Morningstar DBRS Confirms Credit Ratings on All Classes of Ready Capital Mortgage Trust 2018-4

DBRS, Inc. (Morningstar DBRS) confirmed its credit ratings on the following classes of Ready Capital Mortgage Trust 2018-4 Commercial Mortgage Pass-Through Certificates issued by Ready Capital Mortgage Trust 2018-4:

-- Class A at AAA (sf)
-- Class B at AAA (sf)
-- Class IO-A at AAA (sf)
-- Class IO-B/C at AAA (sf)
-- Class C at AAA (sf)
-- Class D at A (sf)
-- Class E at BBB (sf)
-- Class F at BB (low) (sf)
-- Class G at B (low) (sf)

All trends are Stable.

The credit rating confirmations reflect the overall stable performance of the transaction since the previous Morningstar DBRS rating action in February 2023. As of the January 2024 remittance, 23 of the original 50 loans remain in the pool as there has been collateral reduction of 59.8% since issuance. Since the previous credit rating action, one loan has been repaid and two loans have been liquidated from the trust, incurring total realized trust losses of $1.4 million. Loans secured by retail properties represent the greatest property type concentration, accounting for 33.4% of the current pool balance, followed by multifamily properties at 23.9%. The largest geographic concentration is North Carolina, accounting for 19.2% of the current pool balance, followed by Georgia at 10.1%.

As of January 2024 reporting, there are no specially serviced or delinquent loans; however, there are eight loans on the servicer’s watchlist, representing 32.9% of the current pool balance. The loans remain current and have generally been flagged for performance-related reasons, including low debt service coverage ratios (DSCRs) and low occupancy rates. The largest loan on the servicer’s watchlist, The Shops at Northgate (Prospectus ID#5; 8.3% of the pool), is secured by an 86,526-square foot unanchored retail center in Durham, North Carolina. The loan has been flagged for a low DSCR, reported at 1.03x as of Q3 2023, a slight improvement from the YE2022 figure of 0.95x. The decline in performance stems from a decrease in the occupancy rate, which was reported at 64.1% as of the September 2023 rent roll, down from 81.3% as reported in the September 2022 rent roll and 89.8% at loan closing. Former tenant, C&H Kitchen, was the third largest tenant at loan closing, occupying 11.7% of the net rentable area (NRA) and contributing total rental revenue of approximately $160,000. The tenant’s lease expired in August 2021; however, the tenant appeared to remain in occupancy on a temporary basis after lease expiration as it was listed on the September 2022 rent roll. The space was listed as vacant on the September 2023 rent roll.

The current largest tenants include Sky Zone (27.2% of NRA; lease expiring October 2029) and Planet Fitness (21.7% of NRA; lease expiring in July 2027). According to the September 2023 rent roll, Sky Zone has executed a five-year renewal; however, details on its future rental rate, which will begin in November 2024, were not provided. The tenant currently pays a NNN rental rate of $9.87 per square foot, contributing total rental revenue of approximately $230,000. The remaining tenant roster primarily consists of local retailers and service providers. Property performance is subject to further tenant rollover risk, as according to the September 2023 rent roll, five tenants, combining to occupy 8.1% of NRA were operating on month-to-month leases or leases that have since expired. To account for this risk and the prolonged increased vacancy rate at the subject, Morningstar DBRS applied an increased Probability of Default penalty to the loan, resulting in an increased loan expected loss approximately two times greater than the expected loss for the pool.

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 Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://dbrs.morningstar.com/research/427030 (January 23, 2023).

Classes IO-A and IO-B/C 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 Morningstar DBRS.

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 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.

Morningstar DBRS 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, 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://dbrs.morningstar.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://dbrs.morningstar.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://dbrs.morningstar.com/research/425081
-- CMBS Interest-Only Certificates (December 13, 2023), https://dbrs.morningstar.com/research/425261

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