DBRS Morningstar Confirms All Ratings of Benchmark 2019-B12 Commercial Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates Series 2019-B12 issued by Benchmark 2019-B12 Commercial Mortgage Trust as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-AB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class X-B at A (high) (sf)
-- Class C at A (sf)
-- Class D at BBB (high) (sf)
-- Class X-D at BBB (high) (sf)
-- Class E at BBB (sf)
-- Class F-RR at BB (high) (sf)
-- Class G-RR at B (high) (sf)

DBRS Morningstar also changed the trends on Classes F-RR and G-RR to Negative from Stable as a reflection of performance challenges associated with the specially serviced loans as discussed below, caused primarily by the Coronavirus Disease (COVID-19) pandemic. All other trends are Stable.

The rating confirmations reflect the transaction’s overall stable performance since issuance. At issuance, the transaction consisted of 47 fixed-rate loans secured by 117 commercial and multifamily properties with a trust balance of $1.2 billion. In addition, there are non-offered loan-specific certificates for the Woodlands Mall (Prospectus ID#2, 6.5% of the pool) and The Centre (Prospectus ID#15, 6.0% of the pool) loans, which are not rated by DBRS Morningstar and are not included in the percent of pool metrics. According to the September 2021 remittance, all loans remained in the pool and there has been negligible amortization to date. The transaction is concentrated by property type, with 13 loans secured by office collateral, representing 31.9% of the pool, and 14 loans secured by retail collateral, representing 24.9% of the pool. In addition, the pool is concentrated by state as 59.9% of the portfolio’s properties are concentrated in five states: California, New York, Texas, Florida, and Delaware.

According to the September 2021 remittance, 19 loans representing 37.3% of the pool were on the servicer’s watchlist. Some of the watchlisted loans are being monitored following pandemic-related forbearance requests, with most loans on the watchlist exhibiting performance declines from issuance expectations. The largest loan on the watchlist is the Woodlands Mall loan. The collateral for this loan is a super-regional mall in the Houston metro area and is on the watchlist for a trigger event related to a debt service coverage ratio (DSCR) decline that was driven by lower revenues reported for 2020 and 2021. Occupancy remains high (reported at 95.0% as of June 2021), and the cash flow declines appear to be related to the pandemic, with the loan still reporting a DSCR well above breakeven.

As of the September 2021 remittance, two loans, representing 1.5% of the pool, were in special servicing. The largest loan in special servicing, Greenleaf at Howell (Prospectus ID#34, 0.9% of the pool), is secured by a 227,045-square-foot anchored retail center in Howell, New Jersey. The loan transferred to special servicing in September 2020 for imminent monetary default related to the coronavirus pandemic. When the loan transferred to special servicing, the servicer reported a DSCR of 0.74 times (x). The three largest tenants at issuance included BJ’s Wholesale Club, Xscape Theatres, and LA Fitness, which collectively represented 81.1% of the net rentable area. However, the second-largest tenant, Xscape Theatres, has since closed, bringing the physical occupancy rate down by 25.0% from the YE2020 occupancy rate of 99.0% reported by the servicer.

Although the loan has been in special servicing for a year and has reported 90+ days delinquent since the November 2020 remittance, the workout strategy remains unclear. DBRS Morningstar recently obtained an updated appraisal dated August 2021 that showed an updated value of $30.0 million, down from the $32.9 million value in the November 2020 appraisal and the $66.9 million value at issuance. Given the sharp value decline, as well as the extended period of time in special servicing without any material progress toward a resolution, DBRS Morningstar expects that a significant loss will be realized with the workout for this loan. Based on the most recent valuation, a liquidation scenario that resulted in a loss severity in excess of 50.0% was applied for this review.

The remaining loan in special servicing, Hampton Inn Terre Haute (Prospectus ID#38, 0.7% of the pool), is secured by a five-story, 112-key limited-service Hampton Inn in Terre Haute, Indiana. The loan transferred to special servicing in June 2020 because of delinquency. As of the September 2021 remittance, the last loan payment was made in August 2020, when a receiver was appointed to manage and market the property for sale. As of the Q2 2021 reporting period, the loan reported a DSCR of 0.18x compared with the issuance DSCR of 1.93x. The most recent occupancy as of June 2021 was 50%. The special servicer obtained an updated value in September 2020 that showed an as-is value of $8.7 million, down from the issuance figure of $11.5 million. A July 2021 appraisal was reported with the September 2021 remittance, showing another value decline to $8.0 million. Based on a haircut to the valuations obtained by the special servicer, DBRS Morningstar expects a loss severity in excess of 25.0% at resolution for this loan.

The liquidation scenarios assumed by DBRS Morningstar for the two loans in special servicing contributed to erosion in credit support for the Class F-RR and G-RR certificates, contributing to the Negative trends carried by those classes.

At issuance, DBRS Morningstar shadow-rated 3 Columbus Circle (Prospectus ID#8, 4.2% of pool) as investment grade. DBRS Morningstar confirmed the shadow rating on 3 Columbus Circle at BBB (high), given its stable performance and low leverage.

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-A, X-B, and X-D are interest-only (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 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.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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.

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.

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