Morningstar DBRS Downgrades Credit Ratings on Four Classes of BBCMS Trust 2018-CBM

DBRS, Inc. (Morningstar DBRS) downgraded its credit ratings on four classes of the Commercial Mortgage Pass-Through Certificates, Series 2018-CBM issued by BBCMS Trust 2018-CBM as follows:

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

In addition, Morningstar DBRS confirmed its credit ratings on the following classes:

-- Class A at AAA (sf)
-- Class F at C (sf)

The trends on all classes are Stable, with the exception of Classes E and F, as the credit ratings assigned typically do not carry trends in commercial mortgage-backed securities (CMBS) credit ratings.

The credit rating downgrades reflect the increased credit risk to the transaction from a decline in collateral net cash flow (NCF), resulting in downward pressure in the loan-to-value (LTV) sizing benchmarks, which Morningstar DBRS updated in its analysis with this review. Given the loan transferred to special servicing in August 2023 and the servicer continues to evaluate multiple resolution strategies, Morningstar DBRS also considered a liquidation scenario in its current analysis based on a 25.0% haircut to the August 2024 appraised value. Inclusive of additional estimated servicer advances and liquidation expenses, the analysis suggests a loss of approximately $88.7 million, compared with analyzed liquidated losses of $27.6 million in Morningstar DBRS' previous credit rating action in July 2024, which was conducted based on a haircut to the October 2023 appraised value. The current loss projection would fully erode the balance of Class F and partially erode the Class E balance, supporting the credit rating downgrade to Class E, as well as for Classes B through D given the reduced credit support.

The $415.0 million floating-rate underlying loan is secured by a portfolio of 30 Courtyard by Marriott select-service hotels, totaling 4,379 rooms across 15 states, that are operated and managed by Marriott Corporation under a management agreement that expires in December 2035. The portfolio is heavily concentrated in California (29.8% of allocated loan amount (ALA)), Michigan (10.8% of ALA), and Florida (9.6% of ALA). There is also $135.0 million of mezzanine debt held outside of the trust.

As noted above, at the previous credit rating action, Morningstar DBRS downgraded Classes D through F based on a liquidation scenario. The downgrades reflected the portfolio's sustained NCF declines below pre-pandemic levels, which contributed to the borrower's inability to refinance or meet the requirements for an extension at the July 2023 maturity date. Morningstar DBRS noted the vast differential between pre-pandemic cash flows and recently reported figures suggested it would be unlikely that collateral performance would return to issuance expectations, leading to a higher probability for the servicer to pursue foreclosure as a workout strategy.

The nonperforming matured loan remains in special servicing with the most recent servicer reported NCF of $27.1 million as of the T-12 period ended March 31, 2025, representing a slight increase from the YE2024 figure of $26.0 million but significantly down from the YE2023 figure of $36.8 million and the pre-pandemic figure of $49.8 million at issuance. This is contrary to previously observed trends as NCF had increased between YE2020 and YE2023. The portfolio reported a T-12 ended March 31, 2025, consolidated occupancy rate, average daily rate, and revenue per available room (RevPAR) of 64.2%, $144.20, and $92.58, respectively, which is relatively unchanged from the servicer reported RevPAR for the last two years and only slightly below the issuance RevPAR of $93.73. Departmental revenue has consistently increased year over year, surpassing pre-pandemic levels as of YE2024; however, there have also been substantial increases to operating expenses, which have outpaced revenue growth, largely driven by increases to property insurance and real estate taxes. As these expense increases are expected to persist, Morningstar DBRS maintains its viewpoint that cash flow will not return to issuance levels.

In the analysis for this review, Morningstar DBRS derived a stressed portfolio value of $372.3 million based on a 25.0% haircut to the July 2024 appraised value, suggesting an implied cap rate of 7.3% on the T-12 March 2025 NCF figure, resulting in negative credit ratings pressure throughout the capital stack. The updated valuation represents an LTV of 111.3% for the trust debt and a -44.8% variance to the issuance appraised value.

The credit rating on Class C is higher than the results implied by the LTV sizing benchmarks by three or more notches. This variance is warranted given Morningstar DBRS' conservative liquidation scenario suggests the class remains well insulated against liquidated losses, with cushion of $186.3 million in Classes D through F, which have below-investment-grade credit ratings.

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 at (May 16, 2025): https://dbrs.morningstar.com/research/454196

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 (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 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.

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. 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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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 (February 28, 2025): https://dbrs.morningstar.com/research/448962

-- 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

-- Interest Rate Stresses for U.S. Structured Finance Transactions (March 27, 2025): https://dbrs.morningstar.com/research/450750

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