DBRS Morningstar Assigns Provisional Ratings to Real Estate Asset Liquidity Trust, Series 2020-1

DBRS Limited (DBRS Morningstar) assigned provisional ratings to the following classes of Commercial Mortgage Pass-Through Certificates, Series 2020-1 to be issued by Real Estate Asset Liquidity Trust, Series 2020-1 (the Issuer):

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class B at AA (sf)
-- Class X at A (high) (sf)
-- Class C at A (sf)
-- Class D-1 at BBB (sf)
-- Class D-2 at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (sf)
-- Class G at B (sf)

All trends are Stable.

Classes D-2, E, F, and G will be privately placed.

The collateral consists of 51 fixed-rate loans and one pari passu co-ownership interest (collectively, the loans) secured by 86 commercial and multifamily properties. The transaction employs a sequential-pay pass-through structure. DBRS Morningstar analyzed the conduit pool to determine the provisional ratings, reflecting the long-term probability of loan default within the term and its liquidity at maturity. When DBRS Morningstar measured the cutoff loan balances against the DBRS Morningstar Stabilized Net Cash Flow (NCF) and their respective actual constants, the initial DBRS Morningstar Weighted-Average (WA) Debt Service Coverage Ratio (DSCR) for the pool was 1.37 times (x). DBRS Morningstar did not identify any loans with a DBRS Morningstar Term DSCR lower than 1.15x, a threshold indicative of a higher likelihood of midterm default. The WA DBRS Morningstar Loan-to-Value (LTV) of the pool at issuance was 65.7% and the pool is scheduled to amortize down to a WA DBRS Morningstar LTV of 52.9% at maturity.

The pool includes 32 loans, representing 70.0% of the pool by allocated loan balance, with DBRS Morningstar issuance LTVs equal to or higher than 65.0%, a threshold historically indicative of above-average default frequency. Thirty-three loans, representing 64.7% of the pool balance, were originated in connection with the borrower’s refinancing of an existing mortgage loan; three loans, representing 2.1% of the pool, renewed the borrower’s existing mortgage loans with the remaining amortization terms; and 13 loans, representing 28.1% of the pool, were originated in connection with the borrower’s acquisition of the related mortgage property. The remainder of the pool was originated in connection with takeout financing on existing construction loans.

Forty loans, representing 65.7% of the pool, have been given recourse credit in the DBRS Morningstar commercial mortgage-backed securities Insight model. All else equal, there is a small shift lowering the loan’s probability of default for warmbody or corporate sponsors that give recourse. Based on the DBRS Morningstar sample and analysis, DBRS Morningstar considered five loans, representing 18.2% of the sample pool, to have Above Average property quality and five loans, representing 10.7% of the sample pool, to have Average (+) property quality. Thirteen loans, representing 25.4% of the pool, have approximately 25 years or less of remaining amortization while the remaining loans have remaining amortization ranges between 25 years and 30 years. All loans in the pool amortize for the entire loan term and the expected amortization for the pool is approximately 19.3% during the expected life of the transaction.

The DBRS Morningstar sample included 33 of the 52 loans in the pool, representing 83.1% of the pool by allocated loan balance. DBRS Morningstar performed site inspections on 47 of the 86 properties in the deal, comprising 82.4% of the pool by allocated loan balance. The DBRS Morningstar sample had an average NCF variance of -6.4% and ranged from -17.4% (Lantern Bay MHC) to -0.8% (Comfort Inn Halifax). For loans not subject to an NCF review, DBRS Morningstar applied the average NCF variance.

Class X is an interest-only (IO) certificate that references 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.

For supporting data and more information on this transaction, please log into www.viewpoint.dbrs.com. DBRS Morningstar provides analysis and in-depth commentary in the DBRS Viewpoint platform.

Notes:
All figures are in Canadian dollars unless otherwise noted.

With regard to due diligence services, DBRS Morningstar was provided with the Form ABS Due Diligence-15E (Form-15E), which contains a description of the information that a third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While due diligence services outlined in Form-15E do not constitute part of DBRS Morningstar’s methodology, DBRS Morningstar used the data file outlined in the independent accountant’s report in its analysis to determine the ratings referenced herein.

The principal methodology is North American CMBS Multi-borrower Rating Methodology, which can be found on www.dbrs.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 www.dbrs.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 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@dbrs.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. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS Morningstar long-term rating scale definition indicates that ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrs.com.

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

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada