DBRS Morningstar Confirms Credit Ratings on All Classes of COMM 2019-WCM Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed its ratings on the remaining two classes of Commercial Mortgage Pass-Through Certificates, Series 2019-WCM issued by COMM 2019-WCM Mortgage Trust as follows:

-- Class F at AAA (sf)
-- Class G at AA (sf)

All trends are Stable.

The rating confirmations reflect the minimal changes in DBRS Morningstar’s expectations since the last rating action in December 2022. At issuance, the transaction was secured by the fee-simple interests in 10 multifamily properties totaling 2,297 units across seven markets in Washington, California, and Arizona. Three properties remain in the trust with a total of 358 units. There have been no property releases or amortization since the last rating action. The overall performance of the remaining assets has been stable, as exhibited by the most recently reported occupancy and net cash flow (NCF) figures.

The sponsor for this transaction is Blackstone Inc. (Blackstone), a large global alternative asset manager. According to the November 2023 reporting, the loan balance was $57.1 million. The balance represents a collateral reduction of 86.2% from issuance, resulting from previous property releases that contributed $357.9 million in principal paydown. The interest-only loan had a two-year initial term and three one-year extension options. The borrower has exercised its third and final one-year extension option, extending the loan’s maturity to October 2024.

The three remaining properties are in the desirable markets of Walnut Creek, Riverside, and Los Angeles, California. Reis reported these markets’ Q3 2023 vacancy rates at 4.3%, 3.1%, and 4.0%, respectively. These strong market fundamentals are reflected in the portfolio as a whole, with the remaining properties reporting a weighted-average physical occupancy rate of 90.4% as of the June 2023 reporting. The trailing 12-month (T-12) financials for the period ended June 30, 2023, reported consolidated NCF of $5.5 million, compared with the T-12 June 2022 figure of $4.7 million. Despite the increase in NCF, the increase in interest rates over the past year has resulted in a lower reported debt service coverage ratio (DSCR), which has declined to 1.39 times (x), compared with the YE2022 DSCR of 1.99x. The loan was initially structured with an interest rate cap agreement, which the borrower was required to replace at each extension.

DBRS Morningstar upgraded Classes F and G in December 2022, based on a stressed analysis meant to test the durability of the ratings to account for increased concentration risk. Given the stable performance of the underlying assets and lack of amortization, DBRS Morningstar maintained the same approach for this analysis, concluding a value of $58.4 million. To reflect the increased refinance risk given the current interest rate environment, and the upcoming final maturity date in October 2024, DBRS Morningstar’s analysis did not give credit to the improved NCF over the past year. The DBRS Morningstar value represents a -37.2% variance from the aggregate issuance appraised value of the remaining assets and an implied loan-to-value (LTV) ratio of 97.8%. DBRS Morningstar also maintained positive qualitative adjustments to the LTV sizing benchmarks totaling 3.0% to account for stable historical performance, property quality, and strong market fundamentals. The DBRS Morningstar-rated Class F and G Certificates have a cumulative balance of $28.3 million, with the unrated Class F Certificate balance of $28.9 million providing cushion against potential loss. The underlying properties would need to experience a significant deterioration in value from the already stressed DBRS Morningstar value before credit support provided by the unrated class is eroded, indicating Classes F and G remain well insulated, thereby supporting the rating confirmations.

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).

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 Single-Asset/Single-Borrower Ratings Methodology (October 19, 2023; https://www.dbrsmorningstar.com/research/422174)

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].