and performance-based earn-outs. Through YE2022, the lender had advanced a total of $8.1 million to six individual borrowers. The largest advance, $2.9 million, was provided to the borrower of the New Utrecht loan, which is secured by a mixed-use property in Brooklyn, New York. The property is now 100.0% leased to two tenants on long-term leases with the first lease scheduled to expire in 2027. While some of the initial loan future funding dollars have been forfeited by individual borrowers, $6.5 million of additional loan future funding allocated to six individual borrowers remains outstanding. Out of the $6.5 million total, $4.5 million is available to the borrower of the 20 Waterview Blvd loan, which is secured by an office property in Parsippany, New Jersey. The funds are largely available to assist the borrower in its leasing efforts; however, the borrower is behind in its business plan as the occupancy rate of 44.9% as of September 2022 remained largely unchanged from issuance.

As noted above, there are three loans in special servicing. The largest such loan, Gowanus Assemblage (Prospectus ID#4, 18.7% of the current pool balance), is secured by an office property in Brooklyn. At issuance, the borrower planned to renovate the multibuilding property and re-lease it at market rates. The loan has been delinquent since May 2020 when the former coworking space tenant ceased paying rent, and according to the servicer, it is currently in the process of locating and summarizing the guarantor’s assets in an attempt to enforce guarantees on the loan. The servicer noted the resolution process is expected to take up to one year. The current exposure on the loan including outstanding principal, debt service advances, property protection advances, and default interest totals $31.7 million with the senior portion totaling $26.0 million. The property received an updated appraisal value of $21.1 million, suggesting that the trust is likely to realize a loss upon ultimate resolution of the loan.

The second-largest loan in special servicing, 46-48 Lispenard (Prospectus ID#5, 16.0% of the current pool balance), is secured by a five-unit, luxury multifamily property in Manhattan, New York. The loan has also been delinquent since May 2020 and as of May 2022, only one of the five units was rented. Similar to the Gowanus Assemblage loan, the servicer expects the resolution of the loan to take up to one year, and the current total exposure on the loan totals $27.9 million with the senior portion totaling $24.5 million. The property received an updated appraisal value of $24.3 million, suggesting that the trust is likely to realize a loss upon ultimate resolution of the loan.

As of January 2023, there were an additional two loans, representing 4.1% of the current pool balance, on the servicer’s watchlist, which have been flagged for upcoming loan maturity; however, an additional two loans, representing 32.9% of the current pool balance, also have loan maturity dates through Q2 2023. The New Utrecht loan (Prospectus ID#11, 14.6% of the current pool balance) matures in May 2023 and appears to be approaching stabilization as the property is now 100% leased. The servicer noted the borrower prefers to obtain permanent take-out financing but may exercise the one-year extension option if terms are unfavorable. The borrower of the 20 Waterview Blvd loan (Prospectus ID#10, 14.1% of the current trust balance) has requested to exercise its last remaining one-year extension option; however, as the borrower is struggling to improve occupancy and complete its business plan, the lender and the borrower will likely need to negotiate a modification to extend the loan. When the loan was previously extended to its current April 2023 maturity date, the borrower was required to make a principal curtailment on the trust loan of $250,000.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/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/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022).

DBRS Morningstar materially deviated from its CMBS Insight Model when determining the ratings assigned to Class D and Class E, as the quantitative results suggested higher ratings. These material deviations are warranted given loan-level event risk as there are loans in special servicing, which are expected to have extended resolution time frames.

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 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. The DBRS Morningstar long-term rating scale definition indicates that ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

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

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