DBRS Morningstar Confirms Ratings on All Classes of COMM 2020-CBM Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2020-CBM issued by COMM 2020-CBM Mortgage Trust as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class X-NCP at AAA (sf)
-- Class B at AA (sf)
-- Class X-CP 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)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which remains in line with DBRS Morningstar’s expectations since the last rating action in July 2022. At that time, DBRS Morningstar changed the trends on Classes E and F to Stable from Negative given the general improvement in performance of the underlying collateral, which had previously faced disruptions as a result of the Coronavirus Disease (COVID-19) pandemic.

The underlying $684.0 million loan is secured by a first-priority mortgage on the fee and leasehold interests in 52 limited-service hotel properties totaling 7,677 keys. The trust loan is part of a split loan structure composed of seven senior promissory notes in the aggregate principal amount of $298.0 million, one junior promissory note in the aggregate principal amount of $286.0 million, and four senior promissory non-trust notes totaling $100.0 million. The debt contributed to the transaction consists of the seven senior promissory notes and one junior promissory note totaling $584.0 million.

The portfolio primarily includes older-vintage hotels, with 47 properties, representing 90.4% of the rooms, built in 1989 or earlier. All the hotels operate under the Courtyard by Marriott flag, benefiting from strong brand recognition as well as brand-wide reservation systems, marketing, and loyalty programs. The properties are located across 25 states, with concentrations in California, Florida, Illinois, and Colorado representing 25.2%, 7.6%, 7.1%, and 6.6% of the allocated loan amount, respectively. There was a $99.0 million reserve established at closing to fund capital improvements across the portfolio. As of the May 2023 loan-level reserve report, approximately 84.5% of the original $99.0 million reserve has been depleted, with a current balance of $15.4 million. In addition, the servicer noted that a second reserve of approximately $70.0 million was slated to be collected over the first four years of the loan term to fund additional improvements to properties within the portfolio.

The loan transferred to special servicing in April 2020 in conjunction with the borrower’s request for coronavirus-related relief. Although the lender agreed to modification terms that included forbearance, the borrower ultimately abandoned the request for relief, and the loan returned to the master servicer in May 2020. As of the May 2023 remittance report, the loan is performing and remains current.

Based on the YE2022 reporting, occupancy and cash flow have improved substantially, although they remain below pre-pandemic levels. The portfolio’s consolidated occupancy has steadily improved from 29.7% at YE2020 to 56.4% at YE2021 and 62.3% at YE2022 but still trails the issuer’s underwritten occupancy figure of 71.6%. On an aggregate basis, the portfolio has typically outperformed its competitive sets, with occupancy, average daily rates, and revenue per available room penetration rates higher than 100% since 2016. Increased capital investment funded through the reserves will likely help the portfolio maintain and continue to grow its competitive position, while improving the overall financial performance of underperforming assets.

According to the financial reporting for the trailing 12-month period ended December 31, 2022, the loan reported a net cash flow (NCF) of $61.9 million (reflecting a debt service coverage ratio (DSCR) of 2.50 times (x)), substantially higher than the YE2021 figure of $34.3 million (a DSCR of 1.40x) and the YE2020 figure of -$15.7 million (a DSCR of -0.64x) but still trailing the issuer’s underwritten figure of $84.8 million (a DSCR of 3.46x). The DBRS Morningstar NCF, which was derived to assign ratings in September 2020, was $80.1 million (a DSCR of 3.26x). DBRS Morningstar applied a cap rate of 9.0%, which resulted in a DBRS Morningstar value of $888.4 million, a variance of 25.0% from the appraised value of $1.2 billion at issuance. The DBRS Morningstar value implies a loan-to-value ratio (LTV) of 77.0%, compared with the LTV of 57.7% on the appraised value at issuance.

The sponsor for the transaction is CBM Joint Venture Limited Partnership, a joint venture between affiliates of Clarion Partners, LLC (Clarion) and the Michigan Office of Retirement Services (the majority equity interest holder). Clarion acquired the portfolio and other interests between 2005 and 2012, investing $370.4 million into capital expenditures prior to issuance with an ongoing commitment to the portfolio as evidenced by the continued capital investment through established reserves.

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.

Classes X-NCP and X-CP 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.

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.

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

Rating North American CMBS Interest-Only Certificates (December 19, 2022) https://www.dbrsmorningstar.com/research/407577

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].