DBRS Morningstar Assigns Ratings to BX Commercial Mortgage Trust 2018-IND

DBRS, Inc. (DBRS Morningstar) assigned ratings to the Commercial Mortgage Pass-Through Certificates, Series 2018-IND issued by BX Commercial Mortgage Trust 2018-IND (the Issuer) as follows:

-- Class A at AAA (sf)
-- Class B at AAA (sf)
-- Class X-CP at AAA (sf)
-- Class X-NCP at AAA (sf)
-- Class C at AA (sf)
-- Class D at A (high) (sf)
-- Class E at A (low) (sf)
-- Class F at BBB (low) (sf)
-- Class G at BB (low) (sf)
-- Class H at B (low) (sf)

All trends are Stable.

These certificates are currently also rated by DBRS Morningstar’s affiliated rating agency, Morningstar Credit Ratings, LLC (MCR). In connection with the ongoing consolidation of DBRS Morningstar and MCR, MCR previously announced that it had placed its outstanding ratings of these certificates Under Review–Analytical Integration Review and that MCR intended to withdraw its outstanding ratings; such withdrawal will occur on or about August 14, 2020. In accordance with MCR’s engagement letter covering these certificates, upon withdrawal of MCR’s outstanding ratings, the DBRS Morningstar ratings will become the successor ratings to the withdrawn MCR ratings. Information about the MCR ratings, including the history of the MCR ratings, can be found at www.morningstarcreditratings.com.

On March 1, 2020, DBRS Morningstar finalized its “North American Single-Asset/Single-Borrower Ratings Methodology” (the NA SASB Methodology), which presents the criteria for which ratings are assigned to and/or monitored for North American single-asset/single-borrower (NA SASB) transactions, large concentrated pools, rake certificates, ground lease transactions, and credit tenant lease transactions. For further information on the NA SASB Methodology, please see the press release dated March 1, 2020, on the DBRS Morningstar website at www.dbrsmorningstar.com.

The subject rating actions are the result of the application of the NA SASB Methodology in conjunction with the “North American CMBS Surveillance Methodology,” as applicable. Qualitative adjustments were made to the final loan-to-value (LTV) sizing benchmarks used for this rating analysis.

At issuance, the collateral for the transaction was a $2.50 billion first-lien mortgage loan on 171 properties consisting of 46.4 million square feet of space in 22 states and 26 industrial markets. Since issuance, certain assets have been released from the subject trust and the mortgage-loan balance has been paid down pro rata to approximately $1.6 billion. The portfolio benefits from excellent geographic diversification, granular tenancy, a robust industrial climate, and below-market rental rates combined with significant investment-grade tenancy and strong sponsorship.

As of July 30, 2018, the portfolio was 97.4% leased to 187 tenants. The Blackstone Group used the financing as part of its purchase of Gramercy Property Trust Inc. for $27.50 per share, representing a total acquisition valued at $7.5 billion, which was announced on May 6, 2018. Citi Real Estate Funding Inc. and the Bank of America Corporation (rated A (high) with a Stable trend by DBRS Morningstar) co-originated the five-year loan (two years plus three one-year extensions), which pays floating-rate interest based on one-month Libor plus 1.420% on an interest-only (IO) basis through the entire term. Citigroup Global Markets Realty Corp. and the Bank of America Corporation also originated a $500.0 million mezzanine loan, which is subordinate to and held outside the trust. The mezzanine loan comprises two tranches: the interest rate for Mezzanine Loan A is one-month Libor plus 4.000% and the interest rate for Mezzanine Loan B is one-month Libor plus 5.500%.

The DBRS Morningstar net cash flow (NCF) derived at issuance was reanalyzed for the subject rating action to confirm its consistency with the “DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria.” The resulting NCF figure was $123.1 million and a cap rate of 7.25% was applied, resulting in a DBRS Morningstar Value of $1.7 billion, a variance of -52.4% from the appraised value at issuance of $3.6 billion. The NCF and resulting value difference is skewed by the release of certain assets in the pool and the paydown of the existing whole-loan balance to just over $1.6 billion as of May 2020 from $2.5 billion at issuance. The DBRS Morningstar Value implies an adjusted LTV of 94.7% compared with the LTV of 45.1% on the appraised value at issuance.

The cap rate DBRS Morningstar applied is at the lower end of the DBRS Morningstar Cap Rate Ranges for industrial properties, reflecting the underlying collateral’s location and quality. In addition, the 7.25% cap rate DBRS Morningstar applied is above the implied cap rate of 5.62% based on the Issuer’s underwritten NCF and appraised value.

DBRS Morningstar made positive qualitative adjustments to the final LTV sizing benchmarks used for this rating analysis, totaling 4.5% to account for cash flow volatility, property quality, and market fundamentals. DBRS Morningstar also made other negative adjustments to account for certain debt stack penalties.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Classes X-CP and X-NCP are IO certificates that reference 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 ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for this transaction.

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes loan-level data for most outstanding CMBS transactions (including non-DBRS Morningstar-rated), as well as loan-level and transaction-level commentary for most DBRS Morningstar-rated and -monitored transactions.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodologies are the North American Single-Asset/Single-Borrower Ratings Methodology and North American CMBS Surveillance Methodology, which can be found on www.dbrsmorningstar.com under Methodologies & Criteria. For a list of the structured-finance-related methodologies that may be used during the rating process, please see the DBRS Morningstar Global Structured Finance Related Methodologies document, which can be found on www.dbrsmorningstar.com in the Commentary tab under Regulatory Affairs. Please note that not every related methodology listed under a principal structured finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS Morningstar long-term rating scale definition indicates that 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.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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