Morningstar DBRS Downgrades Eight Classes of BANK 2019-BNK16

DBRS, Inc. (Morningstar DBRS) downgraded credit ratings on eight classes of Commercial Mortgage Pass-Through Certificates, Series 2019-BNK16 issued by BANK 2019-BNK16 as follows:

-- Class X-D to BB (high) (sf) from BBB (sf)
-- Class E to BB (sf) from BBB (low) (sf)
-- Class X-F to B (sf) from BB (high) (sf)
-- Class F to B (low) (sf) from BB (sf)
-- Class X-G to CCC (sf) from B (high) (sf)
-- Class G to CCC (sf) from B (sf)
-- Class X-H to CCC (sf) from B (sf)
-- Class H to CCC (sf) from B (low) (sf)

In addition, Morningstar DBRS confirmed the following credit ratings:

-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class A-SB 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 D at BBB (high) (sf)

The trends on Classes D, E, F, X-D, and X-F are Negative. Classes G, H, X-G, and X-H no longer carry a trend given the CCC (sf) or lower credit rating. The trends on all remaining classes are Stable.

The credit rating downgrades reflect Morningstar DBRS' increased loss expectations for the pool, primarily attributed to Regions Tower (Prospectus ID#7, 4.9% of the pool) and US Bank Centre (Prospectus ID#8, 3.6% of the pool), both of which have transferred to special servicing since the last credit rating action. As a result of these transfers and Morningstar DBRS' expectations with regards to value deterioration, Morningstar DBRS' loss projections have increased, suggesting credit erosion for multiple bonds. This is exacerbated by the thin tranching toward the bottom of the capital stack, with minimal credit support provided by the junior bonds, leaving the Class E and below certificates particularly susceptible to increases in loss projections. The Negative trends reflect the potential for further value decline for the loans in special servicing, given declining performance trends and an uncertain resolution strategy. In addition, the pool has a high concentration of loans backed by office properties, with a number of those loans exhibiting performance declines from issuance coupled with significant upcoming rollover risk.

The credit rating confirmations on the remaining classes are reflective of performance that, outside of the loans of concern, remains in line with Morningstar DBRS' expectations. This is evidenced by a pool weighted-average (WA) debt service coverage ratio of 2.16 times (x) as of the YE2023 financials. As of the August 2024 remittance, 68 of the original 69 loans remain in the pool with an aggregate balance of $875.2 million, representing a collateral reduction of 5.49% since issuance. There are 11 loans, representing 15.3% of the pool balance, on the servicer's watchlist. By property type, the pool is most concentrated by office properties, representing 32.7% of the pool balance. Morningstar DBRS has a cautious outlook on this asset type as sustained upward pressure on vacancy rates in the broader office market may challenge landlords' efforts to backfill vacant space, and, in certain instances, contribute to value declines, particularly for assets in noncore markets and/or with disadvantages in location, building quality, or amenities offered. Where applicable, Morningstar DBRS increased the probability of default and/or loan-to-value ratios for loans exhibiting performance concerns. The resulting WA expected loss for these loans is more than 2x the pool weighted average.

Two loans representing 8.1% of the pool balance are specially serviced. Morningstar DBRS' analysis for both of these loans included liquidation scenarios. The largest loan in special servicing is Regions Tower (Prospectus ID#7, 4.9% of the pool balance), which is secured by a 687,237-square-foot (sf) Class A office property in Indianapolis, originally built in 1969. The loan transferred to the special servicer in August 2023 for imminent monetary default and is also in maturity default having not repaid ahead of its scheduled October 2023 maturity. A receiver was appointed in March 2024 and the special servicer is pursuing foreclosure.

No updated financials for the subject have been provided since June 2023. According to a June 2023 rent roll, the property was 77% occupied, down from 85% at issuance. Net cash flow (NCF) has also declined, although it continues to cover debt service, likely contributing to the borrower's inability to refinance the loan. Morningstar DBRS expects the weakened submarket fundamentals have made retaining tenants and backfilling vacant space challenging. According to Reis, Indianapolis' Central submarket is experiencing high vacancy for office space, averaging 23.1% as of Q2 2024. Given these metrics, the property's declining performance, maturity default, and foreclosure proceedings, Morningstar DBRS' analysis for this loan included a liquidations scenario, based on a haircut to the issuance appraisal that resulted in an implied loss severity exceeding 30%.

The second largest loan in special servicing is US Bank Centre (Prospectus ID#8, 3.6% of the pool), secured by a 255,927-sf Class A office building in Cleveland. The loan transferred to special servicing in June 2024 for imminent monetary default, concurrent with the departure of the property's largest tenant U.S. Bank. According to the YE2023 operating statement the subject was 74.1% occupied, down from 96% occupancy at issuance. In-place occupancy is likely even lower, as according to the servicer, U.S. Bank vacated the entirety of its space at its lease expiry in June 2024, opting not to exercise its renewal option. With this departure, Morningstar DBRS believes current occupancy has declined to approximately 63.0%. It is expected that this will further strain revenues. Prior to this announcement, the YE2023 reporting already indicated NCF had declined since issuance. The high submarket vacancy of 21.6%, according to Reis, indicates backfilling the space may be challenging. Morningstar DBRS analyzed this loan with a liquidation scenario given year-over-year performance declines, property type, and weak submarket fundamentals. The resulting projected loss severity is approaching 25%, based on a haircut to the issuance appraised value. However, considering the large drop in occupancy and uncertain workout strategy, Morningstar DBRS notes there is a high likelihood that the property value deteriorates further should the loan wallow in special servicing. This expectation provides further support for the Negative trends.

At issuance, Morningstar DBRS shadow-rated Millenium Partners Portfolio (Prospectus ID#3, 6.8% of the pool) and Willowbend Apartments (Prospectus ID#11, 2.5% of the pool) as investment grade. The Millenium Partners Portfolio is pari passu with several other commercial mortgage-backed securities (CMBS) transactions including three Morningstar DBRS rated transactions: Morgan Stanley Capital I Trust 2018-MP, Morgan Stanley Capital I Trust 2018-L1, and BANK 2018-BNK14. For this review, Morningstar DBRS confirmed that the performance of these loans continues to be in line with investment-grade loan 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/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 (August 13, 2024), https://dbrs.morningstar.com/research/437781.

Classes X-A, X-B, X-D, X-F, X-G, and X-H 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 B and D materially deviates 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 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. Although the results of Morningstar DBRS' analysis suggested downward pressure on Classes B and D, Morningstar DBRS has adequately stressed loans of concern, increasing the expected losses as applicable. Several of these loans, though secured by office properties located in softening markets and exhibiting declining performance, continue to perform. Morningstar DBRS will continue to monitor these loans and, in the event of further deterioration of credit metrics, the Negative trends assigned to the more junior bonds 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. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The Morningstar DBRS Long-Term Obligation Rating Scale definition indicates that credit ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

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

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.