DBRS Morningstar Confirms Ratings on All Classes of Morgan Stanley Capital I Trust 2018-MP

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2018-MP issued by Morgan Stanley Capital I Trust 2018-MP as follows:

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

All trends are Stable. The rating confirmations reflect minimal changes to the overall performance of the underlying collateral, which remains in line with DBRS Morningstar’s expectations since the last rating action.

The loan is secured by the fee-simple and leasehold interests in the Millennium Partners Portfolio, which consists of eight cross-collateralized retail and office condominiums in dense urban locations, including New York, Boston, Miami, San Francisco, and Washington, D.C. The collateral consists of approximately 1.5 million square feet (sf) of commercial space along with parking garages at the Four Seasons Miami; Ritz-Carlton Washington, D.C.; and Ritz-Carlton Georgetown Retail properties. The loan is sponsored by Millennium Partners, a Manhattan-based real estate development and management company focused on luxury mixed-use properties in gateway cities across the U.S. As of June 2023, the sponsor’s portfolio has been valued at more than $4.0 billion with its owned-portfolio including more than 2,900 luxury condominiums, 1.2 million sf of office space, and 1.0 million sf of retail space.

The properties are in desirable, centrally located markets that have minimal available space for future competitive developments, and most of the condominium properties are part of larger, higher-end luxury uses and include quality fit-outs. All eight properties are subject to complex condominium structures, which are not controlled by the borrowers. The portfolio is geographically diverse as the properties are located in four states and the District of Columbia. The whole loan loan-to-value ratio (LTV) totaled 120.3%, based on the DBRS Morningstar value of $822.7 million, while the total mortgage debt reflects an LTV of 86.3%.

The subject whole loan has a 10-year interest-only (IO) term with a $710.0 million first mortgage and $280.2 million of mezzanine debt held outside the trust. Of the first mortgage amount, $225.9 million consists of non-pooled pari passu notes that were securitized in the following DBRS Morningstar-rated commercial mortgage-backed securities (CMBS) transactions: BANK 2019-BN16, MSC 2018-L1, and BANK 2018-BN14. The loan is also securitized in the non-DBRS Morningstar-rated transaction, BANK 2018-BNK15.

According to the financials for the trailing nine-month period ended September 30, 2022, the loan had an annualized net cash flow (NCF) of $50.4 million (reflecting a debt service coverage ratio (DSCR) of 1.63 times (x)), a slight decline from the YE2021 figure of $54.0 million (a DSCR of 1.75x) and the DBRS Morningstar NCF of $55.9 million. The recent decline in NCF was primarily driven by the 6.8% dip in base rent, as occupancy fluctuated moderately during 2022. According to the servicer, 31 tenants (14.5% of net rentable area (NRA)) had lease expirations in 2022 and 12 tenants (5.5% of NRA) elected to vacate upon lease expiration; however, 10 tenants (6.8% of NRA) have since signed new leases, with rental rates generally above the respective property average. As of September 2022, portfolio occupancy was reported at 93.4%, compared with 90.8% in April 2022 and 95.6% at issuance.

The Lincoln Triangle property in New York had the lowest reported occupancy rate at 53.0%, according to the servicer reporting, after two of its three tenants, Banana Republic and Century 21, (collectively representing 45.0% of property NRA) vacated. The remaining tenant, The New York City School Construction Authority (55.0% of property NRA), however, has recently signed a long-term lease. As of September 2022, the remaining seven properties in the portfolio had occupancy rates that were above 90.0%. Additionally, there is minimal rollover risk in 2023 with only 3.3% of portfolio NRA scheduled to expire. Given the borrower’s dedication to backfilling vacant space and the desirable locations of the collateral, DBRS Morningstar expects the transaction to continue performing in line with issuance expectations.

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 (May 17, 2022) at https://www.dbrsmorningstar.com/research/396929.

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.

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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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.

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 )