DBRS Morningstar Confirms Credit Ratings on All Classes of BBCMS Mortgage Trust 2020-C8

DBRS Limited (DBRS Morningstar) confirmed its credit ratings on the Commercial Mortgage Pass-Through Certificates, Series 2020-C8 issued by BBCMS Mortgage Trust 2020-C8 as follows:

-- Class A-1 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-5 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 (high) (sf)
-- Class X-B at AA (low) (sf)
-- Class C at A (high) (sf)
-- Class D at A (low) (sf)
-- Class X-D at A (low) (sf)
-- Class E at BBB (high) (sf)
-- Class X-FG at BBB (low) (sf)
-- Class F at BB (high) (sf)
-- Class G at BB (high) (sf)
-- Class X-H at BB (sf)
-- Class H at BB (low) (sf)
-- Class J-RR at B (sf)

All trends are Stable.

The credit rating confirmations reflect the overall steady performance of the underlying collateral, which generally remains in-line with DBRS Morningstar’s expectations since the last credit rating action. The transaction benefits from the stable performance of the top 10 loans, inclusive of the two loans shadow-rated investment grade by DBRS Morningstar: One Manhattan West (Prospectus ID#1, 10.1% of the current pool balance) and MGM Grand & Mandalay Bay (Prospectus ID#3, 10.1% of the current pool balance).

As of the September 2023 reporting, 47 of the original 48 loans remain in the pool with an aggregate trust balance of $690.3 million, representing a collateral reduction of 1.4% as a result of scheduled loan amortization and one loan payoff. One loan, representing 0.3% of the pool balance, is fully defeased. Eight loans, representing 15.8% of the pool balance, are on the servicer’s watchlist; however, seven of those loans (14.4% of the current pool balance) are being monitored for noncredit-related reasons. One loan is monitored for a low debt service coverage ratio. There are no loans in special servicing, nor have any loans been as delinquent since issuance.

The pool has significant exposure to office loans, which represent 36.3% of the current pool balance. In general, the office sector faces challenges because of rising vacancies in various submarkets and changes in workplace dynamics. For this review, DBRS Morningstar applied probability of default (PD) and/or loss given default stresses, where applicable, to increase the expected losses (ELs) for loans exhibiting increased risks from issuance. Four loans backed by office properties were adjusted, with the resulting ELs averaging losses that were more than six times the pool average EL.

One office loan, Abele Business Park (Prospectus ID#7, 3.7% of the current pool balance), is secured by a flex property (office and industrial) totaling 301,230 square feet (sf). The property consists of 17 buildings with approximately 82.0% of the sf configured for office space and 18% of the sf configured for warehouse space, located in Bridgeville, Pennsylvania. According to the servicer’s reporting, occupancy has been trending downward, with the March 2023 occupancy rate at 78.9%, compared with the YE2022 occupancy rate of 98.6% and issuance occupancy rate of 98.6%. As of the March 2022 rent roll, the largest tenants included Junior Achievement (5.9% of the net rental area (NRA), lease expiry in May 2028), Dr. Gertrude (5.9% of the NRA, lease expiry in June 2026), and RxPartners (4.4% of the NRA, lease expiry in December 2023). Based on an online listing by Property Shark as of September 2023, 60,136 sf was showing available for lease, representing approximately 19.9% of the NRA. According to Reis, the Southwest submarket reported a Q2 2023 vacancy rate of 13.8%, as compared with Q2 2022 vacancy rate of 15.6%. Per the latest financials provided by servicer for YE2022, a net operating income (NOI) of $2.7 million was reported, compared with the YE2021 NOI of $2.6 million and DBRS Morningstar NOI of $2.7 million. Given the declining occupancy rate and softening submarket condition, DBRS Morningstar analyzed this loan with an elevated PD and applied a stressed loan-to-value (LTV) ratio, resulting in an expected loss of approximately double the pool’s weighted-average (WA) EL.

Another office loan that DBRS Morningstar is monitoring is the Airport Plaza loan (Prospectus ID#8, 3.2% of the current pool balance), which is secured by a 150,730-sf Class A office building located in Long Beach, California. The property is subject to a ground lease with the City of Long Beach through December 2050 and a $1.0 million reserve was funded at closing as part of the borrower’s plan to extend the ground lease beyond 2050. The servicer reported an occupancy rate of 91.2% as of March 2023, which remains unchanged since issuance. Currently, Property Shark is marketing 13,222 sf space for lease, representing 8.8% of the NRA. At issuance, the largest tenants include Traffic Management (33.7% of the NRA, lease expiry in September 2027), Healthcare Partners (21.4% of the NRA, lease expiry in October 2026), and RedFin (16.9% of the NRA, lease expiry in December 2024). The loan is structured with cash management provision that activates if a major tenant, occupying more than 25.0% of the NRA or contributing more than 25.0% of total annual rent, defaults or terminates its lease. According to Reis, office properties in the Long Beach submarket reported a vacancy rate of 15.9% in Q2 2023 as compared with a Q2 2022 vacancy rate of 17.7%. While the occupancy rate remains relatively stable, because of the increased rollover risk over the next three years, including the three largest tenants, combined with the current subdued submarket conditions for office properties in Long Beach, DBRS Morningstar analyzed this loan with a stressed LTV and PD. This resulted in an expected loss, which was approximately 50% higher than the pool’s WA EL.

At issuance, DBRS Morningstar shadow-rated two loans investment grade, including One Manhattan West and MGM Grand & Mandalay Bay. With this review, DBRS Morningstar confirms the performance for both loans remains in line with the investment-grade shadow ratings.

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-FG, and X-H 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 22, 2023), https://www.dbrsmorningstar.com/research/420982

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].