Morningstar DBRS Confirms All Credit Ratings of Benchmark 2018-B4 Mortgage Trust

DBRS, Inc. (Morningstar DBRS) confirmed all credit ratings on the classes of Commercial Mortgage Pass-Through Certificates, Series 2018-B4 issued by Benchmark 2018-B4 Mortgage Trust 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-M at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AA (high) (sf)
-- Class B at AA (sf)
-- Class C at A (high) (sf)
-- Class X-D at A (sf)
-- Class D at A (low) (sf)
-- Class E-RR at BBB (sf)
-- Class F-RR at BB (high) (sf)
-- Class G-RR at B (high) (sf)

Morningstar DBRS changed the trends on Classes E-RR, F-RR, and G-RR to Negative from Stable. All other trends remain Stable.

The Negative trends are reflective of Morningstar DBRS' loss expectations for the one loan in special servicing, JAGR Hotel Portfolio (Prospectus ID#15, 2.7% of the pool), as well as concerns related to two loans in the top 10, which are secured by office properties where the single tenants have vacated. This includes 181 Fremont Street (Prospectus ID#2, 7.7% of the pool) and 636 11th Avenue (Prospectus ID#7, 4.8% of the pool), where the single tenants have vacated the subject but continues to honor its lease terms. In addition, the pool is concentrated by property type with office representing more than 30.0% of the pool balance. 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. Although a mitigating factor is the general performance of these loan are reporting healthy performance metrics with a weighted-average debt service coverage ratio (DSCR) exceeding 2.0 times (x). Loans that exhibited increased credit risk were analyzed with elevated probabilities of default (PODs) and/or stressed loan-to-value ratios (LTVs) to increase expected loss (EL), resulting in a weighted-average EL greater than 1.5x the pool average. Additionally, Morningstar DBRS analyzed the sole specially serviced loan with a liquidation scenario that resulted in a loss of $8.8 million, which is contained to the unrated H-RR certificate but erodes the credit support to the junior bonds in the transaction, therefore supporting the Negative trends.

The credit rating confirmations reflect the overall stable performance of the pool as exhibited by a healthy weighted-average DSCR of 2.06x. As of the August 2024 remittance report, 39 of the original 44 loans remain in the trust, representing a collateral reduction of 9.8% since issuance with three loans, representing 3.2% of the pool, that are fully defeased. There are six loans, representing 26.6% of the pool, that are currently being monitored on the servicer's watchlist and one loan, representing 2.7% of the pool, in special servicing.

JAGR Hotel Portfolio (Prospectus ID#15, 2.7% of the pool) is secured by a portfolio of three hotel properties in Mississippi, Michigan, and Maryland. The loan transferred to special servicing for a second time in March 2023 because of payment default. The loan was previously modified in November 2021 to extend the loan's maturity to May 2024 but ultimately failed repay at that time. A receiver was appointed to one of the three properties while the appointment of a receiver for the remaining two properties is ongoing. The May 2023 appraisal reported a value value of $50.4 million, compared with the October 2020 value of $44.7 million and the issuance appraised value of $73.5 million. For this review, the loan was liquidated from the trust, resulting in an implied loss of approximately $8.8 million and a loss severity in excess of 30.0%.

The largest loan on the watchlist, 181 Fremont Street (Prospectus ID#2, 7.7% of the pool), is a pari passu loan with other pieces of the whole loan secured in six other transactions, including BANK 2018-BNK13, Benchmark 2018-B5 Mortgage Trust, Wells Fargo Commercial Mortgage Trust 2018-C44, and Wells Fargo Commercial Mortgage Trust 2018-C45, all of which are rated by Morningstar DBRS. The loan is secured by the 436,000-square-foot (sf) office portion of a Class A, mixed-use tower in San Francisco. The loan was placed on the watchlist in July 2023 as the sole tenant, Meta Platforms, Inc. (Meta), went dark but continues to honour its lease payments, which is set to expire in 2031 with no termination options available. However, Meta's lease expiration is co-terminous with the loan's maturity, thereby elevating the refinance risk if replacement tenants aren't secured. According to Reis, office properties located in the S Financial District submarket reported a Q2 2024 vacancy rate of 23.3%, an increase from the Q2 2023 vacancy rate of 15.9%. The loan reported an annualized Q1 2024 net cash flow (NCF) of $31.0 million and a DSCR of 3.3x, which remains in line with the Morningstar DBRS NCF and DSCR of $28.5 million and 3.0x, respectively. Despite the strong financials, the overall credit risk continues to be elevated given the soft office submarket and the property continues to be dark. As such, Morningstar DBRS analyzed the loan with an elevated POD penalty and stressed LTV, resulting in an EL that was significantly greater than the base case EL.

Four loans, Aventura Mall (Prospectus ID#1, 11.0% of the pool), Marina Heights State Farm (Prospectus ID#3, 5.7% of the pool), The Gateway (Prospectus ID#5, 4.8% of the pool), and 65 Bay Street (Prospectus ID#9, 3.8% of the pool), were shadow-rated investment grade by Morningstar DBRS. This assessment was supported by the loans' strong credit metrics, strong sponsorship strength, and the historically stable performance. With this review, Morningstar DBRS confirms that the characteristics of these loans remain consistent with the investment-grade shadow rating.

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 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 Factors in Credit Ratings (August 13, 2024) at https://dbrs.morningstar.com/research/437781.

Classes X-A, X-B, and X-D 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 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.
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New York, NY 10005 USA
Tel. +1 212 806-3277

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 version 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 https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.