Morningstar DBRS Confirms All Credit Ratings of BANK 2018-BNK13; Changes Trends on Six Classes to Negative From Stable

DBRS, Inc. (Morningstar DBRS) confirmed all credit ratings on the classes of Commercial Mortgage Pass-Through Certificates, Series 2018-BNK13 issued by BANK 2018-BNK13 as follows:

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

Morningstar DBRS changed the trends on Classes D, X-D, E, X-E, F, and X-F to Negative from Stable. All other trends are Stable.

The Negative trends are reflective of Morningstar DBRS' concerns with select loans being monitored on the servicer's watchlist and the increased loss expectations for the one loan in special servicing, Regal Cinemas Lincolnshire (Prospectus ID#17; 1.8% of the pool). With this review, Morningstar analyzed loans on the watchlist exhibiting declining performance trends with elevated probabilities of default (PODs) and/or stressed loan-to-value ratios (LTVs) to increase the expected loss (EL) at the loan level as applicable, resulting in a weighted-average (WA) EL approximately 2.5 times (x) greater than the pool average. Additionally, Morningstar DBRS analyzed the sole specially serviced loan with a liquidation scenario that resulted in a loss severity of 100% with losses contained to the unrated Class G certificate, eroding credit support to the junior bonds in the transaction.

The credit rating confirmations and Stable trends reflect the overall consistent performance of the pool since Morningstar DBRS' last credit rating action, as indicated by the pool's WA debt service coverage ratio (DSCR) of 2.06x, per the July 2024 remittance report, which remains in line with the July 2023 remittance reported figure of 2.13x. As of the July 2024 remittance report, 60 of the original 62 loans remain in the pool, representing a collateral reduction of 13.7% since issuance, with one loan, representing 0.4% of the pool, that is fully defeased. There are five loans, representing 14.9% of the pool, that are currently being monitored on the servicer's watchlist and one loan, representing 1.8% of the pool, in special servicing.

The pool is concentrated by property type with retail, office, and multifamily properties representing 38.6%, 35.5%, and 11.9% of the pool, respectively. In general, the office sector has been challenged, given the low investor appetite for the property type and high vacancy rates in many submarkets as a result of the shift in workplace dynamics. However, of the nine loans secured by office properties, only two exhibited performances that suggested increased credit risk since issuance. Morningstar DBRS' analysis includes an additional stress for two of the nine office loans that have exhibited weakening performance year over year. The majority of office properties secured in this transaction continue to perform as expected, reporting a WA DSCR of 2.21x as of the July 2024 remittance report.

The only loan in special servicing, Regal Cinemas Lincolnshire, is secured by a 75,000 square-foot movie theatre complex in Lincolnshire, Illinois. The property's previous movie theatre tenant vacated in February 2023 after filing for bankruptcy, which led to the loan's transfer to special servicing in May 2023 for imminent monetary default. The borrower has not made any loan payments since the loan's transfer and, per servicer commentary, the property is being marketed for both lease and sale under receivership, but an agreement has not yet been reached because of redevelopment constraints that stipulate the property must be used as a movie theatre. The property was reappraised in May 2024 at $2.7 million, representing a 90% decline from the issuance value of $26.3 million. In the analysis for the review, Morningstar DBRS liquidated the loan with a haircut to the most recent value, resulting in a loss severity of 100%.

The Ditson Building (Prospectus ID#11; 4.6% of the pool) is secured by a Class B office property in Midtown, New York. The loan has been monitored on the servicer's watchlist since January 2021 for low DSCRs primarily driven by a continuous decline in occupancy as tenants vacated the property at their lease expirations, including the former largest tenant, TTC USA Consulting (47.2% of net rentable area (NRA)), which vacated in June 2022. Furthermore, VR World NYC LLC. (15.1% of NRA), which had a scheduled lease expiration in March 2028, has reportedly gone dark according to the April 2024 rent roll, resulting in occupancy declining to 28.3% from 43.4%. The property is current occupied by two tenants, Research Foundation of CUNY (18.9% of NRA, lease expires September 2026) and Modernus Walls, LLC (9.4% of NRA, lease expires February 2027). The sponsor is currently marketing the property for lease and is negotiating with both tenants to expand their spaces. The property is well located in the Grand Central submarket of Manhattan, which reported a Q1 2024 vacancy rate of 12.9%, per Reis; however, given the subject's Class B construction and lack of significant leasing activity to-date, Morningstar DBRS does not anticipate a performance recovery in the near term. As a result of the falling occupancy, the loan reported negative net cash flow (NCF) through Q1 2024, compared with the YE2023 NCF and DSCR of $612,244 and 0.30x, respectively. Given the persisting performance challenges, Morningstar DBRS analyzed the loan with an elevated POD penalty and stressed LTV, resulting in an EL that was approximately three times greater than the pool average.

At issuance, DBRS Morningstar assigned investment-grade shadow ratings on four loans. With this review, DBRS Morningstar confirms that the performance of two loans, 1745 Broadway (Prospectus ID#1, 11.5% of the pool) and Pfizer Building (Prospectus ID#3, 0.4% of the pool), remains consistent with investment-grade characteristics, and as such, DBRS Morningstar has maintained the associated shadow ratings on these loans. DBRS Morningstar also removed the shadow rating on one loan, 181 Fremont Street (Prospectus ID#14, 2.7% of the pool, as the underlying credit features no longer remain consistent with investment-grade characteristics.

181 Fremont Street, was added to the servicer's watchlist in July 2023 following the property's sole tenant, Meta Platforms, Inc., listing its entire space for sublease. Given downtown San Francisco's soft submarket fundamentals, DBRS Morningstar removed the shadow rating and applied a stressed LTV scenario and elevated POD in its analysis.

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/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.

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 ratings assigned to Classes D and E materially deviate from the credit ratings implied by the predictive model. Morningstar DBRS typically expects there to be a substantial likelihood that a reasonable investor or other user of the credit rating would consider a three-notch or more deviation from the credit rating stress(es) implied by the predictive model to be a significant factor in evaluating the credit ratings. The rationale for the material deviations is uncertain loan-level event risk. The results of Morningstar DBRS' analysis suggested downward pressure through the middle of the bond stack, most pronounced for Classes D and E; however, Morningstar DBRS has adequately stressed loans of concern and in the event of further deterioration the Negative trends assigned to those classes indicate that future credit rating downgrades are possible.

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.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS' outlooks and credit ratings are monitored.

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

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 https://dbrs.morningstar.com or contact us at [email protected].