DBRS Morningstar Confirms Ratings on All Classes of DBGS 2018-BIOD Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed its ratings on all classes of the Commercial Mortgage Pass-Through Certificates, Series 2018-BIOD issued by DBGS 2018-BIOD Mortgage Trust as follows:

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

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since DBRS Morningstar’s last rating action. Although occupancy declined to 78.8% as of Q3 2022, cash flow remains comfortably above issuance levels, most recently reported at $74.8 million for the trailing 12-month period (T-12) ended September 30, 2022.

At issuance, the loan was secured by a portfolio of 22 life sciences buildings (office and laboratory) and one parking garage totaling 2.4 million square feet. The properties are located across California, Washington, Massachusetts, New York, Pennsylvania, and New Jersey. Since issuance, three properties, known as Walnut Street, Trade Centre Avenue, and Bernardo Center Drive, have been released. These properties collectively represented 6.7% of the issuance allocated loan amount (ALA) and, based on the release provisions as outlined in the transaction documents, a total release premium of $62.5 million was paid, with proceeds applied pro rata across the bond stack. The pro rata paydown structure will remain in place for releases executed to a cap of 25.0% of the unpaid principal balance on the loan. After the 25.0% threshold is met, the release premium will increase to 110.0% from 105.0% of the ALA and release proceeds will be paid sequentially down the bond stack.

The loan had an initial two-year term with five one-year extension options, with a final maturity date on May 9, 2025. In May 2022, the borrower exercised its third 12-month extension, extending the maturity until May 9, 2023. In order to exercise the next extension option, the borrower is required to purchase an interest rate cap. The servicer has not yet confirmed whether the loan has been extended and the loan will continue to be monitored on the servicer’s watchlist until the extension option is exercised. According to the loan agreement, 10 business days’ notice prior to the loan’s maturity date is required to exercise any extension options, however, the servicer notes that the borrower has generally provided its notice to exercise its extension options within 30 days of the loan’s maturity. The loan is interest only for the fully extended term.

According to the September 2022 financials, net cash flow (NCF) for the T-12 was reported at $74.8 million, representing a 6.6% decline from the YE2021 NCF of $80.0 million, mainly because of a 10.1% ($3.0 million) decline in expense reimbursements. Occupancy declined to 78.8% as of September 2022 from 84.9% as of YE2021. The collateral has historically maintained an average occupancy rate around 81.0%. The drop in occupancy was a result of tenant Acorda Therapeutics (formerly 7.9% of total portfolio net rentable area (NRA)) vacating at its lease expiry in June 2022. The majority of the portfolio’s vacancy comes from the Ardsley Park property and the Ardentech Court property, both of which are 100.0% vacant. Fifteen of the remaining 19 life sciences buildings in the pool report occupancy rates above 99.0%, and rollover is marginal in 2023, with tenants representing 6.2% of the total NRA scheduled to roll. Despite the decline in occupancy and cash flow, the T-12 NCF remains above the DBRS Morningstar NCF figure of $52.8 million. Given the healthy demand for life sciences space and the portfolio’s stable historical performance and strong sponsorship for the subject loan, DBRS Morningstar anticipates performance to remain in line with issuance expectations.

At issuance, the whole-loan proceeds included $725.0 million of senior floating-rate debt held in the subject trust, $140.0 million of senior mezzanine debt, and $95.0 million of junior mezzanine debt. The loans were used to refinance existing debt of $714.6 million, with $216.9 million of equity returned to the sponsor. The sponsor is an affiliate of The Blackstone Group Inc., which acquired the subject portfolio in 2016 as part of the acquisition of BioMed Realty Trust, Inc.

ENVIRONMENTAL, SOCIAL, AND 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/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 the North American CMBS Surveillance Methodology (March 16, 2023), 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 info@dbrsmorningstar.com.

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 info@dbrsmorningstar.com.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577