Morningstar DBRS Removes All Classes of BBCMS 2018-TALL Mortgage Trust From Under Review With Negative Implications, Confirms Credit Ratings on All Classes

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2018-TALL issued by BBCMS 2018-TALL Mortgage Trust as follows:

-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)

The credit ratings on all classes have been removed from Under Review with Negative Implications, where they were placed on May 29, 2025. All classes have Stable trends.

The transaction is secured by the borrower's fee-simple interest in Willis Tower, a 3.9 million square-foot (sf), Class A office building situated along Wacker Drive in the West Loop submarket of Chicago's central business district. The collateral includes a 300,000-sf retail and entertainment annex known as the Catalog, which includes the Skydeck Observation Deck (Skydeck). The Skydeck features an interactive museum celebrating the history of Chicago's neighborhoods and historical sites. The observation deck, situated on the 103rd floor, features four glass-floor balconies extending from the tower called The Ledge, which attracts more than 1.3 million visitors annually. According to YE2024 financial reporting, the Skydeck generated more than 20.0% of the property's total effective gross income.

Although cash flow trends have consistently improved, surpassing both the Morningstar DBRS Net Cash Flow (NCF) and Issuer's underwritten NCF, an updated appraisal was reported with the May 2025 remittance, indicating that the property's as-is appraised value has declined by approximately 20.0% from issuance. As such, Morningstar DBRS elected to place all rated classes Under Review with Negative Implications on May 29, 2025, to further evaluate the assumptions used in the most recent appraisal report and assess the potential impact to Morningstar DBRS' analytical approach and/or the credit ratings. Morningstar DBRS has reviewed a copy of the most recent appraisal report and determined that the assumptions made, and the concluded value do not suggest a deterioration in the overall credit profile when compared with the approach taken by Morningstar DBRS, which continues to suggest that the Class A, B, C, and D certificates are generally well insulated against loss, with credit enhancement levels ranging from 55.2% to 25.8%. The nonrated Class E and F certificates have a cumulative balance of more than $320.0 million, providing a considerable amount of cushion to the rated certificates in the capital stack.

Other mitigating factors include the loan's strong institutional sponsorship by the Blackstone Group L.P. (Blackstone), the Class A status of the property, which is one of the most recognizable properties in the United States, multiple and diverse income-generating components, including office, retail, Skydeck, and antenna revenue streams, and the lack of significant rollover risk in the remaining tenancy during the rest of the fully extended loan term. The factors outlined above, in addition to the conservative assumptions made as part of the derivation of the Morningstar DBRS value for the collateral property, as well as the in-place cash flows, which are sufficient to support the outstanding mortgage debt, were the primary contributors to Morningstar DBRS' rationale for the credit rating confirmations with this review.

The $1.33 billion interest-only floating-rate loan had an initial term of two years with five 12-month extension options. The loan transferred to special servicing in February 2025, ahead of its fully extended maturity date in March 2025. The borrower and special servicer agreed to a loan modification, the terms of which included an extension of the maturity date to March 2028, with two additional one-year extension options to follow, the implementation of cash management provisions and an equity contribution in excess of $45.0 million from the borrower, the majority of which was deposited into an all-purpose reserve account. The loan subsequently transferred back to the master servicer in April 2025. The loan modification approved by the special servicer also includes cash management provisions with excess cash flow swept into an all-purpose reserve account, which the borrower will be able to draw upon for eligible leasing and capital expenditure costs in addition to any shortfalls. In addition, commencing in 2026, any funds in the all-purpose reserve account in excess of predetermined thresholds will be used to pay down the loan's principal balance on a quarterly basis.

Although the loan remained current during the short stint in special servicing, the special servicer elected to obtain an updated appraisal to further evaluate the borrower's request for a loan modification. The obtained appraisal, dated February 2025, reflected an aggregate as-is and as-stabilized property value of $1.40 billion (a variance of approximately -21.0% from the as-is appraised value at issuance of $1.8 billion) and $1.63 billion (a variance of approximately -33.0% from the as-stabilized appraised value at issuance of $2.44 billion), respectively.

According to the March 2025 rent roll, the office, retail, and broadcast components were 82.2%, 64.7%, and 47.1% occupied, respectively. The largest tenants at the property are United Airlines, Inc. (United) (19.3% of the net rentable area (NRA); lease expiration in 2033), Morgan Stanley Barney Financing LLC ((Morgan Stanley) 5.4% of the NRA; lease expiration in 2037), and Seyfarth Shaw LLP ((Seyfarth), 5.4% of the NRA; lease expiration in 2032). United gave back more than 100,000 sf of space across three floors in 2021, paying a termination fee of $26.7 million. According to the loan documents, the borrower was not required to remit the termination fee to the lender, as the loan was not in a defined trigger period. The subject property serves as United's headquarters, and the tenant does have another contraction option for up to three full floors (approximately 155,000 sf of NRA/less than 5.0% of the NRA) with a notice date in March 2027 and an effective date the following year. Seyfarth has both a termination option and contraction option for one full floor with a notice date in June 2026 and an effective date the following year.

Various online sources have suggested that United's recent purchase of a 113-acre parcel of land near Denver International Airport may signal the company is contemplating a relocation of the airline's headquarters, but nothing has been confirmed by the company, or the servicer to date. Should both United and Seyfarth opt to exercise their contraction options at the property, Morningstar DBRS notes that the near-term cash flow disruption would likely be relatively minor, given the spaces in question represent less than 6.0% of the total property NRA and approximately 7.0% of the total YE2024 base rent. There would be impact to the overall refinance picture, however, as a significant downsizing by either tenant could suggest one or both plan to vacate at the 2032 and 2033 lease expiration dates, and the overall slow demand in Chicago has produced a tenant's market, which has pushed tenant improvement costs to very high levels, even for properties in the relatively desirable submarkets like the subject's West Loop.

There has been positive leasing momentum in recent years, with the sponsor having signed more than 400,000 sf of leases (between renewals and new contracts) since completing its renovation of the building in 2022. According to YE2024 financial reporting, the property generated $113.2 million of NCF, reflecting a debt service coverage ratio (DSCR) of 1.24 times (x), compared with the YE2023 and Issuer's underwritten figures of $110.8 million (a DSCR of 1.27x) and $101.9 million (a DSCR of 2.42x), respectively. The NCF improvement is largely due to increases in base rent and expense reimbursements. According to Q1 2025 Reis data, the West Loop submarket had an average vacancy rate of 14.5%, relatively in line with the subject's vacancy rate for the office component. The West Loop submarket's vacancy rate is projected to remain relatively elevated, at above 12.0%, through to 2028. Comparatively, Reis also projects the larger Chicago market's vacancy rate will remain elevated, marginally decreasing from 20.7% at Q2 2025 to 19.9% by 2028. The recent loan modification suggests Blackstone remains committed to the subject property, but Morningstar DBRS notes there remain challenges in the current environment, which could affect Blackstone's decision making going forward. The strong income generation from the Skydeck component, as well as the property's general appeal within the submarket, given the building's iconic status and Blackstone's significant investments since acquisition, are mitigating factors, considering the increased risks as outlined in this press release.

For the purposes of this credit rating action, Morningstar DBRS maintained the valuation approach from the April 2024 credit rating action. The Morningstar DBRS Value of $1.2 billion (including $144.7 million of value attributed to the stabilization of the retail and Skydeck components and outstanding office stabilization costs in conjunction with a 75.0% credit applied to the sponsor guarantees), is 11.0% lower than the most recent as-is appraised value of $1.40 billion. The Morningstar DBRS Value considered a capitalization rate of 7.5% and a Morningstar DBRS NCF figure of $82.8 million, which includes the revenue generated from all four distinct components of the property. The Morningstar DBRS Value implies a loan-to-value ratio (LTV) of 106.1% compared with an LTV of 94.4% and 81.5%, respectively, on the most recent as-is and as-stabilized appraised values (including the going concern market value for the Skydeck component). In addition, Morningstar DBRS maintained positive qualitative adjustments totaling 3.0% in the LTV sizing benchmark to reflect the low cash flow volatility and Class A property quality.

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, or 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 (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 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.

DBRS Limited
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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 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 Single-Asset/Single-Borrower Ratings Methodology (February 28, 2025)
https://dbrs.morningstar.com/research/448962
-- 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 (March 27, 2025)
https://dbrs.morningstar.com/research/450750

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 (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.