Morningstar DBRS Confirms Credit Ratings on All Classes of BANK 2018-BNK10

DBRS, Inc. (Morningstar DBRS) confirmed its credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2018-BNK10 issued by BANK 2018-BNK10 as follows:

-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class X-B at A (high) (sf)
-- Class C at A (sf)
-- Class X-D at BBB (sf)
-- Class D at BBB (low) (sf)
-- Class X-E at BB (sf)
-- Class E at BB (low) (sf)
-- Class X-F at B (sf)
-- Class F at B (low) (sf)

All trends are Stable.

The credit rating confirmations reflect the overall stable performance of the transaction, which remains in line with Morningstar DBRS' expectations and relatively unchanged since last review. Overall, the pool continues to exhibit healthy credit metrics, as evidenced by the strong weighted-average (WA) debt service coverage ratio (DSCR) of 2.23 times (x) and the healthy WA debt yield of 11.5%, respectively, based on the most recent financial reporting available.

The pool has a meaningful concentration of loans secured by office properties, representing the largest property type concentration at 25.4% of the pool balance; however, two of these loans, representing 10.9% are shadow-rated investment-grade, benefiting from long-term, single-tenancy and healthy performance metrics. In general, loans secured by office properties are performing as expected, most recently reporting a WA DSCR of 2.33x and a WA debt yield in excess of 11.0%; however, given the cautious outlook Morningstar DBRS has on this asset class, six of the 10 loans were analyzed with stressed loan-to-value ratios (LTVs) and/or elevated probability of defaults (PODs) to increase the expected loss (EL) at the loan level, as applicable. The resulting WA EL for these loans was approximately 40% higher than the pool's WA expected loss. Another mitigating factor for this potential credit risk is the sizable remaining balance of $40.0 million in the unrated first loss certificate, as well as the significant balance currently rated below investment grade by Morningstar DBRS across Classes E and F of approximately $47.4 million.

The largest office loan on the servicer's watchlist, One Newark Center (Prospectus ID#12, 2.7% of the pool balance), is secured by a 417,932-square foot (sf) Class A office tower and an adjacent 10-story parking garage in Newark. The loan was added to the servicer's watchlist in May 2022 following a decline in DSCR and occupancy levels, after several tenants vacated or reduced their footprint at or prior to their respective lease expiration dates. The YE2023 DSCR and occupancy have increased slightly to 1.00x and 68.8%, from 0.70x and 67% at YE2022, but remain depressed from the YE2020 figures of 1.76x and 93.9%, respectively. Approximately 23.5% of net rentable area (NRA) is being actively marketed as available, suggesting additional space has been absorbed since the most recent servicer reported figures, indicating occupancy is on the rise. In addition, scheduled lease rollover is limited with less than 5.0% of NRA expiring through YE2025. To account for the increased credit risk given the decline in occupancy amid shift in workplace dynamics for office properties, Morningstar DBRS applied a stressed LTV and a POD penalty in its analysis, resulting in an EL that was more than triple the pool's WA expected loss.

As of the July 2024 remittance, 65 of the original 68 loans remain in the pool. The initial pool balance of $1.29 billion has been reduced by 5.0% to $1.22 billion, which includes $1.35 million of losses from loan liquidations. In addition, there are three loans, representing 7.9% of the pool, that are defeased. There are nine loans, representing 19.5% of the pool balance, that are on the servicer's watchlist for various reasons, including low DSCR, recent and/or upcoming tenant rollover, life safety issues, and fire-related damage undergoing repairs; however, there are no delinquent or specially serviced loans.

In addition to the office loans in the pool, Morningstar DBRS identified a handful of loans secured by other property types with increased credit risk because of performance declines since issuance, including two loans secured by hotel properties in the top 15, Wisconsin Hotel Portfolio (Prospectus ID#4, 5.2% of the pool balance) and Courtyard Los Angeles Sherman Oaks (Prospectus ID#14, 2.3% of the pool balance) with performance metrics still lagging pre-COVID-19 figures. Wisconsin Hotel Portfolio is secured by a portfolio of 11 hotel properties across five tertiary submarkets in Wisconsin that have demonstrated a slow recovery from the impacts of the COVID-19 pandemic, as evidenced by the trailing 12 month (T-12) March 2024 revenue per available room (RevPAR) of $61 and DSCR of 0.56x, which are below the YE2019 figures of $65 and 1.34x, respectively, and Morningstar DBRS expectations. Courtyard Los Angeles Sherman Oaks is secured by a 213-key full-service hotel property in Sherman Oaks, CA. The YE2023 RevPAR and DSCR figures of $155 and 1.56x still lag behind the YE2019 figures of $171 and 2.18x, respectively. Morningstar DBRS applied an elevated probability of default for both loans, resulting in expected losses that were three and two times higher than the pool's WA expected loss.

At issuance, Morningstar DBRS shadow-rated two loans, Apple Campus 3 (Prospectus ID#1, 7.6% of the pool balance) and Moffett Towers II (Prospectus ID#10, 3.3% of the pool balance), as investment grade. With this review, Morningstar DBRS maintained the shadow ratings of the loans as they continue to perform in line with the investment-grade characteristics.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS  
There were no Environmental, Social, or 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, 2024).

Classes X-A, X-B, X-D, X-E, and X-F 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 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 (March 1, 2024)/North American CMBS Insight Model v 1.2.0.0, (https://dbrs.morningstar.com/research/428797)
-- Rating North American CMBS Interest-Only Certificates (June 28, 2024), https://dbrs.morningstar.com/research/435294
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 dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.