Morningstar DBRS Confirms Credit Ratings on All Classes of CORE 2019-CORE Mortgage Trust, Changes Trend on Three Classes to Stable From Negative

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on all classes of the Commercial Mortgage Pass-Through Certificates, Series 2019-CORE issued by CORE 2019-CORE Mortgage Trust as follows:

-- Class B at AAA (sf)
-- Class C at AA (high) (sf)
-- Class D at AA (sf)
-- Class X-NCP at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class F at B (sf)

With this credit rating action, Morningstar DBRS changed the trends on Classes E, F, and X-NCP to Stable from Negative, reflecting an increased certainty of recovery following receipt of updated appraisals for the two remaining properties. Morningstar DBRS previously changed the trends on those classes to Negative from Stable following the loan's transfer to special servicing in January 2024 and reflective of Morningstar DBRS' concerns regarding property value decline. Since the prior credit rating action, Morningstar DBRS has received updated appraised values on the underlying assets, demonstrating that these classes are well insulated from loss in the event of a future liquidation. The trends on Classes B, C, and D remain Stable.

The underlying loan is composed of four pari passu notes that totaled $402.8 million at issuance, consisting of the borrower's fee-simple and leasehold interests in six office properties and one mixed-use property, totaling 2.6 million square feet (sf), across New York, Pennsylvania, Maryland, and Virginia. As of the January 2025 remittance, the trust balance has paid down to $148.1 million, representing a collateral reduction of 63.2% since issuance. Two properties remain in the portfolio: One Pierrepont Plaza (71.6% of the allocated loan amount (ALA)) and Station Square (28.4% of the ALA). The whole loan amount also included a $92.2 million senior mezzanine loan and a $55.0 million junior mezzanine loan, both held outside the trust. The properties are cross defaulted.

The loan sponsor is Brookfield Strategic Real Estate Partners III GP L.P. The sponsor's parent, Brookfield Property Partners L.P. (rated BBB (low) with a Stable trend by Morningstar DBRS) is an owner, operator, and investor in commercial real estate with a diversified portfolio of office and retail assets as well as interests in multifamily, triple net lease, industrial, hospitality, self-storage, student housing, and manufactured housing assets.

One Pierrepont Plaza is a high-rise office tower in downtown Brooklyn, New York, and is part of a 5.5 million-sf corporate campus known as MetroTech Center. According to the servicer, the sponsor had previously attempted to sell the property but is now focused on securing refinancing to pay off the existing debt. As of the September 2024 rent roll, the subject was 81.3% occupied, a decline from 88.8% as of YE2023. The largest tenants at the subject include the New York City Transit Authority (25.2% of net rentable area (NRA), lease expiry in September 2039), NYS Workers' Compensation Board (7.3% of NRA, lease expiry in March 2030), and Fire Department of the City of New York (5.5% of NRA, lease expiry in December 2038). Near-term rollover is minimal, with leases representing only 2.0% of NRA scheduled to expire by YE2025. According to the YE2023 financials, the property reported a net cash flow (NCF) of $10.1 million, a decline from the YE2021 figure of $13.5 million. Based on a Q3 2024 Reis report, office properties in the central business district submarket reported an average vacancy rate of 15.9%, which has stayed relatively stagnant from the Q3 2023 figure of 15.7%.

Station Square is composed of four mixed-use commercial buildings and one parking garage in downtown Pittsburgh, along the Monongahela River. As of the September 2024 rent roll, the collateral was 73.7% occupied, with leases representing approximately 14% of NRA scheduled to expire by YE2025. The largest tenants include Wesco Distribution (18.8% of NRA, lease expiry in March 2029), US Bank (7.6% of NRA, lease expiry in April 2025), and CardWorks Servicing (7.0% of NRA, lease expiry in September 2030). Occupancy has declined from the YE2023 high of 89.4% following the departure of several office and retail tenants at lease expiration. Morningstar DBRS has requested an update on any ongoing leasing efforts at the subject. According to the YE2023 financials, the property reported a NCF figure of $9.3 million, which is a noticeable increase from the $5.6 million as of YE2021. Morningstar DBRS expects cash flow to decline given the recent loss of occupancy, which may complicate any potential sale or refinancing efforts for the borrower.

A 2019 appraisal valued One Pierrepont Plaza and Station Square on a combined basis at $303.3 million. Updated appraisals, dated January 2024, indicate a combined as-is value of $292.3 million and a combined stabilized value of $371.6 million. Based on the January 2024 appraisal, the loan-to-value (LTV) ratio on the trust debt equates to a very moderate 50.7% on an as-is basis.

Morningstar DBRS' previous credit rating action in April 2024 included an update to the assets' valuation. For more information regarding the approach and analysis conducted, please refer to 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. For purposes of this credit rating action, Morningstar DBRS maintained the blended capitalization rate of 8.2% but updated the Morningstar DBRS NCF to $15.5 million from $12.8 million. This update to the NCF was based on a stressed haircut to the YE2023 servicer-reported NCF of $19.4 million. Morningstar DBRS maintained positive qualitative adjustments to the LTV sizing benchmarks totaling 2.5% to reflect the subject portfolio's generally long-term in-place leases and favorable locations in proximity to city centers and university campuses. The Morningstar DBRS concluded value of $188.7 million represents a variance of -35.4% from the January 2024 appraised value of $292.3 million and implies an all-in LTV of 78.5% exclusive of mezzanine debt.

The credit ratings assigned to Classes E and F are higher than the results implied by the LTV sizing benchmarks by three or more notches. The variance is warranted given the updated January 2024 appraisal and continued cash flow growth for the two remaining properties when compared with the Morningstar DBRS NCF when credit ratings were assigned in 2020. Although the updated valuation and generally stable NCF performance indicate sufficient credit support for the rated classes, the loan previously defaulted at maturity and remains in special servicing. Should the underlying properties' ongoing performance exhibit volatility beyond Morningstar DBRS' expectations, property values significantly decline, or workout proceedings deteriorate, Morningstar DBRS may take additional credit rating actions.

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.

Classes X-NCP is an interest-only (IO) certificate that references 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 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 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.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
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 Single-Asset/Single-Borrower Ratings Methodology (December 13, 2024) https://dbrs.morningstar.com/research/444612
-- 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
-- Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024) https://dbrs.morningstar.com/research/428623
-- North American Commercial Mortgage Servicer Rankings (August 23, 2024) https://dbrs.morningstar.com/research/438283

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.