Morningstar DBRS Downgrades Credit Ratings on Six Classes of Morgan Stanley Capital I Trust 2019-PLND; Places All Classes Under Review With Negative Implications

DBRS, Inc. (Morningstar DBRS) downgraded its credit ratings on six classes of the Commercial Mortgage Pass-Through Certificates, Series 2019-PLND issued by Morgan Stanley Capital I Trust 2019-PLND as follows:

-- Class A to BB (sf) from AAA (sf)
-- Class B to B (sf) from AA (high) (sf)
-- Class C to CCC (sf) from AA (low) (sf)
-- Class D to C (sf) from BBB (high) (sf)
-- Class E to C (sf) from CCC (sf)
-- Class X-EXT to BB (high) (sf) from AAA (sf)

In addition, Morningstar DBRS confirmed its credit ratings on the remaining classes as follows:

-- Class F at C (sf)
-- Class G at C (sf)

Morningstar DBRS also placed all classes Under Review with Negative Implications and removed the existing trends on the credit ratings as credit ratings placed under review do not carry trends.

The credit rating downgrades are generally reflective of the increased liquidated loss expectations for the loan, which remains in special servicing as of this credit rating action. The increased loss expectation is the result of the loan's increasing exposure due to increasing servicer advances and a significant decline in the appraised value for the collateral hotel portfolio as of the most recent value obtained by the special servicer, dated December 2023. Morningstar DBRS' liquidation scenario, as further described below, suggests losses will be realized through Class D, supporting the C (sf) credit rating for that class and all rated classes below Class D in the capital stack. Although the three most senior classes appear insulated in a liquidation scenario based on the most recent appraisals, Morningstar DBRS expects interest shortfalls will continue to increase through the remainder of the workout period, a contributing factor for the credit rating downgrades for Classes A, B, and C and the placement of all classes Under Review with Negative Implications.

As of the June 2024 remittance, interest shortfalls on Morningstar DBRS rated bonds totalled $5.8 million (with all classes being shorted interest), up from a total interest shortfall amount of $2.5 million at the last Morningstar DBRS credit rating action, in April 2024. Inclusive of the $39.5 million in previously advanced principal and interest, the total exposure at June 2024 stood at $288.4 million. In May 2024, the servicer provided a Notice of Non-Recoverability, citing the proceeds implied by the December 2023 appraisals. Morningstar DBRS has minimal tolerance for unpaid interest to high investment-grade rated bonds, limited to one to two remittance cycles for the AA (sf) and A (sf) credit rating categories. As of the June 2024 remittance, Classes A, B, and C have all reported unpaid interest for two reporting periods. Given the uncertainty surrounding the timing for disposition of the assets the accruing interest shortfalls, Morningstar DBRS placed the credit ratings of all classes Under Review with Negative Implications until more information becomes available in the coming months. It is Morningstar DBRS' expectation to evaluate the information as part of the process to resolve the Under Review with Negative Implications status within a 90-day period.

The subject floating rate transaction is secured by a $240.0 million first-lien mortgage loan on two Hilton-branded, full-service hotels on adjacent city blocks in Portland, Oregon. The Hilton Portland Downtown (Hilton Downtown) and The Duniway Portland (the Duniway) are near the corner of SW Taylor Street and SW 6th Avenue in Portland's downtown core. The two hotels combine for 782 rooms, approximately 63,000 square feet of meeting space, and three food and beverage outlets. The loan initially transferred to the special servicer for monetary default in June 2020, with a foreclosure action finalized in January 2023, and the assets are now real estate owned. There is a planned property improvement plan in 2025 for both properties, which is targeted to renovate guest rooms, the meeting space, and common areas. The special servicer is reportedly working to stabilize property performance ahead of disposition.

The December 2023 appraisals value the properties on an as-is basis at $204.5 million combined, a decline from the March 2023 combined value of $254.8 million and the issuance value of $340.6 million. Including the expected liquidation expenses, Morningstar DBRS estimates a trust exposure in excess of $306 million at final resolution. With this review, Morningstar DBRS applied a 15% haircut to the December 2023 appraised figures, resulting in a liquidated loss of $132.6 million. That scenario suggests losses will be realized through Class D; it is noteworthy that the transaction structure includes a concentration of smaller balance classes, which include Classes B and C, which combine for $30.0 million, meaning there is relatively low cushion against losses for those top three classes against further value decline in the Morningstar DBRS liquidation scenario. This factor likely contributed to the servicer's decision to issue a Non-recoverability Notice and to short the full capital stack.

For the trailing 12-month (T-12) period ended April 30, 2024, STR reported that occupancy, average daily rate, and revenue per available room (RevPAR) were 54.0%, $164.28 and $88.75, respectively, for the Hilton Downtown, and 53.25%, $164.21, and $87.85, respectively, for the Duniway. For the same T-12 period, the two properties achieved RevPAR penetrations of 103.6% and 100.3%, relative to their competitive sets. Both properties exhibited RevPAR and RevPAR penetration metrics that were mostly in line with the prior year reporting. The subject properties have seen some improvements across certain performance metrics coming out of the coronavirus pandemic; however, cash flows remain significantly depressed as compared with pre-pandemic figures. According to the most recent financials, YE2023 net cash flow (NCF) was reported at approximately $8.8 million, up slightly from the prior year but far less than the Morningstar DBRS NCF of $18.2 million derived when credit ratings were assigned in 2020.

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; https://dbrs.morningstar.com/research/427030).

Class X-EXT is an interest-only (IO) certificate that references 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 credit ratings were initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for these credit rating actions.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with these credit rating actions.

These are solicited credit ratings.

The credit ratings of this transaction are highly subject to interest shortfalls and the asset's liquidation value because the loan is nonperforming. As a result, a performing loan sensitivity whereby Morningstar DBRS stresses the Morningstar DBRS Cap Rate and Morningstar DBRS NCF to evaluate the impact of a Morningstar DBRS value decline was not completed. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The Morningstar DBRS Long-Term Obligation Rating Scale definition indicates that credit ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

This credit rating is Under Review with Negative Implications. Generally, the conditions that lead to the assignment of reviews are resolved within a 90-day period.

DBRS, Inc.
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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 Single-Asset/Single-Borrower Ratings Methodology (March 1, 2024), https://dbrs.morningstar.com/research/428799
-- Rating North American CMBS Interest-Only Certificates (June 28, 2024), https://dbrs.morningstar.com/research/435294
-- Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024), https://dbrs.morningstar.com/research/428623
-- 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

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