DBRS Morningstar Confirms Ratings on All Classes of BANK 2018-BNK10

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2018-BNK10 issued by BANK 2018-BNK10 as follows:

-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class X-B at A (high) (sf)
-- Class C at A (sf)
-- Class X-D at BBB (sf)
-- Class D at BBB (low) (sf)
-- Class X-E at BB (sf)
-- Class E at BB (low) (sf)
-- Class X-F at B (sf)
-- Class F at B (low) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction and generally healthy financial performance. The pool has a strong weighted-average (WA) debt service coverage ratio (DSCR) of 2.28 times (x); however, DBRS Morningstar notes that the transaction’s high concentration of loans collateralized by office properties, representing 25.4% of the pool balance, poses increased credit risk as there is an element of uncertainty around future demand for the property type. In general, the office sector’s performance has been strained, given the low investor appetite for the property type and high vacancy rates in many submarkets as a result of the shift in workplace dynamics. In the analysis for this review, loans backed by office properties and other properties that were showing performance declines from issuance or exhibiting increased risks from issuance were analyzed with stressed scenarios to increase the expected losses as applicable. The resulting WA expected loss for the stressed office loans is approximately 20.0% higher than the pool’s average expected loss.

As of the July 2023 remittance, 65 of the original 68 loans remain in the trust, with an outstanding trust balance of $1.2 billion resulting in a collateral reduction of 4.1% since issuance because of loan repayments/liquidation and scheduled amortization. Two loans, representing 7.4% of the current pool balance, are fully defeased. Five loans, representing 9.8% of the current pool balance, are on the servicer’s watchlist, primarily because of low DSCRs, occupancy concerns, and/or recent transfers back to the master servicer from the special servicer. One loan, representing 0.8% of the balance at issuance, liquidated from the pool in September 2021 with a loss of approximately $1.3 million contained to the nonrated Class G. There are currently no loans in special servicing.

The largest loan on the servicer’s watchlist, Wisconsin Hotel Portfolio (Prospectus ID#4, 5.4% of the pool balance), is secured by the borrower's fee-simple interests in a portfolio of 11 hotel properties with a combined 1,255 keys located across five submarkets in Wisconsin. The loan was added to the servicer’s watchlist in November 2020 for a low DSCR, reported at -0.24x at YE2020. Based on the financials for the trailing 12 month (T-12) period ended March 31, 2023, the loan reported a DSCR of 0.53x, an improvement from the YE2020 figure and relatively unchanged from the YE2022 figure of 0.55x, but still well below breakeven. Occupancy has not improved since the onset of the Coronavirus Disease (COVID-19) pandemic, hovering around 40% to 50%, while the pre-pandemic occupancy rate was reported at 63.7% as of YE2019. However, average daily rate and revenue per available room (RevPAR) has improved with the T-12 March 31, 2023, figures at $144.50 and $57.55, respectively, compared with the YE2020 figures of $84.57 and $33.12, respectively, but ultimately still below the YE2019 figures of $101.76 and $64.65, respectively. Despite the year-over-year RevPAR growth, performance continues to be well below DBRS Morningstar expectations. As such, DBRS Morningstar applied a probability of default penalty in its analysis, resulting in an expected loss that was nearly triple the pool’s WA expected loss.

At issuance, DBRS Morningstar shadow-rated two loans, Apple Campus 3 (Prospectus ID#1, 7.6% of the pool balance) and Moffett Towers II (Prospectus ID#10, 3.3% of the pool balance), as investment grade. With this review, DBRS Morningstar maintained the shadow ratings of the loans as they continue to perform in line with the investment-grade characteristics.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/416784 (July 4, 2023).

Classes X-A, X-B, X-D, X-E, and X-F 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 credit ratings are subject to surveillance, which could result in credit ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

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

The principal methodology is North American CMBS Surveillance Methodology (March 16, 2023) https://www.dbrsmorningstar.com/research/410912.

Other methodologies referenced in this transaction are listed at the end of this press release.

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 credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

DBRS, Inc.
22 West Washington Street
Chicago, IL 60602 USA
Tel. +1 312 332-3429

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

North American CMBS Multi-Borrower Rating Methodology (March 16, 2023)/North American CMBS Insight Model version 1.1.0.0, https://www.dbrsmorningstar.com/research/410913

Rating North American CMBS Interest-Only Certificates (December 19, 2022), https://www.dbrsmorningstar.com/research/407577

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 12, 2022), https://www.dbrsmorningstar.com/research/402646

North American Commercial Mortgage Servicer Rankings (September 8, 2022), https://www.dbrsmorningstar.com/research/402499

Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023), https://www.dbrsmorningstar.com/research/415687

Legal Criteria for U.S. Structured Finance (December 7, 2022), https://www.dbrsmorningstar.com/research/407008

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