Morningstar DBRS Confirms All Credit Ratings on Real Estate Asset Liquidity Trust, Series 2020-1

DBRS Limited (Morningstar DBRS) confirmed the credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2020-1 issued by Real Estate Asset Liquidity Trust, Series 2020-1 as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class D-1 at BBB (sf)
-- Class D-2 at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (sf)
-- Class G at B (sf)
-- Class X at A (high) (sf)

All trends are Stable.

The credit rating confirmations are reflective of the pool's overall stable performance, with a few loans exhibiting increased risks from issuance. However, there are mitigating factors in place including recourse provisions for some of those loans and the increased credit enhancement since the transaction's close with collateral reduction of approximately 18.6% as a result of loan repayment and amortization. The pool benefits from its limited exposure to loans secured by office collateral, with just four such loans, comprising 10.5% of the pool. There are no delinquencies or no specially serviced loans, but 10 loans, representing 24.3% of the pool, are on the servicer's watchlist, the majority of which are being monitored for upcoming maturities. Overall, Morningstar DBRS expects most of these loans will successfully repay at or near their scheduled maturity dates given their current performance remains in line with Morningstar DBRS' expectations since issuance.

As of the September 2024 remittance, 46 of the original 52 loans remain in the pool with an aggregate balance of $432.8 million. The pool comprises mainly loans backed by retail and multifamily properties, which make up 29.1% and 26.6% of the pool, respectively. Seven loans, representing 9.6% of the pool, are scheduled to mature between September 2024 and November 2024, including the Regency of Lakefield Retirement loan (Prospectus ID#6; 3.7% of pool). The servicer commentary notes that a 90-day maturity extension is being negotiated for that loan.

The largest loan on the servicer's watchlist is the O'Shaughnessy Tower loan (Prospectus ID#3; 5.4% of the pool), which is secured by a 145,074-square-foot office tower in Montréal. The loan was added to the watchlist in June 2021 for a low debt service coverage ratio (DSCR), which remains well below breakeven as of the YE2023 reporting. The property's vacancy rate continues to increase, most recently reported at 36.9% in May 2024. This compares with the Midtown West submarket vacancy rate of 17.7% as of Q2 2024, increased from the pre-pandemic submarket vacancy rate that typically hovered around 10.0%, according to Colliers. Given the sustained decline in occupancy, market deterioration, and low investor demand for this property type, Morningstar DBRS believes the property's as-is value has likely declined since issuance. Offsetting some of this concern is the loan's 50% recourse and indications of the borrower's commitment, given that the loan has remained current despite cash flow remaining below breakeven for several years. In its analysis for this review, Morningstar DBRS stressed the loan's loan-to-value ratio given the likely decline in value and applied a probability of default penalty, resulting in an expected loss approximately 5.0 times (x) the pool average.

Morningstar DBRS identified three additional loans, representing 12.2% of the pool, at increased risk of default, including the two loans secured by retirement home properties. The Rossignol Drive Retirement Residence (Prospectus ID#3; 5.4% of the pool) and Regency of Lakefield Retirement loans are on the servicer's watchlist being monitored for low DSCRs. Both loans were analyzed with elevated probabilities of default, resulting in an expected loss approximately 2.5x the pool average. These increased risks will be monitored as the loans in question continue to season. Morningstar DBRS also notes there remains significant cushion against loss of approximately $22.0 million in the bonds at the bottom of the capital stack, which are unrated or have below investment-grade credit ratings.

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.

Class X is an 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 Canadian 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 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.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
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 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 Commercial Real Estate Property Analysis Criteria (September 19, 2024), https://dbrs.morningstar.com/research/439702

North American Commercial Mortgage Servicer Rankings (August 23, 2024), https://dbrs.morningstar.com/research/438283

Legal and Derivatives Criteria for Canadian Structured Finance (August 12, 2024), https://dbrs.morningstar.com/research/437761

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/410863.

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