DBRS Morningstar Confirms All Classes of Real Estate Asset Liquidity Trust, Series 2019-1

DBRS Limited (DBRS Morningstar) confirmed all ratings on the Commercial Mortgage Pass-Through Certificates, Series 2019-1 (the Certificates) issued by Real Estate Asset Liquidity Trust, Series 2019-1 as follows:

--Class A-1 at AAA (sf)
--Class A-2 at AAA (sf)
--Class B at AA (sf)
--Class X at A (high) (sf)
--Class C at A (sf) (sf)
--Class D-1 at BBB (sf)
--Class D-2 at BBB (sf)
--Class E at BBB (low) (sf)
--Class F at BB (sf)
--Class G at B (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which remains in line with DBRS Morningstar’s expectations. As of the April 2021 remittance, 47 of the original 48 loans remain in the pool, with an aggregate trust balance of $413.6 million, representing a collateral reduction of 7.3% since issuance as a result of scheduled loan amortization and the repayment of a single loan.

The transaction displays a heavy property type concentration as 21 loans, representing 51.3% of the current trust balance, are secured by retail assets, while five loans, representing 20.9% of the current trust balance, are secured by office properties. All loans in the pool are amortizing through their respective loan terms, while 27 loans, representing 58.9% of the current trust balance, benefit from some level of meaningful recourse to the loan’s sponsor.

According to the April 2021 remittance report, no loans are in special servicing nor delinquent but six loans are on the servicer’s watchlist, representing 24.0% of the current trust balance. All six of these loans have been affected by the ongoing difficulties caused by the Coronavirus Disease (COVID-19) pandemic. Four of these loans, representing 11.7% of the current trust balance, received various forms of short-term forbearances and are making payments based on the terms of their respective forbearances. The remaining two loans, representing 12.3% of the current trust balance, were permitted to utilize leasing reserves to cover shortfalls and it does not appear these funds will be required to be replenished.

The largest loan in the pool, WSP Place (Prospectus ID#1; 8.5% of the current trust) is secured by a 184,707-square foot office property in downtown Edmonton. The loan was added to the servicer’s watchlist in May 2020, as the borrower, who serves as the full recourse entity, requested coronavirus-related payment relief. In lieu of a short-term forbearance, the borrower was permitted to utilize leasing reserves to cover payments through July 2020. While the servicer indicated these funds were to be replenished between January 2021 and April 2021, no collections were made during this period as the leasing reserves balance has remained at $263,651. The borrower also fell delinquent on the payment of property taxes, although all outstanding amounts from 2020 were paid as of January 2021 and only the assessed late fees remain. Finally, the servicer has noted that there are two liens for work done on the building that were being disputed by the borrower that will likely be settled in court.

The property lost its third-largest tenant at issuance, AIMCo (8.5% of the net rentable area (NRA)), which vacated upon its lease expiration in December 2019, leaving the property 82.0% occupied. With a high vacancy rate within the subject’s submarket and the ongoing effects of the pandemic, DBRS Morningstar is monitoring the two largest tenants, WSP Canada Inc. (WSP) (36.4% of the NRA, expiring July 2026) and Alberta Health Servicers (23.6% of the NRA, expiring September 2021). While the servicer has given no indication of either tenant’s plans to vacate, WSP retains the right to terminate its lease with 12 months’ notice at the end of the 2021 or 2023, subject to $3.0 million and $2.0 million termination fees, respectively. Alberta Health Services, meanwhile, has no renewal options but has been a tenant at the subject since October 2004. In 2015, the borrower completed a $40.0 million renovation aimed at elevating the property’s status to Class A in order to be more competitive in a potentially oversupplied market. DBRS Morningstar has requested a number of updates from the servicer, including updates on the leasing reserve, delinquent taxes, disputed liens, and tenant information.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Class X is an interest-only (IO) certificate that references 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.

The DBRS Viewpoint platform provides additional information on this transaction and underlying loans including DBRS Morningstar metrics, commentary, servicer-reported cash flows, and other performance-related data.

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes issuer and servicer 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:
The principal methodology is the North American CMBS Surveillance Methodology (March 26, 2021), 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 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@dbrsmorningstar.com.

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.

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

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577