DBRS Morningstar Downgrades Its Credit Rating on One Class of A10 Bridge Asset Financing 2019-B, LLC

DBRS, Inc. (DBRS Morningstar) downgraded its credit rating on one class of Commercial Mortgage Pass-Through Certificates, Series 2019-B issued by A10 Bridge Asset Financing 2019-B, LLC as follows:

-- Class F to C (sf) from B (high) (sf)

DBRS Morningstar also confirmed its credit ratings on two classes as follows:

-- Class D at A (sf)
-- Class E at BB (high) (sf)

The trends on Class D and Class E are Stable. The credit rating on Class F does not carry a trend.

The credit rating downgrade reflects the increased risks to the pool as four loans, representing 77.5% of the current trust balance, are delinquent and in special servicing. In its current analysis, DBRS Morningstar projected the resolution of three loans would result in realized losses to the trust, reducing the unrated equity piece to a minimal amount and bringing the credit support to Class F to less than 1.0%. In conjunction with this press release, DBRS Morningstar has published a Surveillance Performance Update report with in-depth analysis and credit metrics for the transaction and with business plan updates on select loans. For access to this report, please click on the link under Related Documents below or contact us at [email protected].

Among the four specially serviced loans in the pool include the two largest loans in the transaction, which share sponsorship and represent 49.5% of the current pool balance. The largest loan, Gowanus Assemblage (Prospectus ID#4, 26.1% of the current pool balance), is secured by a mixed-use property in Brooklyn, New York. At issuance, the borrower planned to renovate the multibuilding property and re-lease it at market rates. The loan has been delinquent since May 2020 when the former coworking space tenant ceased paying rent. According to the servicer, attempts to locate and summarize the guarantor’s assets in an attempt to enforce guarantees on the loan have been prolonged as the guarantor continues to file appeals. While the trust was previously awarded a judgment by the courts for the full loan amount, it is unclear if and when any amounts will be collected, though the servicer remains optimistic. The servicer noted the resolution process and potential collection of funds is not expected until at least the second half of 2024, which will result in a further increase of property protection and debt service advances. Through November 2023, the current exposure on the loan, including outstanding principal, debt service advances, property protection advances, and default interest, totals $31.7 million with the senior portion totaling $26.0 million. The property received an updated appraisal value of $11.6 million in March 2023, suggesting the trust loan of $16.4 million is likely to realize a significant loss upon ultimate resolution of the loan.

The second-largest loan in special servicing, 46-48 Lispenard (Prospectus ID#5, 22.4% of the current pool balance), is secured by a five-unit luxury multifamily property in Manhattan, New York. The loan has also been delinquent since May 2020. According to an update from the servicer, the lender took title to the property in November 2023 and expects to market the three unoccupied condominium units for sale in Q1 2024. It is unclear when the lender will be able to market the two remaining occupied units for sale as there could be a lengthy legal process if the current tenants do not vacate voluntarily, which could take up to a year or longer, according to the servicer. The servicer also noted the units require capital expenditure improvements, estimated at a total cost of approximately $0.5 million. The current total exposure on the loan totals $30.3 million with the senior portion totaling $26.6 million. The property received an updated appraisal value of $22.8 million in March 2023, suggesting the trust loan of $14.0 million is likely to realize a loss upon ultimate resolution of the loan.

The initial collateral pool consisted of 44 loans secured by cash-flowing assets, many of which were in a period of transition with plans to stabilize and improve the asset value. The transaction included a 24-month reinvestment period that expired in September 2021, at which point the bonds began to amortize sequentially with loan repayment and scheduled loan amortization. As of December 2023, the transaction consists of six loans, secured by six properties, with a cumulative trust balance of $62.6 million. There has been collateral reduction of 80.4% since issuance. Since DBRS Morningstar’s previous credit rating actions on the outstanding classes in January 2023, four loans with a former cumulative trust balance of $22.5 million have successfully repaid from the trust.

Two of the remaining loans, representing 28.1% of the current trust balance, are secured by office properties, both of which are in special serving. Other collateral property types include two multifamily properties, representing 30.6% of the current trust balance, one mixed-use property, representing 26.7% of the current trust balance, and one industrial property, representing 14.7% of the current trust balance. In terms of property location, two loans are in urban markets with DBRS Morningstar Market Ranks of 7 and 8. While properties in urban markets have historically benefited from greater liquidity and investor demand, both loans, representing 48.5% of the current trust balance, are currently in special servicing and have been delinquent since May 2020. The majority of the remaining collateralized properties are in suburban markets (three loans, representing 42.7% of the current trust balance).

Five of the six remaining loans were structured with future funding components totaling $11.9 million to assist the individual borrowers in the respective business plans, which included funds for property renovations, accretive leasing costs, and performance-based earn-outs. Through November 2023, the lender had advanced a total of $4.5 million to four individual borrowers. Only two of the remaining loans in the pool have remaining future funding dollars outstanding, totaling $4.7 million; however, as both loans are in special servicing, DBRS Morningstar does not expect that any further advances will be provided to the individual borrowers. The majority of these funds, $4.5 million, are allocated to the borrower of the 20 Waterview Boulevard loan, which is secured by an office property in Parsippany, New Jersey. The funds were meant to assist the borrower in its leasing efforts; however, the borrower is behind in its business plan and the loan transferred to special servicing in May 2023 for imminent default. The servicer is currently pursuing foreclosure and obtaining an updated appraised value. The updated property valuation is expected to be above the current cumulative loan balance and outstanding advances of $13.5 million. The servicer also retains $2.4 million of cash reserves, providing additional credit support to the loan.

As of December 2023, one loan, Appling Farms (14.7% of the current pool balance), is on the servicer’s watchlist, for the upcoming January 2024 loan maturity. The loan is secured by an industrial property in Memphis, Tennessee, with recent performance metrics indicating the property is stabilized. As such, DBRS Morningstar expects the borrower to successfully execute its exit strategy prior to the loan’s maturity date.

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 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.

DBRS Morningstar notes that a sensitivity analysis was not performed for this review as the transaction is in wind-down, with only six remaining loans. In these cases, DBRS Morningstar credit ratings are typically based on a recoverability analysis for the remaining loans.

DBRS, Inc.
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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 (November 3, 2023)/North American CMBS Insight Model Version 1.2.0.0, https://www.dbrsmorningstar.com/research/422859

-- 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, 2023), https://www.dbrsmorningstar.com/research/425081

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