Morningstar DBRS Downgrades Credit Ratings on Five Classes of COMM 2019-521F Mortgage Trust, Changes Trends to Negative From Stable for Three Classes

DBRS, Inc. (Morningstar DBRS) downgraded its credit ratings on five classes of COMM 2019-521F Mortgage Trust, Commercial Mortgage Pass-Through Certificates, issued by COMM 2019-521F Trust as follows:

-- Class B to A (high) (sf) from AA (sf)
-- Class C to BBB (high) (sf) from A (sf)
-- Class D to BB (high) (sf) from BBB (sf)
-- Class E to CCC (sf) from BB (low) (sf)
-- Class F to CCC (sf) from B (low) (sf)

In addition, Morningstar DBRS confirmed the following credit rating:

-- Class A at AAA (sf)

Morningstar DBRS also changed the trends on Classes A, B, and C to Negative from Stable; the trend on Class D remains Negative. Classes E and F no longer carry a trend as both classes have credit ratings that do not typically carry a trend in commercial mortgage-backed securities (CMBS) credit ratings.

Morningstar DBRS previously downgraded its credit ratings for Classes C, D, E, and F and changed the trends on Classes D, E, and F to Negative from Stable in April 2024 to reflect both the performance challenges for the collateral property in occupancy and cash flow declines and also Morningstar DBRS' view that there has been a secular shift for the office sector, which has resulted in generally increased risks and value declines for the property type. As part of that credit rating action, the Morningstar DBRS value for the collateral office property was updated, with an increase in the capitalization rate (cap rate) to 7.25%, up from the cap rate of 6.50% that was considered when Morningstar DBRS assigned credit ratings to the transaction in 2020. The resulting Morningstar DBRS value was $235.1 million, compared with the issuance appraised value of $395.0 million. Since the April 2024 credit rating action, the underlying loan has been transferred to special servicing and, more recently, an updated appraisal has been obtained by the special servicer, showing an as-is value of $244.0 million for the collateral office property as of August 2024. The credit rating downgrades with this review largely reflect an update to the Loan-to-Value (LTV) Sizing Benchmarks based on a haircut to that value, as further described below, as well as the status of interest shortfalls for Classes E and F, a factor of the updated appraised value and the servicer's appraisal reduction calculation. The Negative trends on Classes A, B, and C reflect the expectation that there could be further volatility in the property value through the workout process.

The subject transaction is secured by the borrower's fee-simple interest in 521 Fifth Avenue, a 495,636-square-foot (sf), 39-story Class A office property built in 1929. The space includes three underground levels and multilevel retail space, which represents 10.1% of the subject's total net rentable area (NRA). The property is well located, close to Grand Central Terminal, Bryant Park, and the New York City Public Library, and offers efficient and flexible floorplates ranging from 3,000 sf to 22,500 sf with outdoor terraces that appeal to both large and boutique tenants. Urban Outfitters occupies the prime Fifth Avenue retail space on the ground floor, with Equinox occupying a side street retail suite.

Occupancy at the property has trended downward in recent years, slipping to 70.2% as of November 2024, and while that is a tepid increase from YE2023, it's still significantly down from 93.0% at issuance. And, while average rental rates at the property have increased to $74.57 per square foot (psf) from $64.83 psf at issuance, rental rates for new leases signed in 2024 range from $57.00 psf to $65.00 psf, highlighting the softening in the market. According to Reis, Inc., comparable Class A office properties within a one-mile radius of the subject reported average vacancy rates of 13.9% with effective rental rates of $70.62 psf.

The largest tenant, Urban Outfitters (5.2% of the NRA), has a lease that expires in February 2026 with two five-year extension options. The second-largest tenant is Equinox (5.2% of the NRA through January 2035), which occupies 25,735 sf of primarily below-ground-level retail space. The remainder of the rent roll is relatively granular with no other tenant representing more than 5.0% of the NRA. Per the November 2024 rent roll, lease expirations through February 2026 are moderately concentrated with tenant leases representing approximately 9.9% of NRA set to roll.

According to the YE2023 financial reporting, the property generated net cash flow (NCF) of $12.4 million, with a debt service coverage ratio (DSCR) of 0.8 times (x), compared with the YE2022 figures of $11.2 million and 1.6x., respectively. The YE2023 and YE2022 NCF figures are 27.0% and 34.2% lower than the Morningstar DBRS NCF figure of $17.1 million, which was derived in 2020 when credit ratings were assigned.

The floating-rate loan matured in June 2024, and, after the lender and borrower were unable to agree to terms of a maturity extension, the loan was transferred to special servicing in that same month. The loan has been delinquent since December 2024 and the updated appraisal mentioned above was first reported by the servicer with the February 2025 remittance report. The $244.0 million appraised value is a decline of 44.4% from the $395.0 million appraised value at issuance but is within 5.0% of the Morningstar DBRS value derived with the April 2024 credit rating action. The February 2025 remittance reflects an appraisal reduction amount of $30.9 million. According to the servicer, the lender and borrower are currently discussing a potential joint marketing and sale of the property with borrower's cooperation. The special servicer is also dual-tracking the possibility of initiating foreclosure proceedings.

In the analysis for this review, Morningstar DBRS considered a 10% haircut to the August 2024 appraisal value, resulting in a Morningstar DBRS value of $219.6 million. The updated Morningstar DBRS value is a -16.3% variance from the previous Morningstar DBRS value and implies an LTV of 110.2% compared with an LTV of 61.3% on the appraised value at issuance. Given the ongoing negotiations, which suggest the sponsor remains committed to the asset, either through participating in a sale or otherwise working with the special servicer for a successful resolution, a liquidation scenario was not explicitly considered as part of this review. However, Morningstar DBRS notes that, should a liquidation scenario be considered, one that accounts for liquidation fees and the possibility of servicer advances that would lead to increased exposure would represent a more punitive analysis, particularly for the classes lowest in the capital stack. In addition, Morningstar DBRS has observed a trend where subsequent appraisals obtained by the special servicer, particularly for office property types, have tended to show significant declines from the initial estimates. This factor influenced the Negative trends for the three classes highest in the capital stack, as noted above.

As of the February 2025 remittance, there were cumulative interest shortfalls outstanding of $843,313 for Classes E and F. The full interest due for Class F is being shorted while Class E is being shorted partial interest. Those shortfalls began in December 2024 (a previous shortfall of less than $3,000, attributed to trust expenses, had been outstanding for Class F) and are expected to continue to accumulate and persist beyond Morningstar DBRS' tolerance ceiling of six consecutive months for the BB (sf) and B (sf) credit rating categories given the appraisal reduction and likelihood that the loan remains outstanding beyond June 2025. This factor contributed to the credit rating downgrades for Classes E and F with this review.

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 credit 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).

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.

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 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
-- Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024), https://dbrs.morningstar.com/research/428623
-- 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.