Morningstar DBRS Downgrades Eight Classes of Benchmark 2018-B5 Mortgage Trust, Changes Trends on Two Additional Classes to Negative from Stable

DBRS Limited (Morningstar DBRS) downgraded its credit ratings on eight classes of Commercial Mortgage Pass-Through Certificates, Series 2018-B5 issued by Benchmark 2018-B5 Mortgage Trust (BMARK 2018-B5) as follows:

-- Class B to A (high) (sf) from AA (sf)
-- Class X-B to AA (low) (sf) from AA (high) (sf)
-- Class C to BBB (sf) from A (low) (sf)
-- Class X-D to BBB (sf) from A (low) (sf)
-- Class D to BBB (low) (sf) from BBB (high) (sf)
-- Class E-RR to BB (sf) from BBB (low) (sf)
-- Class F-RR to B (sf) from BB (low) (sf)
-- Class G-RR to B (low) (sf) from B (sf)

Morningstar DBRS also confirmed its credit ratings on the following classes:

-- 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 A-S at AAA (sf)
-- Class X-A at AAA (sf)

Morningstar DBRS changed the trends on Classes A-S and X-A to Negative from Stable and maintained the Negative trends on Classes B, C, D, E-RR, F-RR, G-RR, X-B, and X-D. All other trends are Stable.

At the last credit rating action, Morningstar DBRS changed the trends on Classes X-B, B, C, X-D, D, E-RR, F-RR, and G-RR to Negative from Stable because of concerns related to eBay North First Commons (Prospectus ID#3, 5.4% of the pool) and Workspace - Trust (Prospectus ID#4, 5.3% of the pool), both of which are office loans and were in special servicing at that time. Both of these loans were modified to extend their respective maturities and have returned to the master servicer, but the underlying collateral's performance continues to be depressed. Details of those loans are highlighted below. In addition, Morningstar DBRS is concerned about the 215 Lexington Avenue loan (Prospectus ID#13, 2.8% of the pool), which is also secured by an office property with a depressed occupancy rate; occupancy was 31.9% as of March 2024 and the property is reporting negative net cash flows (NCFs) as a result. The pool is concentrated by property type with office representing approximately 30.0% of the pool. In general, Morningstar DBRS analyzed loans that have exhibited increased credit risk with a stressed probability of default (POD) and/or loan-to-value ratio (LTV) in the analysis to increase the expected loss. The overall pool expected loss has increased by nearly 20.0% since the previous credit rating action, resulting in downward pressure throughout the middle to the bottom of the capital stack, thereby supporting the credit rating downgrades for this review. The Negative trends reflect the potential for further performance and value decline related to the loans of concern, especially for Workspace - Trust, as the loan is now scheduled to mature in July 2025.

As of the August 2024 remittance, 52 of the original 55 loans remain in the pool, with a trust balance of $941.0 million representing a collateral reduction of 9.4% since issuance. Eleven loans, representing 28.3% of the pool, are on the servicer's watchlist and are primarily being monitored for performance-related issues, and there is one loan in special servicing: Holiday Inn Express & Suites Wheat Ridge (Prospectus ID#37, 0.9% of the pool). The loan recently transferred to special servicing for imminent default with the August 2024 remittance, considering the loan has been reporting depressed NCFs since 2021. A workout strategy has not yet been determined. Four loans, representing 1.4% of the current pool balance, are fully defeased.

The largest loan on the servicer's watchlist, Workspace - Trust, is secured by a portfolio of 147 properties, totaling more than 9.9 million square feet (sf) of office and flex space across four states. The subject loan amount of $50.0 million is part of a whole loan totaling $1.3 billion, secured across four other transactions, three of which are rated by Morningstar DBRS: J.P. Morgan Chase Commercial Mortgage Securities Trust 2018-WPT (JPMCC 2018-WPT, the lead securitization), Benchmark 2018-B6 Mortgage Trust (BMARK 2018-B6), and Benchmark 2018-B7 Mortgage Trust. The loan was previously in special servicing as the borrower was unable to repay the loan at the initial maturity in July 2023. However, a loan modification was executed to extend the maturity to July 2025 subject to a $30.0 million principal curtailment paid by the borrower. The loan was subsequently returned to the master servicer in December 2023 but continues to be on the watchlist considering the NCF has fallen below the issuer's NCF. Based on the financials for the trailing 12 months ended March 31, 2024, the loan reported an NCF of $99.4 million (a debt service coverage ratio (DSCR) of 1.31 times (x)), which is an improvement from the YE2022 figure of $97.4 million (1.43x) but remains slightly below the Morningstar DBRS NCF of $101.9 million derived at issuance. The decline in NCF was linked to occupancy dropping to 77.7% from 95.0% at issuance and a decrease in expense reimbursements.

Morningstar DBRS reviewed JPMCC 2018-WPT as a part of its bulk credit rating action for single-asset/single-borrower transactions secured by office properties in April 2024. An updated Morningstar DBRS value was derived considering the shift in the office sector, whereby the capitalization rate was increased to 9.5% from 8.75% at issuance with a stressed NCF of $89.8 million. This resulted in a Morningstar DBRS value of $945.6 million, which represents a 42.1% haircut from the issuance appraised value of $1.6 billion. For the BMARK 2018-B5 transaction, the loan was analyzed with a stressed LTV based on the Morningstar DBRS value, resulting in an expected loss that was more than double the pool average.

The eBay North First Commons loan is secured by a 250,000-sf Class B office complex in San Jose, California, and was previously in special servicing as the borrower was unable to repay the loan at its initial maturity date in June 2023. A loan modification was executed to extend the maturity date to March 2026, and the loan ultimately returned to the master servicer in October 2023. Although the entire space is leased to eBay Inc. on a lease through March 2029, the tenant vacated the property in 2020 but continues to make contractual rent payments. The lease is structured with a one-time termination option in March 2026, which is co-terminous with the new maturity date at a termination fee of $11.7 million. To date, the space has not been backfilled, likely because of the soft office submarket fundamentals. This loan is structured with a cash flow sweep in the event the tenant goes dark, and Morningstar DBRS requested an update regarding the cash management account balance from the servicer. Based on the August 2024 loan-level reserve report, there is currently $15.1 million held in tenant reserves. Morningstar DBRS analyzed the loan with an elevated POD and stressed LTV with this review, resulting in a loan-level expected loss that was significantly higher than the baseline figure.

The 215 Lexington Avenue loan is secured by a 121,000-sf portion of a 210,000-sf office building in Manhattan built in 1962. The loan is on the servicer's watchlist for decreased performance as occupancy has dropped precipitously to 31.9% as of YE2023 from the issuance figure of 78.0%. As a result, the DSCR has fallen well below breakeven.

According to the March 2024 rent roll, the property reported an average rental rate of $60.1 per sf (psf), which is below the Grand Central submarket's average rental rate of $75.7 psf as per Q2 2024 Reis data. In addition, the subject's vacancy rate is well above the Grand Central submarket's figure of 12.8%. Although the loan has remained current, the property's value has likely significantly declined from issuance and will continue to be challenged given the building's age. As such, Morningstar DBRS analyzed the loan with a stressed LTV and POD for this review, resulting in an expected loss almost triple the pool average.

The Aventura Mall loan (Prospectus ID#1, 10.9% of the pool) is shadow-rated investment grade. With this review, Morningstar DBRS confirms that the loan's performance remains consistent with investment-grade characteristics as supported by the 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 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), .

Other methodologies referenced in this transaction are listed at the end of this press release.

The credit ratings assigned to Classes A-S and B 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 ratings would consider a three-notch or more deviation from the credit rating stresses implied by the predictive model to be a significant factor in evaluating the credit ratings. The rationale for the material deviations is the uncertain loan-level event risk. The analysis for this review included stressed scenarios for several office loans given the general challenges facing the office sector, which resulted in downward pressure through the middle to the bottom of the capital stack, which supports the Negative trends. However, given the most challenged loans would likely be transferred to special servicing and possibly liquidated, Morningstar DBRS believes the increased risks are most concentrated in the lower-rated classes, which were downgraded with this review. In the event of further performance deterioration for these loans of concern, this could lead to additional downgrades.

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 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.

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 Limited
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Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

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

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 dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.