DBRS Morningstar Upgrades Ratings on Two Classes of ACAM 2019-FL1, Ltd.

DBRS, Inc. (DBRS Morningstar) upgraded its ratings on the following two classes of Commercial Mortgage-Backed Notes issued by ACAM 2019-FL1, Ltd.:

-- Class B to AAA (sf) from AA (low) (sf)
-- Class C to A (sf) from A (low) (sf)

DBRS Morningstar also confirmed the following ratings on six classes:

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

All trends are Stable.

The rating upgrades reflect the increased credit support to the bonds as a result of successful loan repayment, as there has been collateral reduction of 33.9% since issuance. In addition, the borrowers on the remaining loans are generally progressing with their respective business plans, which DBRS Morningstar expects to ultimately lead to property stabilization and value growth. 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 consisted of 21 floating-rate mortgages secured by 35 mostly transitional properties. The cut-off balance totaled $400.3 million with $87.4 million of additional future funding commitments, as most loans were in a period of transition with plans to stabilize and improve asset value. The transaction included a 24-month reinvestment period that expired in December 2021, at which point the bonds began to amortize sequentially with loan repayment and scheduled loan amortization.

As of the January 2023 remittance, there were 14 loans in the transaction with a current trust balance of $264.5 million. Since DBRS Morningstar’s previous rating action in November 2022, two loans, Valencia Corporate Plaza and the James Hotel NYC, totaling $69.2 million, have been repaid from the transaction. Only four of the original 21 loans, which represent 22.8% of the current trust balance, remain in the transaction. The transaction is concentrated by property type as nine loans, totaling 56.1% of the current trust balance, are secured by office properties followed by two mixed-use properties, representing 20.3% of the current pool balance, and two industrial properties, representing 15.1% of the current pool balance.

The remaining properties are distributed quite evenly between urban and suburban markets with five loans, representing 50.4% of the pool, in urban markets, defined by DBRS Morningstar as markets with a DBRS Morningstar Market Rank of 6, 7, or 8. These markets historically have shown greater liquidity and demand. The remaining nine properties, representing 49.6% of the pool, are in suburban markets, defined as having a DBRS Morningstar Market Rank of 3, 4, or 5.

The collateral pool exhibits elevated leverage from issuance with a current weighted-average (WA) appraised loan-to-value ratio (LTV) of 80.0% and WA stabilized LTV of 60.8%. In comparison, these figures were 65.4% and 53.5%, respectively, at closing. As the majority of these appraisals were conducted prior to transaction issuance in 2019, there is the possibility that select property values may have decreased given the current interest rate and capitalization rate environment.

Through January 2023, the collateral manager advanced $52.6 million in loan future funding to 12 individual borrowers to aid in property stabilization efforts. The largest advance ($8.5 million) was made to the borrower of Canyon Corporate Center loan, which is secured by an office property in Phoenix. The borrower used advanced loan proceeds to fund various capital expenditures to the improve the property’s overall quality as well as to fund leasing costs. An additional $66.1 million of unadvanced loan future funding allocated to 12 individual borrowers remains outstanding. The largest portion of unadvanced future funding dollars ($30.4 million) is allocated to the borrower of the 95 Greene Street loan, which is secured by the largest loan in the pool, representing 15.7% of the current pool balance. The loan is secured by a 334,932-sf life science office building in Jersey City, New Jersey. The borrower successfully converted the property from its former traditional office use and is now in the process of securing tenants, which is expected to require significant leasing packages to be funded from the available future funding dollars.

As of January 2023, there were no loans in special servicing; however, there were six loans on the servicer’s watchlist, representing 45.9% of the pool balance. The largest loan on the servicer’s watchlist was the aforementioned 95 Greene Street, which continues to be monitored for maturity risk ahead of its upcoming March 2023 maturity date. The loan contains two one-year extension options. Given the property remains in the initial lease-up phase following the property-use conversion, DBRS Morningstar expects the borrower and lender to agree to terms allowing the exercise of the first loan extension option.

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).

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.

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

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