DBRS Morningstar Upgrades Five Classes of Shelter Growth CRE 2019-FL2 Issuer Ltd

DBRS Limited (DBRS Morningstar) upgraded its ratings on five classes of the Priority Secured Floating Rate Notes Due 2036 issued by Shelter Growth CRE 2019-FL2 Issuer Ltd as follows:

-- Class B to AAA (sf) from AA (high) (sf)
-- Class C to AAA (sf) from AA (low) (sf)
-- Class D to AAA (sf) from A (low) (sf)
-- Class E to AA (sf) from BBB (high) (sf)
-- Class F to A (sf) from BBB (low) (sf)

DBRS Morningstar also confirmed its ratings on the remaining classes as follows:

-- Class G at BB (low) (sf)
-- Class H at B (low) (sf)

Additionally, DBRS Morningstar discontinued its rating on Class A-S as the class has been repaid in full and changed the trends on Classes B, C, D, E, F, G, and H to Stable from Negative. The rating upgrades and trend changes reflect the significant paydown to the bonds as a result of successful loan repayments and the generally stable performance of the remaining collateral pool. In conjunction with this press release, DBRS Morningstar published a Surveillance Performance Update report with in-depth analysis and credit metrics for the transaction and business plan updates on select loans. For access to this report, please click on the link under Related Documents below or contact us at info@dbrsmorningstar.com.

At issuance, the collateral consisted of 18 collateral interests comprising three first-lien whole mortgage loans and 15 pari passu participation interests in either a mortgage loan or a combined loan that consists of a mortgage loan and a related mezzanine loan secured by equity interests in the related mortgage borrower. As of the November 2021 remittance, eight of the original 18 loans remain in the pool with a remaining pool balance of $150.7 million, representing a collateral reduction of 66.8% since issuance. Additionally, through discussions with the servicer, it appears that two loans representing 18.8% of the current pool balance have secured takeout financing, which is expected to be reflected in the December 2021 remittance. This includes the Dowling Campus loan (Prospectus ID#17, 4.6% of the pool balance), which is currently in special servicing.

The remaining pool is concentrated by property type as four loans are secured by hotel properties, representing 60.5% of the pool balance; two loans are secured by mixed-use properties, representing 16.0% of the pool balance; one loan is secured by a multifamily property, representing 14.2% of the pool balance; and one loan is secured by an office property, representing 9.4% of the pool balance. According to an October 2021 update provided by the collateral manager, loan future funding of $2.8 million has been advanced to one borrower to aid in its business plan execution and property stabilization. An additional $6.2 million of loan future funding allocated to four individual borrowers has yet to be advanced and remains available for property stabilization efforts. According to an October 2021 future funding report, $6.3 million of the original $38.7 million has yet to be released to the borrowers.

As of the November 2021 remittance, there are three loans on the servicer’s watchlist, representing 47.4% of the current pool balance, all of which are being monitored for an upcoming loan maturity. The two largest loans on the servicer’s watchlist include separate pieces of the first mortgage note and mezzanine debt secured by the Westin DFW (Prospectus ID#2, 33.2% of the pool balance). The collective loan is secured by a 506-key full-service hotel in Irving, Texas, adjacent to the Dallas Fort Worth International Airport. The loan was placed on the servicer’s watchlist in October 2021 for a pending loan maturity in January 2022. The borrower is currently working to secure its final one-year extension option as the lender is considering waiving the debt-yield requirement contingent on the borrower posting additional funds into the debt service reserve account.

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.

DBRS Morningstar materially deviated from its North American CMBS Insight Model when determining the rating assigned to Classes G and H as the quantitative results suggested a higher rating. The material deviation is warranted given uncertain loan-level event risk.

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.

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.

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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