Morningstar DBRS Confirms Credit Ratings on All Classes of BANK 2019-BNK24

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on the Commercial Mortgage Pass-Through Certificates, Series 2019-BNK24 issued by BANK 2019-BNK24 (the Issuer) as follows:

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

All trends are Stable.

The credit rating confirmations reflect the overall stable performance of the transaction since issuance, with 14 loans, representing 23.6% of the pool, on the servicer's watchlist and no loans in special servicing as of the most recent remittance. Additionally, the transaction benefits from four loans, representing 22.8% of the pool, that are shadow-rated investment grade, further supporting the credit rating confirmations and Stable trends.

The transaction is concentrated by property type, with loans secured by office properties representing 33.0% of the pool. Although the pool's office concentration is significant, in general, the office loans are performing in line with issuance expectations, with a weighted-average debt service coverage ratio (DSCR) of 2.31 times (x) based on the YE2023 reporting. Furthermore, of the nine loans secured by office properties in the pool, two of them, 55 Hudson Yards (Prospectus ID#1, 8.3% of the pool) and Park Tower at Transbay (Prospectus ID#9, 4.1% of the pool), are shadow-rated investment grade. There are two office loans in the top 10 of the pool that are currently being monitored on the servicer's watchlist for performance related issues. Morningstar DBRS analyzed these loans with stressed loan-to-value ratios (LTVs) and increased probabilities of default (PODs) to reflect their current risk profiles, resulting in a weighted-average expected loss (EL) that is more than 200% higher than the pool's average EL.

As of the June 2024 remittance, 70 of the original 71 loans remain in the trust with an outstanding trust balance of $1.2 billion, reflecting a collateral reduction of 1.5% since issuance. One loan, representing 1.1% of the pool, is defeased. There are 14 loans, representing 23.6% of the pool, on the servicer's watchlist for various reasons, including low DSCR, low occupancy, and deferred maintenance. The only loans in the top 10 on the servicer's watchlist are 1412 Broadway (Prospectus ID#3, 8.3% of the pool) and Galleria 57 (Prospectus ID#8, 4.3% of the pool), both backed by office collateral.

The largest loan on the servicer's watchlist, 1412 Broadway, is secured by a 24-story, Class B office building in Manhattan's Fashion District. The loan has been monitored on the servicer's watchlist since September 2022 for low DSCR, most recently reporting a YE2023 DSCR of 1.19x, representing a modest increase from the YE2022 DSCR of 1.04x. Although cash flow grew 11.4% year over year, the YE2023 net cash flow (NCF) of $9.2 million remains 37.8% below the Issuer's NCF of $14.8 million and 27.0% below the Morningstar DBRS NCF of $12.6 million. The subject's occupancy rate declined from its 97.7% occupancy rate at issuance; however, the sponsor has been able to consistently maintain the property's occupancy in the low 90% range, most recently reporting a 91.0% occupancy rate as of March 2024. Rollover risk is the primary concern for the property, as the largest tenant, Jones Apparel Group (14.3% of the net rentable area (NRA), lease expires August 2025) and the third-largest tenant, One Step Up Ltd. (12.9% of NRA, lease expires December 2024) have upcoming lease expiries. However, according to the Q1 2024 servicer reported financials, One Step Up Ltd. appears to have extended its lease through December 2031. The property's underperformance relative to issuance levels is a result of elevated payroll and benefits expenses in 2023, which increased more than 600% from YE2022. Given the size of the increase, Morningstar DBRS believes this was a one-time increase and these expenses will likely return closer to historic levels in 2024. According to Reis, as of Q1 2024, the Midtown East submarket reported average effective rents of $54.82 per square foot (psf), compared with $60.27 psf for the subject, and a vacancy rate of 13.4%. Given the property's cash flow declines from issuance and upcoming rollover, Morningstar DBRS applied an elevated LTV and stressed POD penalty to increase the EL to approximately 3x the pool's average.

The second-largest loan on the servicer's watchlist, Galleria 57, is secured by a 180,000-square-foot, Class A office condominium unit in Midtown Manhattan. The property primarily caters to medical office and lab space users, with tenants generally requiring specialized build-outs. The loan was added to the servicer's watchlist in November 2023 after the property's largest tenant, Spa Castle (previously 22.4% of NRA), vacated ahead of its original October 2034 lease expiry. There have been no updates explaining the spa's sudden closure and, according to information provided at issuance, Spa Castle's lease did not include any termination options. Following the tenant's departure, occupancy fell to 58.0% as of YE2023. The loan includes a cash flow sweep in the event that Spa Castle goes dark and, according to the June 2024 reserve report, the loan reports approximately $400,000 in other reserves. The loan most recently reported a DSCR of 1.50x as of YE2023; however, this figure includes several months of rent attributed to Spa Castle. In absence of any additional leasing activity, Morningstar DBRS estimates that the DSCR could fall below 1.20x. Given the specialized nature of the former Spa Castle space, Morningstar DBRS expects a prolonged re-leasing period. As a result, Morningstar DBRS applied an elevated LTV and stressed POD penalty, resulting in an EL approximately 3x that of the pool's average.

At issuance, Morningstar DBRS shadow-rated four loans, representing 22.8% of the current trust balance, investment grade, which included 55 Hudson Yards, Jackson Park (Prospectus ID#2, 8.3% of the pool), Park Tower at Transbay, and ILPT Industrial Portfolio (Prospectus ID#15, 2.1% of the pool). With this review, Morningstar DBRS confirms that the performance of all four loans remains in line with the shadow ratings assigned at issuance.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS   
There were no Environmental/Social/Governance factor(s) 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 (January 23, 2024) at https://dbrs.morningstar.com/research/427030.

Classes X-A, X-B, X-D, X-F, and X-G 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 1, 2024), https://dbrs.morningstar.com/research/428798.

Other methodologies referenced in this transaction are listed at the end of this press release.

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 info-DBRS@morningstar.com.

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 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://dbrs.morningstar.com/about/methodologies.

-- Rating North American CMBS Interest-Only Certificates (June 28, 2024), https://dbrs.morningstar.com/research/435294

-- North American CMBS Multi-Borrower Rating Methodology (March 1, 2024)/North American CMBS Insight Model v 1.2.0.0, https://dbrs.morningstar.com/research/428797

-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (June 28, 2024), https://dbrs.morningstar.com/research/435293

-- North American Commercial Mortgage Servicer Rankings (August 23, 2023), https://dbrs.morningstar.com/research/419592

-- Legal Criteria for U.S. Structured Finance (April 15, 2024), https://dbrs.morningstar.com/research/431205

A description of how Morningstar DBRS analyzes structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/417279.

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.