Morningstar DBRS Confirms All Credit Ratings on 20 Times Square Trust 2018-20TS

DBRS, Inc. (Morningstar DBRS) confirmed all credit ratings on the Commercial Mortgage Pass-Through Certificates, Series 2018-20TS issued by 20 Times Square Trust 2018-20TS as follows:

-- Class A at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AA (high) (sf)
-- Class D at AA (low) (sf)
-- Class E at A (low) (sf)
-- Class F at BBB (low) (sf)
-- Class G at B (high) (sf)
-- Class H at CCC (sf)
-- Class V at CCC (sf)

All trends are Stable with the exception of Classes H and V, which have ratings that do not typically carry a trend in commercial mortgage-backed securities (CMBS) ratings.

The credit rating confirmations and Stable trends reflect the stabilization of performance and deleveraging of the loan following its successful modification and return to the master servicer in January 2024. The loan was formerly in special servicing because of numerous undischarged mechanics liens against the underlying property in violation of the ground-lease terms. In October 2023, the mezzanine lender assumed the loan following the execution of a uniform commercial code (UCC) foreclosure. As part of the UCC, the loan's maturity was extended for two years to May 2025 in exchange for a $50.0 million principal curtailment and the loan was transferred back to the master servicer in January 2024. An additional one-year extension option will be exercisable provided an additional $25.0 million is paid and applied to the principal balance of the loan.

According to the servicer commentary, the aforementioned mechanics liens have been resolved and half of the excess cash generated by the collateral as of August 2024 is to be applied as principal paydown. At the last rating action in October 2023, Morningstar DBRS downgraded Class H to CCC (sf) following 10 remittance periods of shorted interest to the class stemming from the loan's time in special servicing. While all interest shortfalls have been since been repaid, Morningstar DBRS confirmed the credit ratings based on the previous demonstration of untimely interest over an extended period of time.

At issuance, the loan represented a $600 million pari passu participation of a $750 million whole first mortgage loan secured by the leased-fee interest in 16,066 square feet (sf) of land under 20 Times Square. The property's ground lease and the leased-fee financing are senior to the leasehold interest and leasehold financing. The 99-year ground lease expires in April 2117 and has no termination options. The initial ground rent payment was $29.3 million, increasing by 2.0% annually during the first five years and then by 2.75% per year thereafter. As of September 2024, the annualized ground rent payment reported by the servicer was $32.2 million.

The noncollateral improvements consist of a mixed-use property at 20 Times Square, at the corner of Seventh Avenue and West 47th Street. The property comprises a 452-key Marriott Edition luxury hotel, 74,820 sf of retail space (5,500 sf of which is non-revenue-generating storage space), and 18,000 sf of digital billboards. The debt on the noncollateral leasehold interest had gone into default in December 2019, with the lender citing numerous undischarged mechanics liens against the property as well as a missed deadline to lease up the retail space, and the property was foreclosed in January 2022. The subject loan was transferred to special servicing in November 2022 in relation to the aforementioned mechanics liens, which have since been resolved.

Morningstar DBRS estimated the value of the leased-fee component at approximately $758.6 million based on an analysis of the payments expected from the in-place ground lease and applying a blended cap rate to the ground rent payment at maturity. Based on the derived value and the current loan balance as of the September 2024 remittance, the implied whole-loan loan-to-value ratio (LTV) is 90.2% and 109.8% when including the $150.0 million of mezzanine debt. No positive or negative qualitative adjustments were made to the LTV sizing benchmarks, which were carried over from the analysis in 2020 when the ratings were assigned. With both the leasehold interest and leased-fee interest of the collateral being taken over by motivated parties, as well as the additional de-leveraging provided by the $50.0 million principal curtailment, Morningstar DBRS views these developments positively with regard to the loan's resolution, further supporting the credit rating confirmations and Stable trends.

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.

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 01, 2024), https://dbrs.morningstar.com/research/428798.

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

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. 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.

DBRS, Inc.
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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 Single-Asset/Single-Borrower Ratings Methodology (September 19, 2024), https://dbrs.morningstar.com/research/439699

-- Morningstar DBRS North American 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 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.