DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the following classes of Commercial Mortgage Pass-Through Certificates, Series 2020-BNK29 to be issued by BANK 2020-BNK29:
-- Class A-1 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-3-X1 at AAA (sf)
-- Class A-3-X2 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-4-X1 at AAA (sf)
-- Class A-4-X2 at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)
-- Class A-S at AAA (sf)
-- Class A-S-X1 at AAA (sf)
-- Class A-S-X2 at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AA (high) (sf)
-- Class X-D at A (sf)
-- Class X-F at A (low) (sf)
-- Class X-G at BBB (sf)
-- Class X-H at BBB (low) (sf)
-- Class X-J at BB (sf)
-- Class X-K at B (high) (sf)
-- Class D at A (high) (sf)
-- Class E at A (low) (sf)
-- Class F at BBB (high (sf)
-- Class G at BBB (low) (sf)
-- Class H at BB (high) (sf)
-- Class J at BB (low) (sf)
-- Class K at B (sf)
All trends are Stable.
The Class A-3-1, Class A-3-2, Class A-3-X1, Class A-3-X2, Class A-4-1, Class A-4-2, Class A-4-X1, Class A-4-X2, Class A-S-1, Class A-S-2, Class A-S-X1, and Class A-S-X2 Certificates are also offered certificates. Such classes of certificates, together with the Class A-3, Class A-4, and Class A-S Certificates, constitute the Exchangeable Certificates. The Class A-1, Class A-SB, Class B, Class C, Class D, Class E, Class F, Class G, Class H, Class J, Class K, and Class L Certificates, together with the RR Interest and the Exchangeable Certificates with a certificate balance, are the Principal Balance Certificates.
The Class X-A, Class X-B, Class X-D, Class X-F, Class X-G, Class X-H, Class X-J, Class X-K, and Class X-L Certificates (collectively, the Class X Certificates) are notional amount certificates and will not be entitled to distributions of principal. The notional amount of the Class X-A Certificates will be equal to the aggregate certificate or principal balance of the Class A-1 and Class A-SB Certificates and the Class A-3 and Class A-4 trust components. The notional amount of the Class X-B Certificates will be equal to the aggregate certificate or principal balance of the Class A-S trust component and the Class B and Class C Certificates. The notional amount of the Class X-D Certificates will be equal to the aggregate certificate balance of the Class D and Class E Certificates. The notional amount of each of the Class X-F, Class X-G, Class X-H, Class X-J, Class X-K, and Class X-L Certificates will be equal to the certificate balance of the class of principal balance certificates that, with the addition of X-, has the same alphabetical designation as the subject class of Class X Certificates.
With regard to the Coronavirus Disease (COVID-19) pandemic, the magnitude and extent of performance stress posed to global structured finance transactions remain highly uncertain. This considers the fiscal and monetary policy measures and statutory law changes that have already been implemented or will be implemented to soften the impact of the crisis on global economies. Some regions, jurisdictions, and asset classes are, however, feeling more immediate effects. DBRS Morningstar continues to monitor the ongoing coronavirus pandemic and its impact on both the commercial real estate (CRE) sector and the global fixed-income markets. Accordingly, DBRS Morningstar may apply additional short-term stresses to its rating analysis, for example by front-loading default expectations and/or assessing the liquidity position of a structured finance transaction with more stressful operational risk and/or cash flow timing considerations.
The collateral consists of 41 fixed-rate loans secured by 89 commercial and multifamily properties. The transaction is a sequential-pay pass-through structure. DBRS Morningstar analyzed the conduit pool to determine the provisional ratings, reflecting the long-term probability of loan default within the term and its liquidity at maturity. DBRS Morningstar shadow rated three loans, representing 17.2% of the pool balance, as investment grade. When DBRS Morningstar measured the cut-off loan balances against the DBRS Morningstar Net Cash Flow and their respective actual constants, the initial DBRS Morningstar Weighted-Average (WA) Debt Service Coverage Ratio (DSCR) of the pool was 2.81 times (x). No loans had a DBRS Morningstar WA DSCR lower than 1.30x, a threshold indicative of a higher likelihood of midterm default. The DBRS Morningstar WA Loan-to-Value (LTV) ratio of the pool was 58.4% at issuance and the pool is scheduled to amortize down to a DBRS Morningstar WA LTV of 55.1% at maturity. These credit metrics are based on A note balances. Fourteen loans, representing 39.4% of the pool balance, were originated in connection with the borrower’s acquisition of the related mortgage property. Twenty-six loans, representing 50.6% of the pool balance, were originated in connection with the borrower’s refinancing of a previous mortgage loan and one loan, representing 10% of the pool balance, was originated in connection with a recapitalization. DBRS Morningstar views acquisition loans as more favorable in the context of recent-vintage conduit and fusion transactions. Cash-equity infusions from a sponsor in a transaction typically result in a greater alignment of interests between the lender and borrower, especially compared with a refinancing scenario where the sponsor may be withdrawing equity from the transaction.
The collateral features three loans, representing 17.2% of the pool balance, that DBRS Morningstar assessed as investment grade: The Grace Building, Turner Towers, and McDonald’s Global HQ. The Grace Building exhibits credit characteristics consistent with a shadow rating of “A,” McDonald’s Global HQ exhibits credit characteristics consistent with a shadow rating of A (low), and Turner Towers exhibits credit characteristics consistent with a shadow rating of AAA.
Eight loans, representing 37.7% of the pool balance, are in areas with DBRS Morningstar Market Ranks of 7 and 8, which benefit from locations in urban and liquid markets, driven by consistently strong investor demand, even during times of economic stress. Urban markets represented in this deal include New York and Chicago. In addition, 14 loans, representing 26.5% of the pool balance, have collateral in Metropolitan Statistical Area (MSA) Group 3, which represents the best-performing group in terms of historical commercial mortgage-backed security (CMBS) default rates among the top 25 MSAs. MSA Group 3 has a historical default rate of 17.2%, which is nearly 40.0% lower than the overall CMBS historical default rate of 28.0%.
Eighteen loans, representing 57.0% of the pool balance, exhibited DBRS Morningstar LTVs of equal to or less than 60.0% at issuance, a threshold historically indicative of relatively low-leverage financing and generally associated with below-average default frequency.
Term default risk is low as indicated by a strong DBRS Morningstar WA DSCR of 2.81x. Even with the exclusion of the shadow-rated loans, representing 17.2% of the pool balance, the deal exhibits a favorable DBRS Morningstar WA DSCR of 2.70x.
Five loans, representing 40.5% of the pool balance, have sponsors that DBRS Morningstar deems as Strong. Only four loans, representing 7.5% of the pool balance, have sponsors and/or loan collateral associated with a voluntary bankruptcy filing, a prior discounted payoff, a loan default, limited net worth and/or liquidity, a historical negative credit event, and/or inadequate CRE experience.
DBRS Morningstar deemed only one of the sampled loans as Below Average or Poor property quality. Eleven sampled loans, representing 69.4% of the pool balance, exhibited Average (+), Above Average, or Excellent property quality.
Thirteen loans, representing 29.6% of the pool balance, including four portfolios, are secured by properties that are either fully or partially leased to a single tenant. Coleman Highline (9.8% of the pool balance) is an office building that is 100% occupied by Roku. Exchange Right Net Leased Portfolio #40 (6.2% of the pool balance) consists of 21 properties across nine states. Of the net rentable area, 89.1% is occupied by investment-grade tenants, such as Walgreens Company (Walgreens), CVS Pharmacy, and Kroger. IFA Rotorion Building (3.9% of the pool balance) is an office building that is 100% occupied by IFA Rotorion and serves as its North American headquarters. Triangle 54 (3.7% of the pool balance) is an office building that is 100% occupied by RHO, Inc.
ExchangeRight Net Leased Portfolio #39 (1.4% of the pool balance) consists of 18 properties with seven different tenant brands, 14 of which are investment-grade properties, including Walgreens, Dollar General, Pick N Save, and Dollar Tree. Investment-grade tenants account for 63.9% of gross potential rent. Other single-tenant properties include H Mart (0.9% of the pool balance), Dollar General (0.8% of the pool balance), WAG portfolio of two Walgreens properties (0.7% of the pool balance), four separate loans with single-standing Walgreens (1.9% of the pool balance), and Comerica Bank (0.3% of the pool balance). The DBRS Morningstar WA LTV for the single-tenant properties is 63.5% at issuance, which DBRS Morningstar considers to be moderate leverage.
The pool has a relatively high concentration of loans secured by office properties with eight loans, representing 52.0% of the pool balance. The ongoing coronavirus pandemic continues to pose challenges globally and the future demand for office space is uncertain with corporate downsizings and more companies extending their remote-working strategy. Two of the three shadow-rated loans, The Grace Building and McDonald’s Global HQ, representing 14.3% of the pool balance, are office properties that DBRS Morningstar shadow rates as investment grade. The office properties in the pool exhibit a favorable DBRS Morningstar WA DSCR of 3.05x and DBRS Morningstar WA LTV of 54.5%, which mitigate some of DBRS Morningstar’s concerns about this property type. Five of the office loans, representing 43.3% of the pool balance, are secured by office properties located in areas with a DBRS Morningstar Market Rank of 7 and 8, which are in desirable primary markets. For the loans secured by office properties in more suburban areas, the WA expected loss is more than 2.00x the overall pool’s expected loss. Four of the office loans, representing 37.5% of the pool balance, are backed by sponsors that DBRS Morningstar deems as Strong because they meet certain net worth and liquidity multiple thresholds and have substantial real estate experience with limited past credit issues.
Twenty-seven loans, representing 74.0% of the pool balance, are structured with full-term interest-only (IO) periods. An additional eight loans, representing 9.6% of the pool balance, are structured with partial-IO terms ranging from 12 months to 60 months.
The pool features a relatively high concentration of loans secured by properties located in less favorable suburban, tertiary, and rural market areas. Twenty-six loans, representing 39.8% of the pool balance, are secured by properties predominately located in areas with a DBRS Morningstar Market Rank of 1 through 4. Loans in markets with a DBRS Morningstar Market Rank of 1 through 4 typically have a higher probability of default, and on average, produce higher expected losses than similar loans.
Two loans—2100 River and Turner Towers—with an original loan amount exceeding $20 million, representing 6.1% of the pool balance, do not have a nonconsolidation opinion.
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-A, X-B, X-D, X-F, X-G, X-H, X-J, X-K, and X-H 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.
For supporting data and more information on this transaction, please log into www.viewpoint.dbrsmorningstar.com. DBRS Morningstar provides analysis and in-depth commentary in the DBRS Viewpoint platform.
DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:
-- Prospectus ID#1 – 250 West 57th Street (10.0% of the pool)
-- Prospectus ID#2 – Coleman Highline (9.8% of the pool)
-- Prospectus ID#3 – 120 Wall Street (9.2% of the pool)
-- Prospectus ID#4 – The Grace Building (8.6% of the pool)
-- Prospectus ID#5 – ExchangeRight Net Leased Portfolio #40 (6.2% of the pool)
-- Prospectus ID#6 – McDonald's Global HQ (5.7% of the pool)
-- Prospectus ID#7 – The Arboretum (4.6% of the pool)
-- Prospectus ID#8 – IFA Rotorion Building (3.9% of the pool)
-- Prospectus ID#9 – Triangle 54 (3.7% of the pool)
-- Prospectus ID#10 – 1890 Ranch (3.4% of the pool)
-- Prospectus ID#11 – 2100 River (3.2% of the pool)
-- Prospectus ID#12 – 711 Fifth Avenue (2.9% of the pool)
-- Prospectus ID#13 – Turner Towers (2.9% of the pool)
-- Prospectus ID#14 – 114 Mulberry Street (2.0% of the pool)
-- Prospectus ID#15 – Chasewood Technology Park (1.8% of the pool)
-- Prospectus ID#16 – Interbay Self Storage – Seattle, WA (1.7% of the pool)
-- Prospectus ID#17 – Superior Self Storage Pocket (1.5% of the pool)
-- Prospectus ID#18 – Glendale Thunderbird Shopping Center (1.4% of the pool)
-- Prospectus ID#19 – Mission Plaza (1.4% of the pool)
-- Prospectus ID#20 – ExchangeRight Net Leased Portfolio #39 (1.4% of the pool)
-- Prospectus ID#21 – Home2 Suites - Columbus (Airport East), OH (1.2% of the pool)
-- Prospectus ID#22 – 169-171 University Avenue (0.8% of the pool)
-- Prospectus ID#23 – Midwest Dollar General Portfolio (0.8% of the pool)
-- Prospectus ID#24 – Hillcrest and Chiesa MHCs (0.5% of the pool)
-- Prospectus ID#25 – Walgreens Deltona, FL (0.4% of the pool)
-- Prospectus ID#26 – Comerica Bank - Dallas, TX (0.3% of the pool)
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All figures are in U.S. dollars unless otherwise noted.
With regard to due diligence services, DBRS Morningstar was provided with the Form ABS Due Diligence-15E (Form-15E), which contains a description of the information that a third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While due diligence services outlined in Form-15E do not constitute part of DBRS Morningstar’s methodology, DBRS Morningstar used the data file outlined in the independent accountant’s report in its analysis to determine the ratings referenced herein.
The principal methodology is the North American CMBS Multi-Borrower Rating Methodology (August 7, 2020), which can be found on 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 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.
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