DBRS Morningstar Change Trends on Six Classes and Confirms Ratings on All Classes of Benchmark 2018-B6 Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed the ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2018-B6 issued by Benchmark 2018-B6 Mortgage Trust as follows:

-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-AB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class D at BBB (high) (sf)
-- Class X-D at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class F-RR at BB (high) (sf)
-- Class G-RR at BB (sf)
-- Class J-RR at B (sf)

In addition, DBRS Morningstar changed the trends on Classes D, E, X-D, F-RR, G-RR, and J-RR to Negative from Stable. All other trends remain Stable.

The rating confirmations and Stable trends reflect the overall stable performance of the transaction, which remains in line with DBRS Morningstar’s expectations since the last rating action. However, there are some challenges for the pool in that three loans are in special servicing and a high concentration of loans are secured by office properties. DBRS Morningstar notes mitigating factors for four shadow-rated loans that remain in line with investment-grade characteristics, a sizable unrated first loss piece totaling $33.5 million with no losses incurred to the trust to date, and relatively minor loss projections for the loans in special servicing. However, given the loan-specific challenges for some of the office loans and the downward pressure implied by the results of DBRS Morningstar’s application of its Commercial Mortgage-Backed Securities (CMBS) Insight Model, the Negative trends for the five lowest-rated classes most exposed to loss were warranted.

As of the August 2023 remittance, 52 of the original 55 loans remain in the pool, with an aggregate principal balance of $1.1 billion, reflecting a collateral reduction of 6.6% since issuance as a result of loan repayments and scheduled amortization. Eleven loans (14.2% of the pool) are on the servicer’s watchlist; 10 loans (11.4% of the pool) are being monitored for performance-related concerns while one loan was flagged for its upcoming maturity. In addition, the three loans (7.4% of the pool) currently in special servicing were not in special servicing at the time of the last rating action in November 2022.

The largest specially serviced loan, Workspace – Trust (Prospectus ID#8; 3.7% of the pool) is secured by a portfolio of 147 properties, consisting of nearly 9.9 million square feet (sf) of office and flex space. The subject loan amount of $40.0 million is part of a whole loan of $1.3 billion secured across four other transactions. Three of these transactions are rated by DBRS Morningstar: JPMCC 2018-WPT (lead securitization), BMARK 2018-B5, and BMARK 2018-B7 are rated.

The loan transferred to special servicing in April 2023 in advance of its July 2023 maturity date as the loan was not expected to repay. The loan was modified with a two-year extension, resulting in a new maturity date of July 2025. Additional details regarding the terms of the modification were requested from the servicer. Per an online news article dated July 2023, it was reported that a significant equity participation was provided as part of the extension.

Built between 1972 and 2013, the portfolio includes 88 office properties (6.5 million sf) and 59 flex buildings (3.4 million sf). Located across four states (Pennsylvania, Florida, Minnesota, and Arizona), the collateral encompasses five distinct metropolitan statistical areas (MSAs) and more than 15 submarkets. The largest concentration of properties is in the Philadelphia MSA, with 69 properties totaling 40.3% of the allocated loan balance (ALB) at issuance, followed by the Tampa MSA (34 properties; 16.5% of the ALB), the Minneapolis MSA (19 properties; 13.0% of the ALB), the Phoenix MSA (14 properties; 12.9% of the ALB), and the Southern Florida MSA (11 properties; 17.3% of the ALB). These properties are generally in dense suburban markets that benefit from favorable accessibility and proximity to their respective central business districts.

The most recent reporting for the subject transaction noted a YE2022 net cash flow (NCF) of $92.0 million while the reporting for JPMCC 2018-WPT noted a NCF of $97.4 million. Despite the discrepancy, this is below the YE2021 figure of $101.1 million (a debt service coverage ratio of 1.57 times) and the DBRS Morningstar NCF of $104.7 million derived in 2020 during the North American Single-Asset/Single-Borrower Ratings Methodology update for the JPMCC 2018-WPT transaction. The cash flow decline was predominantly the result of decreases in base rent and expense reimbursements following a drop in occupancy in recent years. The servicer reporting reflects an occupancy rate of 80.4% at December 2022, down from 84.1% at YE2021 and 88.6% at issuance. At issuance, the loan was shadow-rated investment grade, however, given the challenges in refinancing this loan and the decline in performance from DBRS Morningstar’s expectations, the shadow rating was removed with this review. The loan was analyzed with a stressed loan-to-value ratio (LTV) based on the DBRS Morningstar value derived with the May 2023 review of JPMCC 2018-WPT, resulting in an expected loss that is more than three times the pool average.

The specially serviced loan, JAGR Hotel Portfolio (Prospectus ID#18; 1.8% of the pool), is secured by a portfolio of three hotel properties in Mississippi, Michigan, and Maryland. The loan was transferred to special servicing for a second time in March 2023 because of payment default subsequent to receiving a loan modification in November 2021, which extended the loan’s maturity to May 2024. While discussions regarding another loan modification are ongoing, the loan is delinquent and the servicer is dual-tracking foreclosure. The most recent appraisal in May 2023 valued the property at $51.6 million, an improvement from the October 2020 value of $44.7 million, but well below the issuance appraised value of $73.5 million. In its analysis for this review, DBRS Morningstar liquidated the loan from the trust with an implied loss greater than $5.0 million or a loss severity in excess of 20.0%.

At issuance, the transaction featured six shadow-rated loans including 636 11th Avenue (Prospectus ID#6; 4.7% of the pool), which is secured by a Class A office property in the Hell’s Kitchen neighborhood in Manhattan. At issuance, the subject property was fully leased to The Ogilvy Group (lease expiry in June 2029); however, the tenant vacated in 2021. Although the lease is fully guaranteed by the parent company and the tenant continues to make its rental payments, the entirety of the space remains available for sublease. Given the challenged office market and lack of subleasing traction at the subject, DBRS Morningstar removed the shadow rating and applied a stressed LTV and probability of default in its analysis. This results in an expected loss that is more than double the pool average.

The other four shadow-rated loans, Aventura Mall (Prospectus ID#1; 10.3% of the pool), Moffett Towers II (Prospectus ID#2; 7.1% of the pool), West Coast Albertsons Portfolio (Prospectus ID#5; 6.0% of the pool), and TriBeCa House Conduit (Prospectus ID#11; 2.8% of the pool), continue to exhibit investment-grade loan characteristics. As such, DBRS Morningstar has maintained the shadow ratings for this review.

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

Classes X-A and X-D 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 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 credit ratings assigned to Classes B and D materially deviate from the credit ratings implied by the predictive model. DBRS Morningstar typically expects there to be a substantial likelihood that a reasonable investor or other user of the credit ratings would consider a three-notch or more deviation from the credit ratings stress implied by the predictive model to be a significant factor in evaluating the credit ratings. The rationale for the material deviation is the uncertain loan level event risk, primarily driven by the stressed approached applied to loans backed by office properties. The results of the analysis suggested downward pressure through the middle of the capital stack. Although this pressure is more pronounced on Classes B and D, the lower-rated bonds are the most exposed to loss, thereby supporting the Negative trends.

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.

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 credit ratings are monitored.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
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 CMBS Multi-Borrower Rating Methodology (March 16, 2023)/North American CMBS Insight Model v 1.1.0.0 (https://www.dbrsmorningstar.com/research/410913)

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/417279.

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