DBRS Morningstar Changes Trends on Three Classes of Citigroup Commercial Mortgage Trust 2019-GC41 to Negative, Confirms Ratings on All Classes

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2019-GC41 issued by Citigroup Commercial Mortgage Trust 2019-GC41 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 AS at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class X-B at AA (low) (sf)
-- Class C at A (high) (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 G-RR at B (high) (sf)

DBRS Morningstar also changed the trends on Classes X-F, F, and G-RR to Negative from Stable. The trends on all other classes are Stable.

The Negative trends reflect DBRS Morningstar’s concern surrounding the pool’s concentration of office properties, which totals 33.9% of the current pool balance and includes three loans on the servicer’s watchlist, representing 2.8% of the pool balance. A primary driver of DBRS Morningstar’s increased risk profile for this pool is the Comcast Building Tucson loan (Prospectus ID#22, 1.6% of the pool). The collateral is a vacant suburban office property composed of more than 200,000 square feet, formerly utilized as call center space for Comcast. In general, the performance of the office sector has deteriorated in recent months; vacancy rates in many submarkets remain elevated because of a shift in workplace dynamics leading companies opting for remote and hybrid environments to vacate their spaces entirely or reduce their footprint at or prior to their lease expiration dates. In the analysis for this review, DBRS Morningstar applied stress scenarios to loans backed by office and other properties that were showing performance declines from issuance or otherwise exhibiting heightened risks from issuance to increase the expected losses as applicable. As a result, loans secured by office properties have a weighted-average expected loss that is approximately 40.0% higher than the pool’s expected loss.

The rating confirmations reflect the relatively stable performance for the majority of the remaining loans in the transaction since DBRS Morningstar’s last rating action. As of the August 2023 remittance, 42 of the original 43 loans remain in the pool with an aggregate principal balance of $1.26 billion, representing a collateral reduction of 1.4% since issuance. Seven loans, representing 18.0% of the pool balance, are on the servicer's watchlist because of declining debt service coverage ratio (DSCR) and/or tenant rollover risk. There aren’t any delinquent or specially serviced loans. Two loans, representing 1.0% of the pool, are secured by loans that are defeased.

The Comcast Building Tucson loan is secured by the borrower's fee-simple interest in a 211,152-square-foot suburban property in Tucson, Arizona. The subject was previously a large furniture showroom and retail outlet. Comcast took occupancy in 2015 after a major retrofit of the building, bringing more than 1,100 employees to what was considered a state-of-the-art call center. The property in its current state consists of a three-story building with a movie theater, a fitness facility, and food service facilities as well as a four-level parking garage with more than 1,000 covered parking spaces. The loan had a cash sweep trigger if the sole tenant, Comcast, did not renew its lease 36 months prior to the January 2026 lease expiration.

Accordingly, the loan was added to the servicer’s watchlist in June 2023 and the lockbox was activated after Comcast vacated and failed to renew its lease as of January 2023. The borrower is actively marketing the entire property for lease, sale, or joint venture opportunities, with the listing brochure noting that the building can be made available for adaptive reuse in the near term. As of the August 2023 remittance, there were $1.5 million in reserves and the YE2022 DSCR is healthy at 2.31 times (x). Although the loan is current, excess cash is being swept, and Comcast is likely to continue paying rent through lease expiration, DBRS Morningstar has a negative outlook for this loan given the collateral’s build-out and the change in workplace dynamics combined with the upcoming lease expiration, large footprint, and weak submarket conditions. DBRS Morningstar believes that there is a high likelihood of this loan transferring to special servicing before or shortly after Comcast’s lease expiration and that the subject’s value has declined significantly since issuance. With this review, DBRS Morningstar applied an increased loan-to-value ratio and probability of default penalty, resulting in an expected loss that is nearly 5x the pool’s average expected loss.

Another loan of concern, 505 Fulton Street (Prospectus ID#14, 3.6% of the pool), is secured by the borrower's fee-simple interest in a 114,209-square-foot anchored retail property in Brooklyn. The loan was added to the servicer’s watchlist in July 2023 because major tenants Nordstrom Rack, 35% of the net rentable area (NRA) and 24.7% of base rent, and TJ Maxx, 18.9% of NRA and 10.1% of base rent, both have upcoming scheduled lease expirations in April 2024 and neither have indicated if they will renew their respective leases. As of the March 2023 reporting, the property was 100% occupied with a DSCR of 3.40x. In this review, DBRS Morningstar applied a higher probability of default to reflect the increased credit risk associated with the scheduled lease rollover, resulting in an expected loss that is more than double the pool’s average expected loss.

Four loans, representing a combined 18.3% of the pool, are shadow-rated investment grade by DBRS Morningstar—30 Hudson Yards, Grand Canal Shoppes, Moffett Towers II Buildings 3 & 4, and The Centre. With this review, DBRS Morningstar confirms that the loans continue to perform in line with the investment-grade loan characteristics.

ENVIRONMENTAL, SOCIAL, AND 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, and X-F 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 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, Inc.
22 West Washington Street
Chicago, IL 60602 USA
Tel. +1 312 332-3429

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

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