DBRS Morningstar Confirms Ratings on All Classes of CORE 2019-CORE Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed its ratings on all classes of the Commercial Mortgage Pass-Through Certificates, Series 2019-CORE issued by CORE 2019-CORE Mortgage Trust as follows:

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

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which remains in line with DBRS Morningstar expectations.

DBRS Morningstar upgraded its ratings on Classes C and D with the March 2022 review to reflect significant principal paydown of the trust from property releases (and their associated release premiums) since issuance, with two of the original seven properties remaining at that time. The underlying loan is composed of four pari passu notes that totalled the $402.8 million balance at issuance, consisting of the borrower’s fee-simple and leasehold interests in six office properties and one mixed-use property, totalling 2.6 million square feet (sf), across New York, Pennsylvania, Maryland, and Virginia. The loan is structured with an initial term of two years and three one-year extension options, with a fully extended maturity date in December 2023. The whole loan amount also included a $92.2 million senior mezzanine loan and a $55.0 million junior mezzanine loan, both held outside the trust. The properties are cross defaulted. As of the February 2023 remittance, the trust balance has paid down to $148.1 million, representing a collateral reduction of 63.2% since issuance. Two properties remain in the portfolio: One Pierrepont Plaza (71.6% of the allocated loan amount (ALA)) and Station Square (28.4% of the ALA).

The loan sponsor is Brookfield Strategic Real Estate Partners III GP L.P. The sponsor’s parent, Brookfield Property Partners L.P. (BPY; rated BBB (low) with a Stable trend by DBRS Morningstar) is an owner, operator, and investor in commercial real estate with a diversified portfolio of office and retail assets as well as interests in multifamily, triple-net lease, industrial, hospitality, self-storage, student housing, and manufactured housing assets. BPY’s core office portfolio includes interests in 150 office properties in Tier 1 cities around the world, totalling 99 million sf.

One Pierrepont Plaza is a high-rise office tower in downtown Brooklyn, New York, and belongs to a 5.5 million sf corporate campus known as MetroTech Center. According to the December 2022 rent roll, the collateral was 77.2% occupied with average rental rate of $47.37 per square foot (psf). This is a decline from the YE2021 and YE2020 occupancy of 84.5% and 80.3%, respectively, but above the YE2019 of 73.3%. The first and third largest tenants, Icahn School of Medicine at Mount Sinai (11.6% of the net rentable area (NRA)) and U.S. Probation and Pretrial Services (6.6% of the NRA), have leases that are scheduled to expire in March 2023 and August 2023, respectively. DBRS Morningstar has requested a leasing update from the servicer and a response is pending as of the date of this press release. According to a leasing brochure, 121,294 sf of space (16.2% of NRA) was listed as available for lease, which includes U.S. Probation and Pretrial Services’ space, suggesting the tenant will be vacating at its August 2023 lease expiration. Aside from these tenants, there is 1.6% of additional tenant rollover risk in the next 12 months. As of the February 2023 reserve report, there is a sizable balance of $20.7 million in tenant reserves. Based on Q4 2022 Reis data, office properties located in the central business district submarket reported an average vacancy rate and asking rental rate of 12.9% and $42.84 psf, respectively. In comparison, the Q4 2021 vacancy rate and asking rental rate was 16.8% and $42.79 psf, respectively.

According to the trailing nine-month ended (T-9) September 30, 2022. financials, the property reported an annualized net cash flow (NCF) of $13.4 million, in line with the YE2021 NCF of $13.5 million but below the YE2020 NCF of $13.9 million; however, this is well above the DBRS Morningstar NCF of $6.9 million. DBRS Morningstar acknowledges the challenges associated with securing refinancing with the low occupancy rate and near-term tenant rollover risk, but this is mitigated by the sponsor’s commitment to the property and the stressed DBRS Morningstar value that was applied to the loan-to-value ratio (LTV) sizing benchmarks from the March 2022 review.

Station Square is composed of four mixed-use commercial buildings and one parking garage in downtown Pittsburgh, along the Monongahela River. As of the January 2023 rent roll, the collateral was 89.7% occupied with marginal tenant rollover risk of 0.9% within the next 12 months. The largest tenants include Wesco Distribution (17.3% of the NRA, lease expires in March 2029), Cardworks Servicing (9.4% of the NRA, lease expires in June 2024) and ERT (7.0% of the NRA, lease expires in March 2027). According to the T-6 ended June 30, 2022, financials, the property reported an annualized NCF of $5.9 million, compared with the YE2021 NCF of $5.6 million, YE2020 NCF of $5.5 million, and the DBRS Morningstar NCF of $6.0 million.

Environmental, Social, and 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 (May 17, 2022).

Classes X-NCP is an interest-only (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 not 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