Morningstar DBRS Confirms Credit Ratings on All Classes of Morgan Stanley Capital I Trust 2020-HR8

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2020-HR8, issued by Morgan Stanley Capital I Trust 2020-HR8:

-- 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 A-3-1 at AAA (sf)
-- Class A-3-2 at AAA (sf)
-- Class A-3-X1 at AAA (sf)
-- Class A-3-X2 at AAA (sf)
-- Class A-4-1 at AAA (sf)
-- Class A-4-2 at AAA (sf)
-- Class A-4-X1 at AAA (sf)
-- Class A-4-X2 at AAA (sf)
-- Class A-S-1 at AAA (sf)
-- Class A-S-2 at AAA (sf)
-- Class A-S-X1 at AAA (sf)
-- Class A-S-X2 at AAA (sf)
-- Class B at AAA (sf)
-- Class X-B at AA (low) (sf)
-- Class X-D at AA (low) (sf)
-- Class C at A (high) (sf)
-- Class D at A (high) (sf)
-- Class E-RR at A (low) (sf)
-- Class F-RR at A (low) (sf)
-- Class G-RR at BBB (sf)
-- Class H-RR at BB (high) (sf)
-- Class J-RR at BB (sf)
-- Class K-RR at B (high) (sf)
-- Class L-RR at B (low) (sf)

All trends are Stable.

The credit rating confirmations and Stable trends reflect the overall stable performance of the transaction since Morningstar DBRS' last credit rating action given the relatively low concentration of loans on the servicer's watchlist and the lack of specially serviced loans as of the September 2024 remittance. Cash flows have remained in line with issuance expectations as evidenced by the pool's strong weighted-average (WA) debt service coverage ratio (DSCR) of 2.93 times (x). As of September 2024 remittance, 42 of the original 43 loans remain in the pool, with an aggregate principal balance of $633.5 million, representing a collateral reduction of 8.3%. Two loans, representing 1.2% of the pool, are fully defeased. Only two loans, representing 5.4% of the pool, are currently being monitored on the watchlist.

The pool is relatively concentrated by loan size, as the largest 10 loans represent 59.3% of the current pool balance. Additionally, the pool is concentrated by property type, with loans secured by multifamily and office collateral comprising 30.6% and 28.2% of the pool, respectively. Despite the significant office concentration, Morningstar DBRS notes that, overall, the office loans are generally performing in line with issuance expectations. For office loans that Morningstar DBRS identified as exhibiting increased credit risk since issuance, stressed loan-to-value ratios (LTVs) and elevated probabilities of default were applied in the analysis to reflect the elevated risk. Following these adjustments, the WA Morningstar DBRS expected loss for office loans in the pool was approximately 2.3x greater than the pool average. The credit rating confirmations reflect the durability of the credit ratings despite Morningstar DBRS' stressed analysis for these loans.

The 525 Market Street - Trust loan (Prospectus ID#5, 6.3% of the pool) is secured by the fee, leasehold, and subleasehold interests in a 38-story, 1.1 million-square-foot Class A office tower in San Francisco's central business district. The whole loan of $682.0 million encompasses the $60.0 million trust loan, $410.0 million pari passu notes, and subordinate B note debt of $212.0 million. The controlling piece is secured in the MKT 2020-525M Mortgage Trust transaction, which is also rated by Morningstar DBRS. To read more on Morningstar DBRS' recent credit rating action on this transaction, please see the press release titled "Morningstar DBRS Takes Rating Actions on North American Single-Asset/Single-Borrower Transactions Backed by Office Properties," published on April 15, 2024, on the Morningstar DBRS website.

As of the July 2024 rent roll, the property was 71.0% occupied with approximately 15.0% of the net rentable area (NRA) scheduled to rollover in the upcoming 12 months, including the second-largest tenant. Occupancy continues to decline from 97.0% at issuance. The largest tenants at the building include Amazon.com Services, Inc. (39.0% of the NRA; leases expire between 2028 and 2031); Wells Fargo Bank (13.7% of the NRA; lease expires in June 2025); and Disney Streaming Services, LLC (3.5% of the NRA; lease expires in July 2027). Morningstar DBRS inquired whether Wells Fargo Bank will be renewing its lease but did not receive a response as of this review. As per the most recently reported financials, the loan reported a healthy DSCR of 2.73x as of YE2023, compared with the Morningstar DBRS DSCR of 2.51x. At issuance, the loan was shadow-rated investment grade given its strong sponsorship and long-term credit tenancy. In its analysis, Morningstar DBRS updated the LTV to reflect its updated value for the property as concluded with the April 15, 2024, credit rating action, as well as a stressed probability of default to account for the decline in occupancy from issuance, concentrated tenant rollover risk, and softening submarket, which reported a vacancy rate of 19.8% in Q2 2024 as per Reis. Given the aforementioned factors, Morningstar DBRS removed the loan's previously assigned shadow rating as the loan's characteristics are no longer consistent with the investment-grade shadow rating determined at issuance.

The UHG Optum Health Campus (Prospectus ID#8, 4.2% of the pool) is secured by a suburban office property in Eden Prairie, Minnesota. Although the loan is not currently being monitored on the servicer's watchlist, Morningstar DBRS considers the loan to be at increased credit risk given that the property is now fully vacant following the departure of sole tenant UnitedHealth Group upon its lease expiration in December 2023. The re-leasing efforts will likely be challenging given the high submarket vacancy, with Reis Inc. reporting a Q2 2024 vacancy rate of 23.1% for office space in the Southwest/Northeast Scott County submarket. In its analysis, Morningstar DBRS conducted a dark value analysis based on a stabilized NCF of $4.7 million, using an 11% capitalization rate that incorporates a 100-basis-point stress for the fully vacant status of the asset and soft submarket location and deducting leasing and downtime costs of approximately $15.5 million. The resulting dark value of $27.5 million reflects an LTV ratio of 96%. Morningstar DBRS analyzed the loan using a stressed LTV, resulting in an expected loss that is 2.3x greater than the pool's WA.

The Bellagio Hotel and Casino (Prospectus ID#6, 6.2% of the pool), is shadow-rated investment grade. Morningstar DBRS confirms that the characteristics of the loan remain consistent with an investment-grade shadow rating, supported by above average property quality, sponsorship strength and the strong performance of the collateral.

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, and X-D 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 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.

DBRS Limited
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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 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

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.

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