DBRS Morningstar Downgrades Ratings on Two Classes of Morgan Stanley Capital I Trust 2019-PLND

DBRS Limited (DBRS Morningstar) downgraded its ratings on two classes of the Commercial Mortgage Pass-Through Certificates, Series 2019-PLND issued by Morgan Stanley Capital I Trust 2019-PLND as follows:

-- Class F to B (high) (sf) from BB (low) (sf)
-- Class G to C (sf) from B (low) (sf)

In addition, DBRS Morningstar confirmed its ratings on the remaining classes as follows:

-- Class A at AAA (sf)
-- Class X-EXT at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at AA (low) (sf)
-- Class D at A (sf)
-- Class E at BBB (low) (sf)

The trend on Class F remains Negative, while the trend on Class E was changed to Stable from Negative with this review. All other trends are Stable with the exception of G, which now has a rating that generally does not carry a trend in commercial mortgage-backed securities (CMBS).

The transaction is secured by a $240.0 million first-lien mortgage loan on two Hilton-branded full-service hotels located on adjacent city blocks in Portland, Oregon. The Hilton Portland Downtown (Hilton Downtown) and The Duniway Portland (the Duniway) are situated near the corner of SW Taylor Street and SW 6th Avenue in Portland’s downtown core. The two hotels, combined, contain 782 rooms, approximately 63,000 square feet of meeting space, and three food and beverage outlets. The rating downgrades on Classes F and G are reflective of the increased loss expectations for the loan, which is in special servicing. Since the last rating action in June 2022, the loan’s total exposure has grown by $28.7 million given an increase in outstanding advances. The Negative trend on Class F reflects uncertainty in the ability to secure a buyer for the properties in the current environment, which could lead to a lengthy disposition timeline and increased expenses to the trust.

The loan initially transferred to the special servicer for monetary default in June 2020, and, since that time, the loan has passed its initial maturity date of May 2021, was foreclosed in January 2023, and is now real estate owned. The loan was previously sponsored by Brookfield Asset Management Inc.

At issuance, the portfolio’s combined value was $340.6 million. The most recent appraisals, dated June 2022, place the combined value of both properties at $297.7 million. Although the most recent value remains above the total trust amount, the appraised value is somewhat inflated given the loan has outstanding principal and interest (P&I) advances totaling $28.7 million, as of the April 2023 remittance. DBRS Morningstar’s approach included an recoverability analysis, which is based on a stress to the most recent appraised value and implies a liquidated value per room of a little over $300,000.

For the trailing 12-month (T-12) period ended February 2023, STR reported that occupancy, average daily rate, and revenue per available room (RevPAR) were 48.5%, $173.66, and $84.24, respectively, for the Hilton Downtown, and 49.3%, $182.54, and $90.04, respectively, for the Duniway. For the same T-12 period, the two properties achieved RevPAR penetrations of 103.4% and 96.8%, relative to their competitive sets. Both properties exhibited improvements across all or some of these metrics from the prior year.

As of YE2022, the portfolio reported a debt service coverage ratio (DSCR) of 0.46 times (x), up from the YE2021 and YE2020 figures of -0.06x and -0.28x, respectively. Net cash flow (NCF) for YE2022 increased to $8.6 million as compared with negative figures in 2021 and 2020. The loan is structured with an adjustable rate, which has increased the debt service amount to $18.6 million at YE2022 from the $12.2 million at issuance.

The value decline, combined with expectations for a delayed disposition timeline in a saturated market with tightened access to liquidity, constrain the mitigation provided by the portfolio’s improvements in occupancy and cash flow. DBRS Morningstar projects expenses to the trust will increase, and the current valuation suggests degradation of credit support for the junior-most rated bonds.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) 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-EXT are interest-only (IO) certificates that reference 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 North American CMBS Surveillance Methodology (March 16, 2023) https://www.dbrsmorningstar.com/research/410912.

Other methodologies referenced in this transaction are listed at the end of this press release.

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 rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process for this rating action.

DBRS Morningstar had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is a solicited credit rating.

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.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

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

DBRS Limited
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Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

Rating North American CMBS Interest-Only Certificates (December 19, 2022; https://www.dbrsmorningstar.com/research/407577)
North American Single-Asset/Single-Borrower Ratings Methodology (February 23, 2023; https://www.dbrsmorningstar.com/research/410191)
DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 12, 2022; https://www.dbrsmorningstar.com/research/402646)
North American Commercial Mortgage Servicer Rankings (September 8, 2022; https://www.dbrsmorningstar.com/research/402499)
Interest Rate Stresses for U.S. Structured Finance Transactions (August 30, 2022; https://www.dbrsmorningstar.com/research/402153)
Legal Criteria for U.S. Structured Finance (December 7, 2022; https://www.dbrsmorningstar.com/research/407008)

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