Morningstar DBRS Downgrades Credit Ratings on Three Classes of Real Estate Asset Liquidity Trust, Series 2019-1, Maintains Negative Trends on Three Classes
CMBSDBRS Limited (Morningstar DBRS) downgraded its credit ratings on three classes of Commercial Mortgage Pass-Through Certificates, Series 2019-1 (the Certificates) issued by Real Estate Asset Liquidity Trust, Series 2019-1 as follows:
-- Class B to A (sf) from AA (sf)
-- Class X to B (sf) from A (low) (sf)
-- Class C to B (low) (sf) from BBB (high) (sf)
In addition, Morningstar DBRS confirmed the following credit ratings:
-- Class A-2 at AAA (sf)
-- Class D-1 at C (sf)
-- Class D-2 at C (sf)
-- Class E at C (sf)
-- Class F at C (sf)
-- Class G at C (sf)
Morningstar DBRS maintained the Negative trends on Classes B, X, and C. The trend on Class A-2 remains Stable, while Classes D-1, D-2, E, F, and G have credit ratings that do not typically carry trends in commercial mortgage-backed securities (CMBS) transactions.
The credit rating downgrades on Classes B, X, and C reflect Morningstar DBRS' increased loss projections for the largest loan in the pool, WSP Place (Prospectus ID#1; 13.8% of the pool), as further detailed below. Based on the most recent appraisal available, dated February 2024, the as-is property value was reported at $14.5 million, a variance of -71.4% from the issuance value of $51.0 million. Since the appraisal was completed, vacancy at the property has continued to rise above 65.0%, suggesting that property value has further declined. Servicer advances have also continued to accrue and were up to $4.6 million as of the July 2025 reporting. Based on the February 2024 appraised value, the trust exposure of $40.7 million reflects a loan-to-value (LTV) ratio of more than 280.0%. While the loan is full recourse to the sponsor, the servicer has reported four events of default under the forbearance agreement since it was executed in June 2024, the most recent being a missed principal curtailment of $1.2 million, which was to be paid by July 2025. The servicer has also indicated that the additional collateral pledged as part of the recourse obligation is not generating any excess cash flow amid depressed market conditions. With consideration for further deterioration in the as-is property value, Morningstar DBRS expects a full loss will be realized at resolution for this loan, a scenario which would erode the majority of the principal balance of Classes D-1 and D-2 (pro rated and pari passu certificates) and fully wipe out the balance of the subordinate certificates, further reducing the credit support for the remaining senior certificates and supporting the Negative trends.
During the previous review, Morningstar DBRS downgraded Classes D-1, D-2, E, F, and G as a result of sustained interest shortfalls for those classes, which at the time exceeded Morningstar DBRS' tolerance levels for certificates rated B (sf) and above. Interest shortfalls have continued to accumulate since that time, with Classes D-1 and D-2 being shorted nearly 95.0% of certificate interest due with the July 2025 reporting. According to the servicer, the borrower of the Group Guzzo Retail Terrebonne loan (Prospectus ID#14; 4.4% of the pool) has repaid all previously outstanding principal and interest advances, with approximately $200,000 in legal fees outstanding. As such, the outstanding interest shortfalls are attributable to the WSP Place loan. Given the borrower's inability to meet its debt obligations because of liquidity constraints, and the potential for further deterioration in the as-is property value, Morningstar DBRS expects interest shortfalls to continue to accrue, further supporting the Negative trends on Classes B and C. Morningstar DBRS notes the transaction's structure features narrow tranches below the Class A-2 certificate, a factor which exacerbates the increased credit risks for the pool as outlined above.
The credit rating confirmation on the Class A-2 certificate, which represents approximately 77.0% of the total pool balance, reflects the otherwise stable performance of the performing loans in the pool, which Morningstar DBRS generally expects to repay at maturity based on the most recent year-end weighted-average (WA) debt service coverage ratio (DSCR), which is above 1.60 times, and a WA debt yield in excess of 12.0%.
The WSP Place loan is secured by a 184,707-square-foot (sf) office tower in Edmonton and was transferred to special servicing ahead of its January 2024 loan maturity for payment default. The forbearance agreement executed in June 2024 included a loan extension through July 2026, with an interest rate increase, a principal curtailment, and the borrower's pledge of additional security in the form of proceeds on dispositions of multiple assets and mortgage charges on unsold assets. To date, four of the pledged assets have been sold at a value less than the original debt, with the collateral having second- and third-priority positions on excess proceeds. The servicer reports that the workout strategy continues to focus on the borrower's plan to stabilize the property. The stabilized value was reported to be $26.9 million, approximately 20.5% below the current outstanding loan balance of $34.4 million.
The sponsor, wholly owned by GSRI Ltd., invested over $40.0 million renovating and repositioning the property prior to securitization. Despite the capital improvements, the property has lost major tenants over the last several years. The largest tenant, WSP Canada Inc. (currently 17.5% of NRA, lease expiry in July 2026), also reduced its footprint by 50% in 2021 and has not yet indicated plans for the July 2026 lease expiry. In May 2025, however, the tenant sent a notice of default to the borrower indicating it was unhappy with the working conditions on two floors, which the property manager is actively working to remedy according to the servicer. According to servicer reporting, the property was 33.5% occupied as of June 2025, falling from 38.8% occupied in February 2024, with no major leasing prospects noted. During the same period, the property's average rental rate was $17.60 per sf (psf), slightly above the Q1 2025 average asking rental rate of $16.81 psf for the Downtown Edmonton submarket reported by Colliers. The average submarket vacancy rate was 19.9%.
As of the July 2025 reporting, 29 of the original 48 loans remain in the pool, with an aggregate trust balance of $245.4 million, representing a collateral reduction of approximately 45.0% since issuance because of scheduled loan amortization and repayments. The pool consists primarily of loans secured by retail and office properties, which represent 43.6% and 25.9%, respectively, of the pool. There are currently two loans in special servicing, representing 18.2% of the pool, and four loans on the servicer's watchlist, representing 8.1% of the pool. Two of the watchlisted loans, Eastview Retail (Prospectus ID#31; 1.6% of the pool) and Strathmore Professional Centre (Prospectus ID#48; 0.7% of the pool), recently received short-term maturity extensions but are expected to repay in full as take-out financings have been secured for both properties.
The Group Guzzo Retail Terrebonne loan is secured by a retail property in Terrebonne, Québec, which is anchored by a 14-screen movie complex. The loan was transferred to special servicing in May 2024 after falling into arrears. The borrower's parent company, Cinemas Guzzo Inc. (Guzzo), owns and operates a chain of movie theatres, which given the residual impact of the COVID-19 pandemic and the recent film industry strike, have been slow to recover. Following several legal claims against the borrower for past-due mortgages and loans, a court-ordered receiver took full control of the Guzzo operations in February 2025 and subsequently closed operations. Since that time, the second mortgagor has continued to make loan payments and purchased the theatre equipment with plans to resume operations. Those plans ultimately materialized and the theatre reopened in March 2025; a receiver will remain in place until the end of July 2025, at which point Guzzo and the second mortgagee will assume full operational control of the property. Despite these increased risks in the disruptions in operations and delinquency for the loan, it appears the second mortgagor remains engaged and incentivized to ensure the obligations of the first mortgage are met. Morningstar DBRS considered a stressed scenario in its analysis for this review given the increased risks, with the resulting expected loss well above the pool average figure.
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.
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.
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 (28 February 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 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 17g-7 disclosure report and/or the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.
As applicable, 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.
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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 Commercial Mortgage Servicer Rankings (August 23, 2024), https://dbrs.morningstar.com/research/438283
-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (September 19, 2024), https://dbrs.morningstar.com/research/439702
-- 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
-- Legal and Derivatives Criteria for Canadian Structured Finance (June 24, 2025), https://dbrs.morningstar.com/research/456831
A description of how Morningstar DBRS analyzes structured finance transactions and how the methodologies are collectively applied can be found at (July 17, 2023): https://dbrs.morningstar.com/research/410863.
For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.
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