Press Release

Morningstar DBRS Changes Trends on Three Classes of BBCMS Mortgage Trust 2020-C8 to Negative from Stable, Confirms Credit Ratings on All Classes

CMBS
October 04, 2024

DBRS, Inc. (Morningstar DBRS) confirmed all credit ratings on the classes of Commercial Mortgage Pass-Through Certificates, Series 2020-C8 issued by BBCMS Mortgage Trust 2020-C8 as follows:

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

Morningstar DBRS changed the trends on Classes H, J-RR, and X-H to Negative from Stable. All other trends are Stable.

The Negative trends reflect Morningstar DBRS' concerns about a number of loans that are beginning to show signs of distress, most notably office collateral with high concentrations of scheduled rollover and locations within soft submarkets. Morningstar DBRS notes the pool generally has a high concentration of loans backed by office properties, which represent 36.5% of the pool, followed by loans secured by self-storage and lodging properties at 14.0% and 10.9%, respectively. In addition, four loans, representing approximately 7.4% of the pool, are secured by single-tenant properties with lease expiries within the next 12 months, including two office-backed and two industrial-backed loans. While most office loans in the pool have reported healthy performance metrics to date, the increased risks as described above resulted in stressed scenarios to increase the expected losses (ELs) in the analysis for this review, resulting in a weighted-average (WA) EL that is nearly 50% higher for those loans than the pool EL as a whole.

The credit rating confirmations reflect the transaction's overall stable performance, which remains in line with Morningstar DBRS' expectations at issuance as evidenced by a strong WA debt service coverage ratio (DSCR) for the pool of 2.82 times (x). As of the September 2024 remittance, 47 of the original 48 loans remained in the pool, representing a collateral reduction of 2.0% since issuance, and four loans, representing 3.7% of the pool, have been fully defeased. One loan, 2260 University Drive (Prospectus ID#23, 1.3% of the pool balance), is in special servicing and there are 12 loans, representing 19.4% of the pool, that are on the servicer's watchlist. Among the watchlisted loans, approximately 25% are being monitored for performance- or tenancy-related concerns, with the remaining on the watchlist for nonperformance/life safety concerns.

The only loan in special servicing, 2260 University Drive, is secured by a two-story, 25,000-square-foot (sf) office property in Newport Beach, California. The loan transferred to the special servicer in February 2024 for several reasons, but most notably for the unauthorized transfer of ownership without the lender's consent, constituting an event of default and full-recourse trigger under the loan documents. The property was formerly 100% occupied by Golden State Medicare Health Plan, which lost its license to operate in California in June 2022 and vacated the property shortly thereafter. Following the unauthorized sale of the property, the buyer moved its medical business, Excelera DSE, into the property on a one-year lease that expires in February 2025. According to the servicer, the property is currently listed for sale again and the lender is dual-tracking foreclosure while continuing discussions with the current owner. Given the outstanding defaults and likelihood that the special servicer will pursue foreclosure as a resolution strategy, Morningstar DBRS analyzed a liquidation scenario, taking a 70% haircut to the issuance appraised value of $16.3 million, resulting in an implied loss of just over $5.0 million, which would be contained to the unrated Class K-RR.

One of the office loans of concern, Abele Business Park (Prospectus ID#7, 3.7% of the current pool balance), is secured by a flex property (office and industrial) totaling 301,230 sf. The property, located in Bridgeville, Pennsylvania, consists of 17 buildings with approximately 82.0% of the sf configured for office space and 18% of the sf configured for warehouse space. As of the March 2024 rent roll, occupancy has declined to 81.0%, compared with the issuance occupancy of 98.6%. There are additional rollover concerns including the fifth-largest tenant, Sizewise (3.9% of the net rentable area, lease expiry in September 2024). The occupancy declines have significantly reduced revenues, as the servicer reported a March 2024 DSCR of 1.39x, down from 2.29x in YE2022. Given already declining occupancy trends and the location within a secondary market, Morningstar DBRS believes the as-is property value has significantly declined since issuance. As such, a stressed loan-to-value ratio was applied based on a cap to the YE2023 net cash flow, resulting in an EL approaching three times the pool WA.

At issuance, Morningstar DBRS shadow-rated two loans as investment grade, One Manhattan West (Prospectus ID#1, 10.2% of the pool) and MGM Grand & Mandalay Bay (Prospectus ID#3, 10.1% of the pool). With this review, Morningstar DBRS confirms the performance for both loans remains in line with the investment-grade shadow 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.

Classes X-A, X-B, X-D, X-FG, 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 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, 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/North American CMBS Insight Model version 1.2.0.0 (March 1, 2024), 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 (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.

Ratings

  • US = Lead Analyst based in USA
  • CA = Lead Analyst based in Canada
  • EU = Lead Analyst based in EU
  • UK = Lead Analyst based in UK
  • E = EU endorsed
  • U = UK endorsed
  • Unsolicited Participating With Access
  • Unsolicited Participating Without Access
  • Unsolicited Non-participating

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.