Morningstar DBRS Confirms Credit Ratings on All Classes of BANK 2018-BNK14
CMBSDBRS Limited (Morningstar DBRS) confirmed its credit ratings on the Commercial Mortgage Pass-Through Certificates, Series 2018-BNK14 issued by BANK 2018-BNK14 as follows:
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (high) (sf)
-- Class X-B at A (high) (sf)
-- Class C at A (sf)
-- Class D at BBB (high) (sf)
-- Class X-D at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class X-F at BB (high) (sf)
-- Class F at BB (sf)
-- Class X-G at BB (low) (sf)
-- Class G at B (high) (sf)
All trends are Stable.
The credit rating confirmations reflect the stable performance of the transaction, which remains in line with Morningstar DBRS' expectations. Overall, the pool continues to exhibit healthy credit metrics, as evidenced by the weighted-average (WA) debt service coverage ratio (DSCR) of 1.95 times (x), based on the most recent financial reporting available. Although there is a high concentration of loans secured by office properties, which represent 23.1% of the current pool balance, the underlying collateral for the majority of those loans has been demonstrating stable to improving operating performance over the last few reporting periods, with a WA debt yield and DSCR of 12.4% and 1.92x, respectively. The transaction also continues to benefit from increased credit support to the bonds as a result of scheduled amortization and loan repayments, further supporting the credit rating confirmations with this review. In addition, five loans, representing 24.3% of the pool balance are shadow-rated as investment grade by Morningstar DBRS.
According to the July 2024 remittance, 60 of the original 62 loans remain within the transaction with a trust balance of $1.2 billion, reflecting a collateral reduction of 10.4% since issuance. Seven loans, representing 8.4% of the pool balance, are on the servicer's watchlist. Two loans, representing 4.3% of the pool balance, are in special servicing and only one loan, representing 0.7% of the pool balance, has fully defeased.
The largest specially serviced loan, DoubleTree Grand Naniloa Hotel (Prospectus ID#12, 3.7% of the pool) is secured by a 388-key, full-service hotel in Hilo, Hawaii. The loan transferred to special servicing in June 2020 for imminent monetary default. A foreclosure sale occurred in August 2023 with the lender emerging as the winning bidder. The asset was subsequently declared real estate owned in March 2024. According to the YE2023 financials, the hotel-reported occupancy, average daily rate, and revenue per available room (RevPAR) metrics of 72.8%, $191.9, and $139.7, respectively. Although RevPAR improved from the lows reported during the coronavirus pandemic, it has fallen below the YE2022 figure of $154.20 and has not yet rebounded to the pre-pandemic issuance figure of $142.20. Likewise, reported net cash flow (NCF) and the loan's DSCR have trended downward with the YE2023 figures of $3.8 million and 1.10x, respectively, considerably lower than the YE2022 figures of $6.5 million and 1.86x, respectively. The most recent appraisal, dated April 2024, valued the property at $58.0 million, a 9.4% decline from the June 2022 value of $64.0 million and a 42.0% decline from the issuance-appraised value of $100.1 million. Morningstar DBRS liquidated the loan in the analysis for this review, applying a haircut to the most recent appraised value, which resulted in a loss severity approaching 20.0%.
The largest loan on the servicer's watchlist, Executive Towers West (Prospectus ID#6, 4.6% of the pool), is secured by a three-building office campus totaling 671,416 square feet (sf). The collateral, constructed between 1983 and 1987 and later renovated between 2012 and 2017, is in Downers Grove, Illinois, approximately 22 miles west of Chicago's central business district. The loan has been on the servicer's watchlist because of a decline in occupancy since the former largest tenant, State Farm (previously 15.1% of the net rentable area (NRA)), exercised its lease termination option in December 2021, resulting in the occupancy rate declining to 69.0% from 86.0%. According to the March 2024 rent roll, the property was 66.2% occupied. The borrower has executed a number of recent lease renewals with existing tenants, including Burns & McDonnell (23,682 sf), Tri City Foods, Inc. (7,814 sf), and Weir International, Inc. (7,310 sf). Tenant roll-over risk remains elevated, however, with leases totaling approximately 16.0% of NRA scheduled to expire within the next 12 months, including the largest tenant at the property, Zachry Engineering Corporation (11.5% of the NRA; lease expiration in September 2024). Although the borrower noted that the tenant has expressed its intention to renew, negotiations remain ongoing, and terms have yet to be finalized. As of the July 2024 reporting, $2.0 million is currently held across all reserve accounts.
According to the YE2023 financial reporting, the property generated $5.1 million of NCF (a DSCR of 1.28x), relatively in line with the prior year but considerably lower than the issuance figure of $6.5 million (a DSCR of 1.62x). Per Reis, office properties in the West submarket reported a Q2 2024 vacancy rate of 26.3%, slightly above the Q2 2023 figure of 21.8%. No updated appraisal has been provided since issuance when the property was valued at $84.9 million; however, given the sponsor's inability to backfill vacant space, combined with soft submarket fundamentals and general challenges for office properties in today's environment, Morningstar DBRS expects that the collateral's as-is value has likely declined significantly, elevating the credit risk to the trust. The loan's expected loss is approximately 4.0x greater than the pool average.
At issuance, six loans, representing 26.1% of the pool balance, were shadow-rated investment grade. With this review, Morningstar DBRS confirms that the performance of five of those loans¿685 Fifth Avenue Retail (Prospectus ID#1, 8.1% of the pool), Aventura Mall (Prospectus ID#2, 8.1% of the pool), Millennium Partners Portfolio (Prospectus ID#9, 4.0% of the pool), 1745 Broadway (Prospectus ID#10, 4.0% of the pool), and Pfizer Building (Prospectus ID#19, 0.1% of the pool)¿remains consistent with investment-grade characteristics. This assessment continues to be supported by the loan's strong credit metrics, experienced sponsorship, and the underlying collateral's historically stable performance.
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 Factors in Credit Ratings at https://dbrs.morningstar.com/research/437781 (August 13, 2024).
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 01, 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 assigned to Class B materially deviates from the credit rating 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 rating. The rationale for the material deviation is the uncertain loan-level event risk. Morningstar DBRS analyzed loans of concern with elevated probability of default penalties and/or stressed loan-to-value ratios, increasing the pool's baseline expected loss. Given the majority of loans in question are currently performing with approximately 24 months to stabilize operating performance and/or cash flows prior to maturity, this material deviation was deemed to be warranted.
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 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.
DBRS Limited
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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
-- 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 info-DBRS@morningstar.com.