DBRS Morningstar Confirms Ratings on All Classes of BX Trust 2018-GW

This press release was updated on August 19, 2024, to clarify the calculations behind the DBRS Morningstar value considered for this review.

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

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

All trends are Stable.

The rating confirmations and Stable trends are reflective of the sustained increases in cash flow and the excellent property quality bolstered by continued investments by the sponsor. The subject collateral is the Grand Wailea, a luxury resort hotel property in Wailea Beach, on the island of Maui, Hawaii. DBRS Morningstar notes the recent wildfires that devastated parts of Maui, while not directly impactful to the subject property, could depress traffic and overall demand as the affected areas recover.

The Grand Wailea is a 776-key, Four-Diamond, oceanfront luxury resort, operated under the Waldorf Astoria flag. The resort includes 120 noncollateral villas, 62 of which are enrolled in the hotel’s rental program. The $800.0 million whole loan consists of $510.5 million held within the trust in the form of a two-year floating-rate interest-only (IO) loan with five 12-month extension options, fully extending to May 2025. An additional $289.5 million in mezzanine debt is held outside of the trust, which is coterminous with the senior debt. The borrower exercised the maturity extension to May 2024 and will have one extension option remaining at that time.

The loan was previously on the servicer’s watchlist due to water damage at the Spa Grande in 2021. The damage resulted in a $25.0 million claim on the property insurance and as of the date of this press release, the area remains closed for renovations. A temporary spa has been opened for guests during the renovation. In addition to the spa improvements, the borrower is in the process of renovating all of the guest rooms, the Napua Tower, and the Humuhumunukunukuapua’a Restaurant, all of which is expected to be completed in 2023.

As of the March 2023 STR report, the subject reported a trailing 12-month (T-12) occupancy, average daily rate (ADR), and revenue per available room (RevPAR) of 45.8%, $994.37, and $455.75, respectively for the period ending March 31, 2023. Average occupancy decreased from 52.2% when compared with the T-12 March 2022 STR report, while ADR and RevPAR increased over the same period. The RevPAR penetration rate as of March 2023 was 77.1%, down from 82.2% in the previous year. Despite the decrease in occupancy and RevPAR penetration in that period, the RevPAR improvements have resulted in significant cash flow growth over the issuance figures.

As per the YE2022 financial reporting, the subject reported a net cash flow (NCF) of $59.0 million and a debt service coverage ratio (DSCR) of 1.97 times (x), compared with $53.3 million and 2.46x in YE2021. Cash flows continue to significantly exceed the DBRS Morningstar NCF of $47.0 million derived at issuance. The decrease in debt coverage year over year for 2022 is primarily due to the increased debt service payments from the floating-rate nature of the loan.

In addition to the cash flow growth from issuance, the subject resort continues to benefit from brand affiliation with Waldorf Astoria, an irreplaceable beachfront location in a supply-constrained market and the strong sponsorship in Blackstone Real Estate Partners VIII-NQ L.P. (Blackstone). Furthermore, Blackstone’s significant investment in improvements for the property to maintain the superior quality demonstrates strong commitment in investing back some of the increased returns since the 2018 acquisition of the property and subject transaction closing.

Given the sustained cash flow improvements over issuance, DBRS Morningstar evaluated the potential for credit rating upgrades by applying a stressed 20% NCF haircut to the YE2022 figure reported by the servicer. However, this resulted in an NCF figure of $47.20 million, just slightly above the DBRS Morningstar NCF derived at issuance of $47.02 million, suggesting the corresponding increase in the DBRS Morningstar value would be minimal and credit rating upgrades would not be supported. As such, the analysis for this review maintained the issuance DBRS Morningstar value of $606.7 million, which was based on the aforementioned DBRS Morningstar NCF figure of $47.02 million and a cap rate of 7.75%. This value implies a loan-to-value ratio (LTV) of 84.1% and compares with the issuance appraised value of $1.06 billion.

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 (July 4, 2023) https://www.dbrsmorningstar.com/research/416784.

Classes X-EXT 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 credit ratings are subject to surveillance, which could result in credit 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 credit rating was initiated at the request of the rated entity.

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

This is a solicited credit rating.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

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

The credit 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)

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

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 (August 23, 2023; https://www.dbrsmorningstar.com/research/419592)

Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023; https://www.dbrsmorningstar.com/research/415687)

Legal Criteria for U.S. Structured Finance (December 7, 2022; https://www.dbrsmorningstar.com/research/407008)

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/410863.

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