DBRS, Inc. (DBRS Morningstar) has raised its ratings on five categories of Commercial Mortgage Transfer Certificates, Series 2019-CRE3 issued by AREIT 2019-CRE3 Trust as following.
Class B to AAA (sf) of AA (weak) (sf)
Class C to AA (low) (sf) from A (low) (sf)
Class D to BBB (high) (sf) from BBB (low) (sf)
Class E to BB (sf) from BB (low) (sf)
Class F to B (sf) from B (low) (sf)
DBRS Morningstar also confirmed its ratings on two classes as follows:
Class A to AAA (fs)
Class AS to AAA (fs)
DBRS Morningstar changed the trends for the E and F classes from stable to negative, while the trends for all other classes remain stable.
The rating upgrades and trend changes reflect increased credit support for the bonds following the successful repayment of the loan, representing a reduction in collateral of 42.1% since issuance as of June 2022 delivery. While some loans remaining in the transaction, including those secured by hotel properties or office properties, have experienced delays in reported business plans due to the coronavirus disease (COVID-19) pandemic, DBRS Morningstar generally observed performance improvements across all guarantees. pool since its last rating action in August 2021. Along with this press release, DBRS Morningstar released a monitoring performance update report with in-depth analysis and credit metrics for the transaction and with business plan updates on certain loans. To access this report, please click the link under Related Documents below or contact us at [email protected]
At the time of issuance, the collateral consisted of 30 variable rate mortgages secured by 31 commercial real estate properties, mostly transitory, with a cut-off balance totaling $717.9 millionexcluding approximately $93.9 million future funding commitments to fund capital expenditures and operating deficits to assist with individual property stabilization plans.
The transaction is structured with an authorized funded equity vesting period of 36 months ending August 2022, whereby the Issuer may contribute loan funded participations in the Trust. Since the June 2022 payment, there are no funds available in an Authorized Funded Fellow’s Equity Acquisition Account.
Since the June 2022 reports, 13 loans remain in the pool with a current principal balance of $409.5 million. According to the Collateral Manager, $42.7 million Future loan funding has been advanced to nine individual borrowers to date to assist in the completion of the business plan. An additional amount of $5.5 million future financing of the loan is allocated to the borrower on the Gulf Tour ready for leasehold improvements and rental fees. The loan was structured with an external advance date of June 2022, whereby the borrower had the option of having some or all of the future funding of the outstanding loan placed in an interest-bearing reserve held by the issuer or of waiving the right to receive any additional funding. The property suffered significant damage in May 2021, however, following an explosion, which dampened rental momentum and led to a major restoration project. The borrower appears to have repositioned the property using proceeds from the insurance, with the project due to be completed in 2022. The disaster, combined with the impact of the coronavirus pandemic, has extended the completion date of the borrower’s business plan; however, the borrower remains attached to the property. It is unclear whether the away lead date has been extended given the accidental event.
The transaction is concentrated by property type as there are five loans (55.3% of the current pool balance) secured by office buildings and five loans (33.6% of the current pool balance) secured by of reception. Eight loans, representing 69.8% of the current pool balance, are in urban markets with DBRS Morningstar Market Ranks of 6, 7 and 8. These markets have historically shown greater liquidity and demand. There are five loans, representing 30.2% of the current pool balance, secured by properties in the markets with a DBRS Morningstar Market Ranking of 3 or 4, which are suburban in nature and have historically had higher default probability levels compared to properties located in urban markets.
From June 2022 reports, all loans remain current, and there are nine loans on the manager’s watch list, representing 77.6% of the pool balance. The three largest loans, representing 46.8% of the current pool balance, have been placed on the servicer’s watchlist due to upcoming maturities; however, all loans have extension options. DBRS Morningstar expects individual borrowers to exercise the loan extension options and in all cases where the performance of the property does not meet the performance-based hurdles to qualify for the extension options, DBRS Morningstar s expects the borrowers and lender to negotiate an agreement to allow the extension to be exercised. The remaining six loans, representing 30.8% of the current block balance, have generally been added to the watchlist due to low debt service coverage ratios or declines in occupancy.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
No environmental/social/governance factor had a significant or relevant effect on the credit analysis.
A description of how DBRS Morningstar considers ESG factors in the DBRS Morningstar analytical framework is available in DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.
DBRS Morningstar deviated significantly from its North American CMBS Insight model when determining the ratings assigned to the F category, as the quantitative results suggested a higher rating. The significant variances are warranted given that the sustainability of the loan return trends has not been demonstrated, as several properties securing loans in the transaction have yet to stabilize.
All ratings are subject to monitoring, which could result in ratings being upgraded, downgraded, revised, confirmed or discontinued by DBRS Morningstar.
DBRS Morningstar provides updated analysis and in-depth commentary on the DBRS Viewpoint platform for the following loans in the transaction:
For free access to this content, please register with the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes issuer and service data for most current CMBS transactions (including transactions not rated by DBRS Morningstar), as well as loan and transaction level commentary for most rated transactions. and monitored by DBRS Morningstar.
All figures are in WE dollars unless otherwise specified.
The main methodology is the North American CMBS Surveillance Methodology (March 4, 2022), which can be found on dbrsmorningstar.com under Methodologies and Criteria. For a list of 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 all related methodologies listed in a Principal Structured Finance Asset Class Methodology can be used to assess or monitor an individual structured finance or debt security.
DBRS Sovereign Morningstar group publishes reference macroeconomic scenarios for rated sovereigns. DBRS Morningstar’s analysis considered impacts consistent with baseline scenarios as set out in the following report: https://www.dbrsmorningstar.com/research/384482.
The rated entity or its related entities participated in the rating process for this rating metric. 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 relevant appendix for more information on the sensitivity of the assumptions used in the rating process.
For more information on this credit or this industry, visit www.dbrsmorningstar.com or contact us at [email protected]
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Date Issued Debt Rated Action Rating Trend Attributesi
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CA = Lead Analyst based in Canada
EU = Lead Analyst based in EU
UK = Lead Analyst based in UK
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27-Jun-22 Commercial Mortgage Pass-Through Certificates, Series 2019-CRE3, Class A Confirmed AAA (sf) Stb CA
27-Jun-22 Commercial Mortgage Pass-Through Certificates, Series 2019-CRE3, Class A-S Confirmed AAA (sf) Stb CA
27-Jun-22 Commercial Mortgage Pass-Through Certificates, Series 2019-CRE3, Class B Upgraded AAA (sf) Stb CA
27-Jun-22 Commercial Mortgage Pass-Through Certificates, Series 2019-CRE3, Class C Upgraded AA (low) (sf) Stb CA
27-Jun-22 Commercial Mortgage Pass-Through Certificates, Series 2019-CRE3, Class D Upgraded BBB (high) (sf) Stb CA
27-Jun-22 Commercial Mortgage Pass-Through Certificates, Series 2019-CRE3, Class E Upgraded BB (sf) Stb CA
27-Jun-22 Commercial Mortgage Pass-Through Certificates, Series 2019-CRE3, Class E Trend Change BB (low) (sf) Stb CA
27-Jun-22 Commercial Mortgage Pass-Through Certificates, Series 2019-CRE3, Class F Upgraded B (sf) Stb CA
27-Jun-22 Commercial Mortgage Pass-Through Certificates, Series 2019-CRE3, Class F Trend Change B (low) (sf) Stb CA