DBRS Morningstar Confirms Ratings on All Classes of Benchmark 2019-B12 Commercial Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates Series 2019-B12 issued by Benchmark 2019-B12 Commercial Mortgage Trust as follows:

-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-5 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 (low) (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 F-RR at BB (high) (sf)
-- Class G-RR at B (high) (sf)

All trends are Stable.

The rating confirmations reflect DBRS Morningstar’s outlook and loss expectations for the transaction, which remain relatively unchanged from the last rating action in November 2022. The stable performance of the pool is illustrated by the most recent year-end financials, which reported a weighted-average (WA) debt service coverage ratio (DSCR) of 2.51 times (x). Per the July 2023 reporting, 44 of the original 47 loans remain in the trust with an aggregate principal balance of $1,139 million, reflecting a collateral reduction of 3.7% since issuance as a result of loan amortization and loan repayment. There are 12 loans, representing 22.5% of the pool, on the servicer’s watchlist and one loan, Greenleaf at Howell (0.9% of the pool), in special servicing. While the servicer indicates a loan modification is being documented, the specially serviced loan is delinquent with the last debt payment made in October 2021, and a receiver is currently in place. 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 50%.

The pool is concentrated by property type, with loans backed by retail and office properties representing 33.8% and 22.4% of the pool, respectively. In general, the office sector has been challenged, given the low investor appetite for the property type and high vacancy rates in many submarkets. However, of the 14 office loans, only two exhibited performance that suggested increased credit risk since issuance and both were stressed in the analysis for this review, resulting in a WA expected loss that was nearly triple the pool average. In spite of the large office concentration, the majority of the loans in the pool exhibit healthy credit metrics, with the 10 largest loans (51.8% of the pool) reporting a WA DSCR of 2.77x and a WA debt yield of 10.9% based on the most recent year-end financials.

The largest loan on the servicer’s watchlist, The Zappettini Portfolio (Prospectus ID#3, 5.7% of the pool), is secured by a portfolio of 10 single- or two-story office/research and development buildings totaling 251,575 square feet (sf) in Mountain View, California. All but two buildings are leased to individual tenants, including Google, County of Santa Clara, and Iridex. While the loan is currently being monitored on the watchlist only for deferred maintenance items, DBRS Morningstar is monitoring this loan because seven tenants, representing more than 60% of the portfolio’s net rentable area (NRA), have leases that have expired or will be expiring prior to the loan maturity date in June 2024.

Despite the portfolio’s historically stable performance, occupancy has fallen to 87.6% as of March 2023 from 100% at issuance, following the lease termination of Mitra Future Technologies (12.4% of NRA) in 2021. As a result, the loan’s cash flow has fallen from the Issuer’s figure of $9.5 million (reflective of a DSCR of 1.83x) to $8.1 million (reflective of a DSCR of 1.55x) at YE2022. According to the servicer, the borrower has agreed to a lease extension with one tenant (11.8% of NRA) and has proposals out to extend leases with an additional three tenants (24.3% of NRA). As of Q2 2023, Reis reported that office properties in the Palo Alto/Mountain View/Los Altos submarket had an average vacancy rate of 18.9%, an average effective rental rate of $55.58 per square foot (psf) and an average asking rental rate of $67.34 psf. While the near-term rollover increases the loan’s refinance risk, mitigants include the portfolio’s location in Silicon Valley, strong sponsorship, and below-market rents of $44.28 psf per the March 2023 rent roll, which are likely to ease leasing efforts for any potential vacancy. In addition, the issuance appraisal noted land and dark values (for nine of the 10 buildings) reflecting going-in loan-to-value (LTV) ratios of 83% and 81%, respectively. Despite the mitigating factors, DBRS Morningstar took a conservative approach in its analysis and stressed the LTV given the near-term refinance risk, resulting in an expected loss that was nearly three times greater than the pool’s WA figure.

At issuance, DBRS Morningstar assigned an investment-grade shadow rating to 3 Columbus Circle (Prospectus ID#8, 4.4% of the pool). With this review, DBRS Morningstar confirms that the performance of this loan remains consistent with investment-grade 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, 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 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 (March 16, 2023)/North American CMBS Insight Model version 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 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].