DBRS Morningstar Confirms Credit Ratings on All Classes of CSAIL 2018-CX12 Commercial Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed the following credit ratings on the Commercial Mortgage Pass-Through Certificates, Series 2018-CX12 issued by CSAIL 2018-CX12 Commercial Mortgage Trust:

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

All trends are Stable.

The credit rating confirmations reflect the loss expectations for the loans in the pool. Although the pool reports a high concentration of specially serviced loans, including the largest loan in the pool, 20 Times Square (Prospectus ID#1, 10.6% of the pool), DBRS Morningstar’s stressed analysis of this loan suggests that, even in an adverse workout scenario, the current credit ratings continue to reflect the pool’s overall risk profile. Furthermore, there have been recent developments with the 20 Times Square loan, outlined below, that DBRS Morningstar expects could have a positive impact on the loan’s ultimate resolution. Outside of the specially serviced loans, there are just three loans, representing 1.8% of the pool, on the servicer’s watchlist as well as just four loans, representing 9.4% of the pool, that are secured by office collateral, further supporting the credit rating confirmations with this review.

As of the September 2023 remittance, 36 of the original 41 loans remained in the pool, with an aggregate principal balance of $601.3 million, representing a collateral reduction of 10.6% since issuance as a result of loan amortization, repayment, and liquidations. Three loans (representing 1.8% of the pool) are being monitored on the servicer’s watchlist and two loans (representing 17.3% of the pool) are in special servicing.

The 20 Times Square loan is secured by the leased-fee interest in 16,066 square feet (sf) of land under 20 Times Square in Manhattan. The subject loan is part of the $750.0 million whole loan, of which $600.0 million is secured in a single-asset/single-borrower (SASB) transaction, 20 Times Square Trust 2018-20TS (TSQ 2018-20TS), which is rated by DBRS Morningstar. The noncollateral improvements consist of a mixed-use property located at the corner of Seventh Avenue and West 47th Street. The property comprises a 452-key Marriott Edition luxury hotel, 74,820 sf of retail space (5,500 sf of which is non-revenue-generating storage space), and 18,000 sf of digital billboards. The debt on the noncollateral leasehold interest went into default in December 2019, with the lender citing numerous undischarged mechanics liens against the property as well as a missed deadline to lease up the retail space, and the property was foreclosed in January 2022. The subject loan was transferred to special servicing in relation to the aforementioned mechanics liens, which are a breach under the terms of the ground lease.

The loan is now past its May 2023 maturity date and the mezzanine lender has indicated its desire to proceed with a uniform commercial code (UCC) foreclosure. A standstill agreement between the senior lender and mezzanine lender was put in place as of August 2023 to allow the mezzanine lender to complete the UCC foreclosure. The standstill agreement will remain in place until December 2023 or until the UCC foreclosure is completed and can be extended upon request by the mezzanine lender for up to four successive two-month periods. According to the special servicer, following the completion of the UCC foreclosure, a loan modification is expected to be finalized that will include a two-year loan maturity extension to May 2025 in exchange for a $50.0 million principal curtailment. An additional one-year extension option will be exercisable provided an additional $25.0 million is paid and applied to the principal balance of the loan. With both the leasehold interest and leased-fee interest of the collateral being taken over by motivated parties, as well as the additional de-leveraging provided by the $50.0 million principal curtailment, DBRS Morningstar views the aforementioned developments positively with regard to the loan’s resolution. Furthermore, as part of its analysis for TSQ 2018-20TS, DBRS Morningstar estimated the value of the leased-fee component at approximately $758.6 million based on an analysis of the payments expected from the in-place ground lease and applying a blended cap rate to the ground rent payment at maturity. Based on the derived value, the implied whole-loan loan-to-value ratio (LTV) is 98.9% and 118.6% when including the $150.0 million of mezzanine debt. However, when considering just the pari passu senior debt of $150.0 million and the senior debt of $114.8 million in the SASB transaction, the derived LTV is just 34.9%. In its analysis for this review, DBRS Morningstar considered a stressed scenario whereby a stressed LTV and an elevated probability of default was applied. In this scenario, the resulting expected loss was over 50.0% greater than the pool average. However, given the aforementioned positive developments and the low LTV on the A-note debt, DBRS Morningstar maintained the loan’s investment-grade shadow rating with this review.

The second loan in special servicing is SIXTY Hotel Beverly Hills (Prospectus ID#6, 6.7% of the pool), which is secured by a 118-key, full-service hotel in Beverly Hills. The loan originally transferred to special servicing in September 2020 because of payment default as a result of the challenges arising from the Coronavirus Disease (COVID-19) pandemic. A forbearance was granted, which entailed debt service deferral for six months beginning in February 2021, with deferred amounts to be repaid over the following 12-month period. The loan had been performing under the terms of the agreement and was transferred back to the master servicer in June 2022. At that time, a loan extension agreement was finalized resulting in a final maturity of February 2024. However, the loan was transferred back to special servicing in August 2023 at the request of the borrower in order to request an additional extension beyond the February 2024 maturity date and is currently being evaluated. According to the trailing 12-month period ended March 31, 2023, financials, net cash flow was reported at $4.2 million (debt service coverage ratio of 2.13 times), in line with the DBRS Morningstar issuance figure. In its analysis for this review, DBRS Morningstar stressed the loan in the analysis to reflect the collateral’s most recent appraised value of $57.5 million as of January 2022, as well as the loan’s transfer back to special servicing. This results in an expected loss that was more than four times the initial loan-level expected loss.

DBRS Morningstar maintains an investment-grade shadow rating on the 20 Times Square, Aventura Mall (Prospectus ID#3, 8.3% of the pool), and Queens Place (Prospectus ID#5, 7.0% of the pool) loans. DBRS Morningstar confirmed that the performance of these loans remains 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, 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
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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 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 (September 22, 2023; https://www.dbrsmorningstar.com/research/420984)

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].