Morningstar DBRS Confirms All Credit Ratings of Canadian Commercial Mortgage Origination Trust 4
CMBSDBRS Limited (Morningstar DBRS) confirmed all credit ratings on the classes of Commercial Mortgage Pass-Through Certificates, Series 2018-4 issued by Canadian Commercial Mortgage Origination Trust 4 as follows:
-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class D at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (sf)
-- Class G at B (sf)
-- Class X at A (high) (sf)
The trends on Classes E, F, and G are Negative. The trends on all remaining classes are Stable.
The credit rating confirmations reflect the overall stable performance of the transaction, which remains in line with Morningstar DBRS' expectations since its previous credit rating action in July 2024. As of the June 2025 remittance, 26 of the original 53 loans remain in the pool, representing a collateral reduction of 44.7% since issuance with a current trust balance of $304.0 million. The pool has a heavy office concentration, with the property type representing 35.0% of the current trust balance. No loans are delinquent or specially serviced. At the previous credit rating action, Morningstar DBRS placed Negative trends on Classes E, F, and G to reflect increased concerns across several loans deemed to have elevated credit risk because of occupancy declines and/or concentrated tenant rollover risk. The four loans of primary concern: Morneau Shepell Office Complex (Prospectus ID#2, 8.8% of the current pool balance) and the Europro Office Portfolio (Prospectus ID #12, #13, and #14; collectively represent 12.8% of the current pool balance), are discussed in further detail below. Morningstar DBRS maintained the Negative trends on Classes E, F, and G with this review as the potential for further credit deterioration on these loans remains given the continued depressed occupancy rates across the collateral amidst the borrowers' difficulty in backfilling vacant space because of softer submarket fundamentals.
The Morneau Shepell Office Complex is secured by two identical Class A office properties in North York, Ontario, approximately 15 kilometers north of the Toronto central business district, totaling 253,700 square feet. The 10-year loan is nonrecourse to the borrower and amortizes over a 25-year schedule with a current LTV of 42% based on the issuance appraisal of $63.5 million conducted in June 2017. As per the May 2025 rent roll, the subject is 34.4% occupied, compared with the May 2024 figure of 92.0%. The significant decline in occupancy is attributable to the departure of the former largest tenant, Morneau Shepell Ltd., (formerly 56% of the net rentable area (NRA)), which vacated the subject at lease expiration in August 2024. According to the most recent servicer commentary, potential tenants have made leasing inquiries for small blocks of space; however, there have been no large tenant prospects to backfill vacant space. As per the Colliers Q1 2025 Toronto Office Market Report, the Don Mills¿Eglington submarket had an average vacancy rate of 12.0%; an increase from the Q1 2024 figure of 8.6%. Morningstar DBRS expects the borrower will continue to face challenges backfilling vacant space given the decrease in leasing activity for the property type. The loan is sponsored by Fana Park Centre Corp., which does not provide any recourse to the loan. In its review, Morningstar DBRS analysed this loan with an elevated probability of default (POD) and stressed LTV of 149.1%, resulting in a loan expected loss (EL) more than four times greater than the EL for the pool.
The Europro Office Portfolio is composed of three crosscollateralized and crossdefaulted loans secured by one Class A and two Class B office properties in downtown Kitchener, Ontario. Two of the properties, Europro Frederick Office (Frederick; Prospectus ID#12, 4.4% of the current pool balance) and Europro Queen Street Office (Queen; Prospectus ID#13, 4.4% of the current pool balance) were added to the servicer's watchlist in September and December 2023, respectively, for occupancy declines, while the third property, Europro King Street Office (King; Prospectus ID#14, 4.0% of the current pool balance), was added to the servicer's watchlist in September 2024 for occupancy decline. As per the March 2025 rent rolls, the Fredrick, Queen, and King offices reported occupancy rates of 58.8%, 45.7%, and 57.4%, respectively, a slight decrease or in line with the March 2024 occupancy rates of 55.3%, 56.9%, and 57.4%, respectively. The King property also has notable upcoming tenant rollover risk, with tenants occupying 32.2% of the NRA having leases scheduled to expire within the next 12 months. As per the Colliers Q1 2025 Waterloo Office Market Report, the downtown Kitchener submarket had an average vacancy rate of 36.9%; an increase of 10.0% from the Q1 2024 figure of 26.9%. Morningstar DBRS similarly expects the borrower will continue to face challenges backfilling vacant space given the significant deterioration in submarket fundamentals.
According to the YE2024 operating statements, the portfolio reported a consolidated net operating income (NOI) of $3.8 million, less than the YE2023 NOI of $4.4 million and the Morningstar DBRS NOI of $5.1 million. Despite the continued decline in performance, the loan has remained current on debt service payments. These loans have limited recourse to the borrower, up to 50.0% of the original loan balance, which is guaranteed by Cedar Point MF Holdings Inc. The portfolio has a current LTV of 51.8% based on the consolidated issuance appraisal of $75.3 million conduced in December 2016. To reflect the continued decline in occupancy and lack of leasing activity, Morningstar DBRS also analyzed this loan with a stressed LTV of 138.6% and an elevated POD, resulting in an EL greater than two times the pool EL.
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 factor(s) 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 (May 16, 2025), https://dbrs.morningstar.com/research/454196.
Class X 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 Canadian dollars unless otherwise noted.
The principal methodology is North American CMBS Surveillance Methodology (February 28, 2025), https://dbrs.morningstar.com/research/448963.
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 ratings were initiated at the request of the rated entity.
The rated entity or its related entities did participate in the credit rating process for these credit rating actions.
Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with these credit rating actions.
These are solicited credit ratings.
For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings
Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.
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 Limited
DBRS Tower, 181 University Avenue, Suite 600
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 CMBS Multi-Borrower Rating Methodology (April 9, 2025)/North American CMBS Insight Model v 1.3.0.0
https://dbrs.morningstar.com/research/451739
-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (September 19, 2024)
https://dbrs.morningstar.com/research/439702
-- Legal and Derivatives Criteria for Canadian Structured Finance (June 24, 2025)
https://dbrs.morningstar.com/research/456831
-- 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/410863 (July 17, 2023).
For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.
Ratings
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.