Morningstar DBRS Downgrades Credit Rating on One Class of CD 2019-CD8, Changes Trends on Five Classes to Stable from Negative

DBRS Inc. (Morningstar DBRS) downgraded one class of Commercial Mortgage Pass-Through Certificates, Series 2019-CD8 issued by CD 2019-CD8 Mortgage Trust as follows:

-- Class G-RR to B (low) (sf) from B (high) (sf)

Morningstar DBRS confirmed the credit ratings on the remaining classes:

-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-M at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AAA (sf)
-- Class X-B at AA (sf)
-- Class C at AA (low) (sf)
-- Class D at A (low) (sf)
-- Class X-D at A (low) (sf)
-- Class E at BBB (high) (sf)
-- Class X-F at BBB (low) (sf)
-- Class F at BB (high) (sf)
-- Class H-RR at CCC (sf)

Morningstar DBRS also changed the trends on Classes E, F, G-RR, X-D, and X-F to Stable from Negative. The trends on all remaining Classes are Stable with the exception of Class H-RR, which has a credit rating that does not typically carry a trend in commercial mortgage-backed securities (CMBS) ratings.

At the prior credit rating action in October 2023, Morningstar DBRS placed Negative trends on Classes E through GRR, driven by a value decline for the only specially serviced loan in the pool, 63 Spring Street (Prospectus ID#17, 2.3% of the pool balance), and performance declines for select office loans in the pool. The credit rating downgrade reflects the increased certainty of credit deterioration stemming from a lack of resolution for the 63 Spring Street loan, as further discussed below, which remains in special servicing with the borrower and lender tied up in foreclosure hearings.

The credit rating confirmations and trend changes to Stable from Negative reflect the overall stable performance of a majority of the loans in the pool as well as the improving performance for several office-backed loans that previously exhibited increased credit risk, including the 1440 N Dayton loan (Prospectus ID#16, 2.4% of the pool balance), which was modeled with a high expected loss (EL) at Morningstar DBRS' last rating action and has since been fully defeased. The remaining office loans have generally exhibited stable or improving performance. Morningstar DBRS maintains a cautious outlook on the office asset type as sustained upward pressure on vacancy rates in the broader office market may challenge landlords' efforts to backfill vacant space, and, in certain instances, contribute to value declines, particularly for assets in noncore markets and/or with disadvantages in location, building quality, or amenities offered. As such, upward loan-to-value ratio (LTV) adjustments were made to three loans secured by office properties. The weighted average (WA) EL for the loans was more than 1.1 times (x) the pool average. While the stressed analysis for these loans and a few other loans resulted in an increased pool EL beyond the issuance level, Morningstar DBRS notes that there remains significant cushion against loss in the unrated and below-investment grade rated certificates in the capital stack, supporting the credit rating actions with this review.

As of the September 2024 remittance, 32 of the original 33 loans remain in the pool balance, representing a collateral reduction of 2.4%. One loan, representing 2.3% of the pool balance is in special servicing and 3.2% of the pool has been fully defeased. In addition, 17 loans representing 50.8% of the pool balance are on the servicer's watchlist; however, only seven loans, representing 25.0% of the pool balance are being monitored for performance-related concerns.

The 63 Spring Street loan is secured by a 5,540-square-foot (sf) mixed-use building consisting of four high-end residential units (4,400 sf) and 1,100 sf of ground-floor retail space in New York's Soho neighborhood. The loan transferred to special servicing in June 2020 as a result of payment default and the special servicer-initiated foreclosure proceedings, and after a Court process to address the borrower's objections, a receiver was appointed in June. The borrower continues to contest the foreclosure, and litigation remains ongoing. According to the March 2024 rent roll, the subject is now 100% occupied with all four residential units and all three retail spaces leased and occupied. The building was re-appraised in January 2024 for $13.7 million, up from the March 2023 value of $12.0 million, but below the $29.8 million appraised value at issuance. Based on this significant value decline since issuance, Morningstar DBRS analyzed the loan with a liquidation scenario that results in a loss severity in excess of 60.0%.

505 Fulton Street (Prospectus ID#7, 5.1% of the pool) is secured by a 114,209-sf anchored retail property in Brooklyn. The loan is currently on the servicer's watchlist because of significant declines in occupancy following former major tenants Nordstrom Rack (35.5% of the net rentable area (NRA)) and TJ Maxx (25.9% of NRA) vacating upon their respective lease expiration in April 2024. In addition, the property faces additional concentrated tenant rollover risk given Old Navy (19.7% of NRA), has a lease scheduled to expire in January 2025. Based on the YE2023 financials, the loan reported an occupancy rate and DSCR of 100% and 2.61x, respectively, but DSCR is expected to drop to below 2.0x given the decline in the occupancy rate to just below 40% as of June 2024. In the event Old Navy also vacates, DSCR will drop further to about 1.0x. Considering the increased vacancy and near-term tenant rollover risk, Morningstar DBRS analyzed this loan with an elevated probability of default (POD) penalty, resulting in an expected loss more than three times the pool average.

At issuance, Morningstar DBRS assigned investment-grade shadow ratings to three loans, representing a combined 16.3% of the pool, including Woodlands Mall (Prospectus ID#2, 8.8% of the pool), Moffett Towers II Buildings 3 & 4 (Prospectus ID#10, 4.3% of the pool), and Crescent Club (Prospectus ID#12, 3.5% of the pool). With this review, Morningstar DBRS maintains that the performance of these loans remains consistent with investment-grade loan 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, or 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; https://dbrs.morningstar.com/research/437781).

Classes X-A, X-B, X-D, X-F 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 Multi-Borrower Rating Methodology (March 1, 2024; https://dbrs.morningstar.com/research/428797).

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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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.

-- 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
-- Rating North American CMBS Interest-Only Certificates (June 28, 2024), https://dbrs.morningstar.com/research/435294
-- North American CMBS Multi-Borrower Rating Methodology / North American CMBS Insight Model v 1.2.0.0 (March 1, 2024), https://dbrs.morningstar.com/research/428797
-- 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.