Morningstar DBRS Downgrades Credit Ratings on Five Classes of CSAIL 2018-CX11 Commercial Mortgage Trust, Changes Trends on Two Classes to Stable from Negative

DBRS, Inc. (Morningstar DBRS) downgraded its credit ratings on five classes of Commercial Mortgage Pass-Through Certificates, Series 2018-CX11 issued by CSAIL 2018-CX11 Commercial Mortgage Trust as follows:

-- Class X-D to BBB (sf) from BBB (high) (sf)
-- Class D to BBB (low) (sf) from BBB (sf)
-- Class E-RR to BB (high) (sf) from BBB (low) (sf)
-- Class F-RR to B (low) (sf) from B (high) (sf)
-- Class G-RR to CCC (low) (sf) from B (low) (sf)

In addition, Morningstar DBRS confirmed the following credit ratings:

-- 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 X-A at AAA (sf)
-- Class X-B at AA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)

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

The credit rating downgrades reflect the increased risks to the pool since Morningstar DBRS' last credit rating action in October 2023, primarily driven by further credit deterioration stemming from value declines and/or a lack of resolution for the four collateral properties backing the loans in special servicing, which represent 6.7% of the pool balance. The largest increase in projected liquidated losses stems from two office loans with updated appraisal values that have declined by approximately 40% each since the last credit rating action -- Penn Center West (Prospectus ID#14; 2.5% of the pool) and 111 West Jackson (Prospectus ID#30; 1.4% of the pool). Morningstar DBRS analyzed each of the specially serviced loans with a liquidation scenario resulting in loss severities ranging from 17% to 67% and an aggregate liquidated loss forecast of $26.7 million. In addition, several performing loans continue to exhibit increased risks resulting in a stressed analysis and increased expected losses (ELs) that were generally above the pool average.

Morningstar DBRS changed the trends on the Classes noted above to Stable from Negative, as the credit rating downgrades reflected the stressed analysis considered in light of the increased risks as described above. Should there be unforeseen circumstances that further increase the risks for the underlying loans in question, Morningstar DBRS notes that trends could change and/or credit ratings could be subject to further downgrades.

The credit rating confirmations reflect that overall, the pool continues to exhibit healthy credit metrics, as evidenced by the weighted-average (WA) debt service coverage ratio (DSCR) of 2.26x, based on the most recent financial reporting. The transaction also benefits from several large loans that are shadow-rated investment grade by Morningstar DBRS with overall stable performance since issuance. In addition, the unrated first-loss Class N-RR balance of $34.7 million, as well as the substantial balance of $52.4 million held across Classes E-RR, F-RR, and G-RR, all of which have been assigned below investment grade credit ratings by Morningstar DBRS, provides significant cushion against realized losses for the top and middle of the capital stack.

As of the September 2024 remittance, 47 of the original 56 loans remain in the pool. The initial pool balance of $952.87 million has been reduced by 17.2%, to $789.25 million, which includes $8.16 million of losses from loan liquidations. Eight loans, representing 7.6% of the pool, are backed by collateral that is fully defeased. Loans representing 20.5% of the pool balance are on the servicer's watchlist; however, two larger loans (9.3% of the pool) are being monitored for nonperformance-related concerns that would likely have minimal credit-risk impact. As previously mentioned, four loans, representing 6.7% of the pool, are in special servicing. Outside of the specially serviced loans, Morningstar DBRS notes the moderate concentration of nine loans secured by office collateral, representing a little more than 25.0% of the pool. In general, these loans backed by office collateral are performing as expected with healthy credit metrics as evidenced by the WA DSCR of 2.23x and no loans reporting a DSCR of less than 1.20x as of YE2023.

The largest specially serviced loan, Penn Center West, which is secured by a three-building office complex outside of Pittsburg, transferred to special servicing in November 2022 for imminent default and did not repay at its February 2023 maturity. An updated appraisal as of July 2024 reflects an as-is value of $12.1 million, down significantly from both the March 2023 and issuance appraisal values of $20.1 million and $29.5 million, respectively. Morningstar DBRS analyzed the loan with a liquidation scenario based on a haircut to the July 2024 appraisal value, resulting in a loss severity in excess of 65.0%.

Morningstar DBRS' expected losses have also increased substantially for the third-largest specially serviced loan, 111 West Jackson, which is secured by a Class B office property in downtown Chicago that transferred to special servicing in March 2023 for imminent monetary default after a sharp drop in the occupancy rate. An updated appraisal as of July 2024 reflects an as-is value of $43.0 million, down from the June 2023 and issuance appraisal values of $66.0 million and $163.0 million, respectively. Morningstar DBRS analyzed the loan with a liquidation scenario based on a haircut to the July 2024 appraisal value, resulting in a loss severity of about 50.0%.

At issuance, Morningstar DBRS assigned investment-grade shadow ratings to three loans in One State Street (Prospectus ID#3; 6.3% of the pool), Moffett Towers II Building 2 (Prospectus ID #9; 3.6% of the pool); and Lehigh Valley Mall (Prospectus ID #12; 3.0% of the pool). With this review, the shadow ratings for Moffett Towers II Building 2 and Lehigh Valley Mall were maintained as performance remains in line with issuance expectations. However, the shadow rating for One State Street, which is part of a pari passu loan secured by an office property in New York City and has shown some performance declines from issuance, was removed. Given the extended vacancy and lack of traction on the borrower's efforts to re-lease the space, a soft submarket, and exposure to concentrated tenant rollover in advance of the loan's maturity, the removal of the shadow rating was merited.

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 at https://dbrs.morningstar.com/research/437781 (August 13, 2024).

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 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.

-- 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 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.