DBRS Morningstar Changes Trends to Stable from Negative on All but Two Classes from COMM Trust 2020-CBM Mortgage Trust, Confirms Ratings

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2020-CBM, issued by COMM Trust 2020-CBM Mortgage Trust as follows:

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

DBRS Morningstar changed the trends on all classes to Stable, with the exception of Classes E and F, which continue to carry Negative trends as a reflection of the increased risk to the transaction as a result of the Coronavirus Disease (COVID-19) global pandemic.

The underlying $684.0 million mortgage loan is secured by a first-priority mortgage on fee and leasehold interests on 52 limited-service hotel properties with 7,677 rooms. The fixed-rate loan includes a five-year term and is interest only (IO) throughout. The whole loan is split into several components, including 10 pari passu notes of different balances totaling $398.0 million as well as one junior promissory note of $286.0 million, which is the junior trust note. The debt contributed to the transaction consists of four senior pari passu notes and the junior trust note for a total trust balance of $484.0 million. The six nontrust companion notes total $200.0 million for a whole-loan balance of $684.0 million maturing in February 2025.

The portfolio primarily includes older hotels, with 47 properties, representing 90.4% of the rooms, built in 1989 or earlier. All the hotels operate under the Courtyard by Marriott flag, benefiting from strong brand recognition, as well as brandwide reservation systems, marketing, and loyalty programs. The properties are in 25 states, with concentrations in California, Florida, Illinois, and Colorado representing 25.2%, 7.6%, 7.1%, and 6.6% of allocated loan amount (ALA), respectively. There was a $99.0 million reserve established at closing to fund capital improvements across the portfolio, and as of the August 2021 reporting, it appears that the bulk of those reserves have been released. A second reserve of approximately $70.0 million will be collected over the next few years to fund additional improvements.

The sponsor for the transaction is CBM Joint Venture Limited Partnership, a joint venture between affiliates of Clarion Partners, LLC and the Michigan Office of Retirement Services (the majority equity interest holder). The property manager is Courtyard Management Corporation, a third-party hotel management company and a wholly owned subsidiary of Marriott International, Inc.

Seven hotels in various states, representing 11.0% of the ALA, are subject to ground leases from third-party fee owners. In addition, 39 hotel properties are subject to ground leases between CBM Two Hotels L.P. Borrower, as the lessee, and C2 Land, L.P. Borrower, as the lessor, both related entities. Six hotels are fee simple owned. DBRS Morningstar did not assign an ALA to two hotels with ground leases terminating in less than 10 years and assumed release prices equal to 62.5% of the related appraised value at origination.

The portfolio suffered performance issues because of the coronavirus pandemic, which led to the near-total cessation of commercial and leisure travel. The loan transferred to special servicing in April 2020 in conjunction with the borrower’s request for coronavirus-related relief. Although the lender agreed to modification terms that included forbearance, the borrower ultimately abandoned the request for relief, and the loan was returned to the master servicer in May 2020. As of the August 2021 remittance report, the loan was performing and remains on the servicer’s watchlist for low debt service coverage ratio.

On an aggregate basis, the portfolio has previously outperformed its competitive sets with occupancy, average daily rates (ADRs), and revenue per available room penetration rates that have been higher than 100% since 2016. According to the trailing three months (T-3) ended March 2021 financials, the portfolio was reporting an occupancy of 42.4% and ADR of $86.97, compared with the T-3 ended December 2020 figures of 30.4% and $85.82, respectively.

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.

Classes X-NCP and X-CP 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.

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

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.

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.

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.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

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. + 416 593-5577