Morningstar DBRS Downgrades Two Classes of TRTX 2019-FL3 Issuer, Ltd.

DBRS, Inc. (Morningstar DBRS) downgraded the credit ratings on two classes of notes issued by TRTX 2019-FL3 Issuer, Ltd. as follows:

-- Class F to BB (high) (sf) from BBB (low) (sf)
-- Class G to C (sf) from CCC (sf)

In addition, Morningstar DBRS confirmed the following credit ratings:

-- Class C at AA (sf)
-- Class D at A (high) (sf)
-- Class E at A (low) (sf)

The trend on Class F is Negative. Class G has a credit rating that does not typically carry a trend in commercial mortgage-backed securities (CMBS) credit ratings. The trends on all remaining classes are Stable.

The credit rating downgrades on Classes F and G and the trend change on Class F reflect Morningstar DBRS' increased loss expectations for two loans: City Plaza (Prospectus ID #32; 23.9% of the pool) and Del Amo Crossing (Prospectus ID #28; 19.8% of the pool). The largest asset in the pool, City Plaza, is real estate owned and is secured by an 18-story office property in Orange, California. The loan transferred to special servicing in November 2023 and a deed-in-lieu of foreclosure transaction was initiated in January 2024. The property's performance has deteriorated in recent years with the occupancy rate most recently reported at 11.3% as of the June 2024 rent roll. An updated appraisal did not appear in the investor reporting package as of the November 2024 remittance report. Morningstar DBRS considered a stressed value in its liquidation scenario, with the projected realized loss expected to fully erode the remainder of the unrated PREF equity class along with a portion of Class G, driving the credit rating downgrade on Class G. The projected liquidated loss also reduces cushion against loss for Class F, supporting the credit rating downgrade for that class with this review.

The credit rating downgrade and Negative trend on Class F are further supported by Morningstar DBRS' view that there are significantly increased risks for the Del Amo Crossing loan because of the lack of stabilization of the collateral property ahead of its upcoming final maturity in January 2025. The loan, which is secured by an eight-building office and retail property in Torrance, California, was only 63.9% occupied as of June 2024, down slightly from 65.4% as of YE2023. In the recoverability analysis for this review, Morningstar DBRS applied a stressed cap rate to the most recent net cash flow for the trailing 12 months (T-12) ended June 30, 2024, resulting in a loan-to-value ratio (LTV) in excess of 100%.

Morningstar DBRS also notes the servicer is shorting interest through Class G, with total outstanding shortfalls of $1.1 million as of the November 2024 remittance. Interest shortfalls first occurred with the November 2023 reporting and are a direct result of the City Plaza loan delinquency. As such, shortfalls are expected to continue to increase through the remainder of the resolution period for that loan.

The credit rating confirmations on the remaining classes reflect the increased credit support to the bonds since issuance, with collateral reduction of 78.6% as a result of successful loan repayments and principal proceeds recovered on liquidated loans. The PREF class has realized losses of $50.6 million as of the November 2024 remittance.

As of the November 2024 remittance, the pool comprised five loans with a cumulative trust balance of $263.3 million. The transaction had a 24-month reinvestment period that ended in October 2021. Since the previous Morningstar DBRS credit rating action in January 2024, the $17.2 million Lenox Park Portfolio loan repaid in full. The remaining loan in the transaction, apart from the office concentration noted above, is secured by a multifamily property (14.0% of the current trust balance).

The remaining collateral pool exhibits elevated leverage from issuance with a current weighted-average (WA) appraised LTV) of 72.8% and a WA stabilized LTV of 64.2%. In comparison, these figures were 77.4% and 64.4%, respectively, at closing. Given the performance challenges for some of the remaining loans, Morningstar DBRS expects the as-is LTVs have likely increased from the issuance appraisals. In the analysis for this review, Morningstar DBRS conducted a recoverability analysis based on updated Morningstar DBRS values derived from in-place property-level financial reporting with stressed market and property type specific capitalization rates. That analysis suggested the exposure to loans with LTVs in excess of 100% could extend into Class G.

As of November 2024, two loans, representing 41.4% of the trust balance, are on the servicer's watchlist. The larger of two loans, 888 Broadway (Prospectus ID #5; 21.6% of the pool), is secured by two adjoining office buildings in the Flatiron/Union Square submarket of New York. The collateral comprises the fee-simple interest in 888 Broadway (totaling 90,376 square feet (sf) of office space) and the leasehold interest in 38 East 19th Street (totaling 130,936 sf of office space). The loan was modified in November 2024, extending loan maturity to March 2025 to allow additional time for the borrower to market the property for sale. The modification also includes three additional extension options through the fully extended maturity date of December 2025. As part of the modification, the borrower paid the loan down by $7.0 million. The property was 85.0% leased as of July 2024. According to the financials for the T-12 ended June 30, 2024, the property generated cash flow of $11.6 million, equating to a debt service coverage ratio of 0.84 times and debt yield of 7.7%. In the recoverability analysis for this review, Morningstar DBRS considered an updated value that reflected an LTV of nearly100%.

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 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.

Morningstar DBRS notes that a sensitivity analysis was not performed for this review as the transaction is winding down, with only five loans remaining. In such cases, Morningstar DBRS credit ratings are typically based on a recoverability analysis.

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.
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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),
https://dbrs.morningstar.com/research/428797
-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (September 19, 2024),
https://dbrs.morningstar.com/research/439702
-- Legal Criteria for U.S. Structured Finance (December 3, 2024),
https://dbrs.morningstar.com/research/444064
-- North American Commercial Mortgage Servicer Rankings (August 23, 2024),
https://dbrs.morningstar.com/research/438283

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