Morningstar DBRS Changes Trends on Nine Classes of Benchmark 2018-B7 Mortgage Trust to Stable From Negative, Confirms All Credit Ratings
CMBSDBRS, Inc. (Morningstar DBRS) confirmed the credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2018-B7 issued by Benchmark 2018-B7 Mortgage Trust as follows:
-- Class A-2 at AAA (sf)
-- 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 B at AA (sf)
-- Class C at A (sf)
-- Class D at BBB (high) (sf)
-- Class E at BB (high) (sf)
-- Class F at B (high) (sf)
-- Class G-RR at B (low) (sf)
-- Class H-RR at CCC (sf)
-- Class X-A at AAA (sf)
-- Class X-B at A (high) (sf)
-- Class X-D at BBB (low) (sf)
-- Class X-F at BB (low) (sf)
Morningstar DBRS changed the trends on Classes B, X-B, C, X-D, D, E, X-F, F, and G-RR to Stable from Negative. Class H-RR has a credit rating that does not typically carry a trend in commercial mortgage-backed securities (CMBS) credit ratings. The trends on Classes A-2, A-3, A-4, A-SB, A-M, and X-A are Stable.
The credit rating confirmations reflect Morningstar DBRS' unchanged loss expectations for the pool, mainly driven by Castleton Commons & Square (Prospectus ID#15; 2.9% of the pool), for which the lender has filed for foreclosure. Specially serviced and watchlisted loans represent 8.2% and 10.2% of the pool, respectively, which are decreased from the watchlisted and specially serviced concentrations of 23.3% and 13.4%, respectively, at last review. With the return of multiple loans to the master servicer, most notably, DUMBO Heights Portfolio (Prospectus ID#1; 6.7% of the pool), the pool is in a more favorable position as the majority of loans approach maturity in 2028, Morningstar DBRS' primary consideration in changing the trends to Stable from Negative. However, Morningstar DBRS remains concerned about the pool's high concentration of loans backed by office properties, which represent 38.0% of the current pool balance.
As of the December 2024 remittance, 48 of the original 51 loans remain in the pool, with an aggregate principal balance of $1.09 billion, reflecting a 6.4% collateral reduction since issuance. One loan, representing 2.3% of the pool, is fully defeased. Three loans, representing 8.2% of the pool, are currently in special servicing, and seven loans, representing 10.2% of the pool, are currently on the servicer's watchlist. In its analysis for this review, Morningstar DBRS analyzed one of the specially serviced loans, Castleton Commons & Square, with a liquidation scenario, as detailed further below. Morningstar DBRS also identified seven loans, representing 28.8% of the pool balance, as exhibiting increased credit risk since issuance, and stressed loan-to-value ratios (LTVs) and/or increased probability of default (POD) assumptions in its analysis, resulting in a weighted-average (WA) expected loss for these loans that is nearly 50% greater than the pool average.
Since last review, both DUMBO Heights Portfolio and Concord Plaza (Prospectus ID#25; 1.7% of the pool) were returned to the master servicer. Both loans were granted extensions, extending their maturity dates to September 2025 and have been brought current. DUMBO Heights Portfolio did receive an updated appraisal in July 2024, reflecting a steep decline of -64.6% from the issuance appraised value as a result of persistent performance deterioration. Given this, Morningstar DBRS analyzed the loan using a stressed LTV.
The largest loan in special servicing, Workspace - Trust (Prospectus ID#10; 3.7% of the pool), transferred in November 2024 for imminent monetary default. The loan is secured by a portfolio of 145 properties totaling approximately 10 million square feet (sf) in four states (Pennsylvania, Florida, Minnesota, and Arizona). The subject loan amount of $40.0 million is part of a whole loan totaling $1.27 billion, secured across four other transactions, three of which are rated by Morningstar DBRS: J.P. Morgan Chase Commercial Mortgage Securities Trust 2018-WPT (JPMCC 2018-WPT, the lead securitization), Benchmark 2018-B6 Mortgage Trust (BMARK 2018-B6), and Benchmark 2018-B5 Mortgage Trust. The loan previously defaulted at its July 2023 maturity and was granted a modification, extending the maturity to July 2025 subject to a $30.0 million principal curtailment paid by the borrower. The loan remains current but occupancy, net cash flow and debt service coverage have continued to decline year over year. Given the increased maturity default risk and continued underperformance, Morningstar DBRS' analysis for this loan included a stressed LTV and POD scenario, resulting in an EL almost 3.5 times greater than the pool average.
The second-largest loan in special servicing is Castleton Commons & Square. The loan is secured by a 279,452 sf anchored retail property consisting of two adjacent shopping centers in Indianapolis. No major rollover is scheduled in the next 12 months. However, the occupancy rate has declined to 76% as of the most recent reporting, down from 93% at YE2022 and 95% at issuance. Net cash flow and the debt service coverage ratio have also dropped as a result of the decrease in occupancy. The special servicer is pursuing foreclosure. The most recent appraisal, dated December 2023, valued the property at $25.7 million, representing a 51.1% decline from the issuance appraised value. Morningstar DBRS' liquidation analysis for this loan is based on a stress to the December 2023 appraised value and results in a projected loss severity of almost 50%.
With this review, DBRS Morningstar maintained the shadow ratings on Moffett Towers¿Buildings E, F, G and Aventura Mall given the continued stable performance and ongoing expectations for those loans. Morningstar DBRS removed the shadow rating on 636 11th Avenue as the loan no longer exhibits characteristics consistent with an investment-grade shadow rating.
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), https://dbrs.morningstar.com/research/437781.
Class X-A, Class X-B, Class X-D, and Class 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 Surveillance Methodology (December 13, 2024), https://dbrs.morningstar.com/research/444617.
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.
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 (December 13, 2024), https://dbrs.morningstar.com/research/444616
-- 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
-- North American CMBS Insight Model v 1.2.0.0 (December 13, 2024), https://dbrs.morningstar.com/research/444616
For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at [email protected].
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.