DBRS Morningstar Confirms All Ratings on Morgan Stanley Capital I Trust 2018-L1, Changes Trends on Seven Classes

DBRS Limited (DBRS Morningstar) confirmed the following ratings of the Commercial Mortgage Pass-Through Certificates, Series 2018-L1 issued by Morgan Stanley Capital I Trust 2018-L1:

-- 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 X-A at AAA (sf)
-- Class X-B at AAA (sf)
-- Class A-S at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at A (sf)
-- Class D at BBB (high) (sf)
-- Class X-D at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class F-RR at BB (high) (sf)
-- Class G-RR at BB (sf)
-- Class H-RR at B (sf)

DBRS Morningstar changed the trends on Classes X-B, B, C, D, X-D, E, and F-RR to Stable from Negative. All other trends are Stable with the exception of Classes G-RR and H-RR, which continue to carry Negative trends.

The trend changes reflect the year-over-year performance improvements of the collateral; however, DBRS Morningstar’s concerns with the sole loan in special servicing, Navika Six Portfolio (Prospectus ID#4, 4.9% of the pool), led to the continuing Negative trends on Classes G-RR and H-RR. In addition to the specially serviced loan, DBRS Morningstar also notes that the pool has a moderate concentration of retail and hospitality properties, representing more than 40.0% of the pool balance in the aggregate. The Shoppes at Chino Hills loan (Prospectus ID#23, 1.5% of the pool), the only specially serviced loan at the time of DBRS Morningstar’s last review, was successfully returned to the master servicer after receiving a modification that allowed it to use reserve funds to cover debt service payments for three months in 2020. In general, the Coronavirus Disease (COVID-19) pandemic continues to affect retail and hotel properties, and, along with the transfer of the Navika Six Portfolio to special servicing, the high concentration of loans backed by retail properties suggests increased risks for the pool since issuance, particularly for the lower rating categories.

As of the November 2021 remittance, all 47 original loans remain in the pool with a collateral reduction of only 1.1% since issuance as a result of loan amortization. One loan, representing 0.8% of the current trust balance, has been fully defeased. Additionally, eight loans, representing 18.6% of the current trust balance, are on the servicer’s watchlist. These loans are being monitored for a variety of reasons, including low debt service coverage ratio and occupancy as well as deferred maintenance issues.

The Navika Six Portfolio is a $43.7 million pari passu participation in an $81.0 million whole loan secured by a portfolio of six hotel properties with a combined 803 keys throughout multiple states (Texas, California, Florida, and New Jersey), with the largest exposure by allocated balance in Ontario, California. The whole loan proceeds and $2.5 million of equity were used primarily to refinance existing debt. The 10-year loan amortizes on a 30-year schedule through its maturity in September 2028. The loan had been on the servicer’s watchlist since April 2020 and was twice granted deferrals of most reserve and escrow payments from May 2020 through October 2020. The loan subsequently transferred to special servicing in March 2021 for payment default and remains delinquent as of November 2021. According to the latest servicer commentary, the borrower has requested additional payment relief and negotiations are still ongoing.

Occupancy was 58% for the trailing 12 months (T-12) through July 2021, 48% at YE2020, and 74% at YE2019. According to the T-12 through July 2021 STR report, the aggregate average daily rate (ADR) was $111.73 and revenue per available room (RevPAR) was $65.52, a 10.0% and 8.2% drop since the previous year’s period figures, respectively. For the same period, the competitive set reported occupancy, ADR, and RevPAR at 57.4%, $101.64, and $58.29, respectively. The normalized net cash flow (NCF) reported year to date (YTD) through June 2021 was $0.92 million, a 75.8% drop from the YE2020 NCF of $3.8 million and the Issuer's underwritten NCF of $10.27 million.

At issuance, DBRS Morningstar assigned investment-grade shadow ratings to Aventura Mall (Prospectus ID#1, 6.7% of the pool), Millenium Partners Portfolio (Prospectus ID#3, 6.2% of the pool), and The Gateway (Prospectus ID#6, 4.5% of the pool). DBRS Morningstar has confirmed that the performance of these loans remains consistent with the investment-grade loan characteristics.

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 Class B as the quantitative results suggested a lower rating on the class. The material deviation is warranted given the uncertain loan-level event risk with the loans in special servicing and on the servicer’s watchlist.

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.

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:

-- Prospectus ID#4 – Navika Six Portfolio (4.9% of the pool)

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 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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