Morningstar DBRS Downgrades Credit Ratings on Nine Classes of Benchmark 2019-B11 Commercial Mortgage Trust

DBRS Limited (Morningstar DBRS) downgraded the credit ratings on nine classes of Commercial Mortgage Pass-Through Certificates, Series 2019-B11 issued by Benchmark 2019-B11 Commercial Mortgage Trust as follows:

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

In addition, Morningstar DBRS confirmed the credit ratings on the remaining classes 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 X-A at AAA (sf)
-- Class B at AA (low) (sf)

The trends on Classes A-S, X-A, B, X-B, C, D, X-D, and E are Negative. All other trends are Stable with the exception of Classes F, G, X-F, and X-G, which are assigned credit ratings that do not typically carry trends in commercial mortgage-backed securities (CMBS) credit ratings.

The credit rating downgrades reflect Morningstar DBRS' increased loss projections for the pool, primarily attributed to the 57 East 11th Street loan (Prospectus ID#20, 2.0% of the pool), which transferred to the special servicer in February 2024. With this review, Morningstar DBRS considered a liquidation scenario for that loan, in addition to two other specially serviced loans, Greenleaf at Howell (Prospectus ID#15, 2.5% of the pool) and One Parkway North (Prospectus ID#29, 1.1% of the pool), resulting in a cumulative loss projection exceeding $35.0 million. Those losses would erode almost 100.0% of the nonrated Class H balance, significantly reducing credit support to the lowest rated bonds in the transaction. Additionally, there is a high concentration of loans secured by office properties, which represent 47.2% of the pool balance. While select office loans in the transaction continue to perform as expected, several others, including two top-15 loans, 101 California Street (Prospectus ID# 4, 5.0% of the pool balance) and Central Tower Office (Prospectus ID# 13, 3.4% of the pool balance), are exhibiting increased credit risk with exposure to upcoming lease rollovers, softening office submarket fundamentals, and/or have experienced sustained performance declines since issuance. The Negative trends reflect the potential for further value declines, primarily related to underperforming office properties in the pool, as noted above. Loans that have exhibited increased credit risk from issuance were analyzed with a stressed probability of default (POD) penalty and/or a stressed loan-to-value ratio (LTV) in the analysis for this review.

According to the August 2024 remittance, 37 of the original 40 loans remain within the transaction with a trust balance of $1.0 billion, reflecting a collateral reduction of 8.7% since issuance. Eleven loans, representing 26.3% of the pool balance, are on the servicer's watchlist. Four loans, representing 8.1% of the pool balance, are in special servicing and one loan, representing 1.1% of the pool balance, is fully defeased.

The 57 East 11th Street loan is secured by a 64,460-square-foot (sf) office property with ground-floor retail in the Greenwich Village submarket of New York. The property was built in 1903 and was most recently renovated in 2018. The subject note is pari passu with GSMS 2019-GC39 and GS Mortgage Securities Corporation Trust 2019-GC40 (rated by Morningstar DBRS). The $55.0 million interest-only (IO) whole loan transferred to special servicing in February 2024 because of payment default. The property was previously fully leased to WeWork Inc. (WeWork) on a lease through October 2034; however, WeWork filed for bankruptcy and rejected the lease at the subject property in November 2023. A receiver was recently appointed while the special servicer continues to pursue foreclosure. An updated appraisal, dated March 2024, valued the property at $17.8 million, a -77.0% variance from the issuance value of $76.0 million. Given the considerable decline in the property's value since issuance coupled with a lack of leasing activity, Morningstar DBRS analyzed this loan with a liquidation scenario, resulting in a loss severity of 80.0%.

The largest specially serviced loan, Greenleaf at Howell, is secured by a 227,045-sf anchored retail center in Howell, New Jersey. At issuance, the property was 100.0% occupied; however, the property's second-largest tenant, Xscape Theatres (25.0% of the net rentable area (NRA)), closed and surrendered its space, bringing occupancy to its current rate of 74.0%. The closure significantly impaired the property's cash flow, as reflected by the March 2024 debt service coverage ratio (DSCR) of 0.6 times (x). Although the servicer indicated that a loan modification has been executed, the property's appraised value has declined significantly, most recently reported at $30.7 million; this compares with the July 2023 and issuance figures of $32.2 million and $66.9 million, respectively. Morningstar DBRS liquidated the loan from the trust based on a haircut to the most recent appraised value, resulting in a loss severity approaching 60.0%.

The Central Office Tower loan is secured by two connected 21-story and six-story office buildings, totaling 164,848 sf, in the Financial District of downtown San Francisco. The loan is currently on the servicer's watchlist because of a decline in the occupancy rate, falling to 67.8% as of March 2024 from 91.0% at issuance. In addition, the largest tenant, Unity Technologies (Unity), which currently occupies 52.0% of the NRA, has a lease expiration in August 2025, prior to the loan's maturity in 2029. Unity, a video game development company, is headquartered at the subject property and has one five-year renewal option remaining; however, various online sources indicate that the tenant plans to reduce its footprint in San Francisco as part of the company's global plan to downsize its office footprint. The loan is structured with a cash flow sweep that will commence if the tenant fails to renew its lease 12 months prior to lease expiration, goes dark, or files for bankruptcy. Morningstar DBRS has reached out to the servicer to confirm the status of Unity's lease; however, a response remains pending as of the date of this press release. According to the YE2023 financial reporting, the property generated net cash flow of $5.4 million (a DSCR of 1.34x), less than the YE2022 figure of $6.7 million (a DSCR of 1.65x), and the issuance figure of $9.4 million (a DSCR of 2.32x). Should Unity opt to vacate the property upon its lease expiration, backfilling the vacant space will likely prove challenging. In its analysis for this review, Morningstar DBRS analyzed this loan with a stressed LTV and POD assumption, resulting in an expected loss almost three times greater than the pool average.

At issuance, Morningstar DBRS assigned an investment-grade shadow rating to one loan, 3 Columbus Circle (Prospectus ID#8, 4.4% of the pool). This assessment was supported by the loans' strong credit metrics, strong sponsorship strength, and historically stable collateral performance. With this review, Morningstar DBRS confirms that the performance of this loan remains consistent with investment-grade 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 at https://dbrs.morningstar.com/research/437781 (August 13, 2024).

Classes X-A, X-B, X-D, X-F, and X-G are 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 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 stress(es) 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. Morningstar DBRS analyzed loans of concern with elevated POD penalties and/or stressed LTVs, increasing the pool's baseline expected loss. Given the majority of loans in question are currently performing with more than four years remaining to stabilize operating performance and/or cash flows prior to maturity, these material deviations were 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. 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 Limited
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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 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, 2024), https://dbrs.morningstar.com/research/438283
-- 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 (July 17, 2023).

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