DBRS Morningstar Confirms Ratings on All Classes of BANK 2020-BNK26

DBRS Limited (DBRS Morningstar) confirmed its ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2020-BNK26 issued by BANK 2020-BNK26 as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-3-1 at AAA (sf)
-- Class A-3-2 at AAA (sf)
-- Class A-3-X1 at AAA (sf)
-- Class A-3-X2 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-4-1 at AAA (sf)
-- Class A-4-2 at AAA (sf)
-- Class A-4-X1 at AAA (sf)
-- Class A-4-X2 at AAA (sf)
-- Class X-A at AAA (sf)
-- Class A-S at AAA (sf)
-- Class A-S-1 at AAA (sf)
-- Class A-S-2 at AAA (sf)
-- Class A-S-X1 at AAA (sf)
-- Class A-S-X2 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class B at AA (high) (sf)
-- Class X-B at A (high) (sf)
-- Class C at A (sf)
-- Class D at BBB (high) (sf)
-- Class X-D at BBB (high) (sf)
-- Class E at BBB (sf)
-- Class X-F at BBB (low) (sf)
-- Class F at BB (high) (sf)
-- Class X-G at BB (low) (sf)
-- Class G at B (high) (sf)

All trends are Stable.

The rating confirmations reflect the overall performance of the transaction, which generally remains in line with DBRS Morningstar’s expectations since issuance, as exhibited by the strong weighted-average debt service coverage ratio (DSCR) of more than 2.0 times based on the most recent year-end financials. In addition, the pool benefits from the continued stable performance of the five shadow-rated loans (collectively representing 23.4% of the pool balance), the small number of loans on the servicer’s watchlist that are being monitored for performance-related concerns, and no loans in special servicing.

As of the August 2023 reporting, all 75 original loans remain in the pool, with a trust balance of $1.2 billion, representing a collateral reduction of 1.5% since issuance as a result of loan amortization. Only one loan, representing 0.2% of the pool, is fully defeased. Twelve loans, representing 19.8% of the pool, are on the servicer’s watchlist; six of the loans (15.5% of the pool) are flagged for deferred maintenance and the remaining loans are being monitored for tenant rollover and/or low DSCRs.

The pool is most concentrated by loans backed by office properties, which represent 37.8% of the pool balance. Most of those loans continue to perform in line with issuance expectations, but the concentration is noteworthy given the overall stress for the office market as a whole in recent years. For loans that have exhibited increased risk, DBRS Morningstar increased the probability of default penalties and, in certain cases, applied stressed loan-to-value ratios (LTVs) in the analysis, resulting in a weighted-average expected loss approximately 40% higher than the pool average.

DBRS Morningstar is closely monitoring the Bravern Office Commons loan (Prospectus ID#2; 6.3% of the pool), which is secured by a Class A office property in Bellevue, Washington. The loan is pari passu, with the other piece of the whole loan secured in BAMLL 2020-BOC (not rated by DBRS Morningstar). The property is leased to a single tenant, Microsoft Corporation (Microsoft), on two triple net leases extending to June 2025 and August 2025. Per communication with the servicer, Microsoft has relocated its staff out of the subject property to the Redmond campus (known as the Microsoft Campus) in Redmond, Washington, suggesting the subject building is currently dark. Despite Microsoft’s assurance to fulfill the rent obligations through the lease term, concerns arise considering the 2025 lease expiration and the sponsor’s ability to backfill the space ahead of lease maturity.

Vacancy rates have been on the rise, with Reis reporting a Q2 2023 rate of 12.2% for the Bellevue Issaquah submarket, compared with 8.9% at Q2 2022. Based on the YE2022 financials, the loan reported a net cash flow (NCF) of $26.1 million, an improvement from the YE2021 NCF of $22.7 million but below the DBRS Morningstar NCF of $29.9 million. The drop in NCF from the DBRS Morningstar figure was primarily driven by a decrease in expense reimbursements of approximately $5.0 million. At issuance, the subject was valued at $605 million, which represents an LTV of 37.6% on the senior debt and 50.2% on the whole loan of $304.0 million. DBRS Morningstar contemplated a dark value analysis that valued the dark property at $436.3 million, which sufficiently covers the whole-loan amount, providing some cushion in the event Microsoft goes dark.

At issuance, the Bravern Office Commons loan, along with four other loans in the top 10, were shadow-rated investment grade. This includes 560 Mission Street (Prospectus ID#3; 5.9% of the pool), 55 Hudson Yards (Prospectus ID#6; 4.7% of the pool), 1633 Broadway (Prospectus ID#8; 3.4% of the pool), and Bellagio Hotel and Casino (Prospectus ID#9; 2.9% of the pool). With this review, DBRS Morningstar confirms that the loan performance trends remain consistent with investment-grade loan characteristics.

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

Classes X-A, X-B, X-D, X-F, and X-G 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 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
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/North American CMBS Insight Model Version 1.1.0.0 (March 16, 2023) 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 (September 8, 2022) https://www.dbrsmorningstar.com/research/402499

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 analyzes 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].