DBRS Morningstar Finalizes Provisional Ratings on BANK 2020-BNK26

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2020-BNK26 issued by BANK 2020-BNK26 as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-3-1 at AAA (sf)
-- Class A-3-2 at AAA (sf)
-- Class A-3-X1 at AAA (sf)
-- Class A-3-X2 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-4-1 at AAA (sf)
-- Class A-4-2 at AAA (sf)
-- Class A-4-X1 at AAA (sf)
-- Class A-4-X2 at AAA (sf)
-- Class X-A at AAA (sf)
-- Class A-S at AAA (sf)
-- Class A-S-1 at AAA (sf)
-- Class A-S-2 at AAA (sf)
-- Class A-S-X1 at AAA (sf)
-- Class A-S-X2 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 (high) (sf)
-- Class D at BBB (high) (sf)
-- Class E at BBB (sf)
-- Class X-F at BBB (low) (sf)
-- Class F at BB (high) (sf)
-- Class X-G at BB (low) (sf)
-- Class G at B (high) (sf)

All trends are Stable. Classes X-D, X-F, X-G, X-H, D, E, F, G, and H have been privately placed. The Class A-3-1, Class A-3-2, Class A-3-X1, Class A-3-X2, Class A-4-1, Class A-4-2, Class A-4-X1, Class A-4-X2, Class A-S-1, Class A-S-2, Class A-S-X1, and Class A-S-X2 certificates are also offered certificates. Such classes of certificates, together with the Class A-3, Class A-4, and Class A-S certificates, constitute the Exchangeable Certificates.

The collateral consists of 75 fixed-rate loans secured by 101 commercial and multifamily properties. The transaction is 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. Five loans, representing 23.1% of the pool, are shadow-rated investment grade by DBRS Morningstar. When DBRS Morningstar measured the cut-off 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 2.74 times (x). The WA DSCR is elevated because 23.1% of the pool is shadow-rated investment grade and the concentration of low-leverage residential co-operative loans represent 4.3% of the pool. These residential co-operative loans have very low loan-level credit enhancement at the AAA level and near-zero loan-level credit enhancement at the BBB (low) level. Only three loans in the pool—The Hub Shopping Center, 18 West 25th Street, and Lockaway Storage-Boerne—had a DBRS Morningstar Term DSCR below 1.30x, a threshold indicative of a higher likelihood of mid-term default. The WA DBRS Morningstar LTV of the pool at issuance was 55.3%, and the pool is scheduled to amortize down to a WA DBRS Morningstar LTV of 51.9% at maturity. The pool includes 19 loans, representing 24.8% of the pool by allocated loan balance, with issuance LTVs equal to or higher than 67.1%, a threshold historically indicative of above-average default frequency.

The transaction includes five loans, representing 23.1% of the total pool balance, that are shadow-rated investment grade by DBRS Morningstar, including Bravern Office Commons, 560 Mission Street, 55 Hudson Yards, 1633 Broadway-NY, and Bellagio Hotel and Casino. Bravern Office Commons exhibits credit characteristics consistent with a AA (high) shadow rating, 560 Mission Street exhibits credit characteristics consistent with a AA shadow rating, 55 Hudson Yards exhibits credit characteristics consistent with a BBB shadow rating, 1633 Broadway-NY exhibits credit characteristics consistent with a BBB (high) shadow rating, and the Bellagio Hotel and Casino exhibits credit characteristics consistent with a AAA shadow rating.

Fourteen loans in the pool, representing 4.3% of the transaction, are backed by residential co-operative loans. Residential co-operatives tend to have minimal risk, given their low leverage and low risk to residents if the co-operative associations default on their mortgages. The WA DBRS Morningstar LTV for these loans is 14.5%.

Thirty-three loans, representing 56.3% of the pool, have collateral located in MSA Group 3, which represents the best-performing group in terms of historical CMBS default rates among the top 25 MSAs. MSA Group 3 has a historical default rate of 17.25%, which is nearly 40% lower than the overall CMBS historical default rate of approximately 28.00%.

Thirty-five loans, representing 41.7% of the pool by allocated loan balance, exhibit issuance LTVs of equal to or less than 59.3%, a threshold historically indicative of relatively low-leverage financing and generally associated with far below-average default frequency.

Only four loans had property quality deemed to be Average (-) while none had property quality deemed Below Average or Poor. Additionally, 12 loans, representing 33.7% of the pool balance, exhibited Average (+), Above Average, or Excellent property quality. One of the top 10 loans, the Bellagio Hotel and Casino, is secured by collateral that had property quality that DBRS Morningstar deemed to be Excellent.

The pool has a relatively high concentration of loans secured by office properties as 11 loans, representing 37.4% of the pool by allocated loan balance, are secured by this property type. DBRS Morningstar considers office properties to be a riskier property type with a generally above-average historical default frequency. Four of the 11 office loans (Bravern Office Commons, 560 Mission Street, 55 Hudson Yards, and 1633 Broadway-NY), comprising 20.1% of the pool balance, are shadow-rated investment grade by DBRS Morningstar. Seven office properties, totaling 27.7% of the pool balance, have DBRS Morningstar DSCRs higher than 2.00x, while the remaining four office loans, totaling 9.7% of the pool balance, have DBRS Morningstar DSCRs higher than 1.45x. Five office loans, representing 59.8% of the office concentration, are secured by office properties in areas characterized as extremely dense and desirable urban gateway markets, which have a DBRS Morningstar Market Rank of 8.

Thirty-five loans, representing 67.8% of the pool by allocated loan balance, are structured with full-term interest-only (IO) periods. Of these 35 loans, eight loans, representing 40.2% of the pool by allocated loan balance, are in areas with a DBRS Morningstar Market Rank of 6, 7, or 8. These markets benefit from increased liquidity even during times of economic stress. Five of the 35 identified loans (Bravern Office Commons, 560 Mission Street, 55 Hudson Yards, 1633 Broadway-NY, and Bellagio Hotel and Casino), representing 23.1% of the total pool balance, are shadow-rated investment grade by DBRS Morningstar.

DBRS Morningstar completed a cash flow review and a cash flow stability and structural review on 28 of the 75 loans, representing 73.0% of the pool by loan balance. For loans not subject to an NCF review, DBRS Morningstar applied the average NCF variance of its respective loan seller.

DBRS Morningstar generally adjusted cash flow to current in-place rent and, in some instances, applied an additional vacancy or concession adjustment to account for deteriorating market conditions or tenants with above-market rent. In most instances, DBRS Morningstar accepted contractual rent bumps if they were within 12 months and market levels. Generally, DBRS Morningstar recognized most expenses based on the higher of historical figures or the borrower’s budgeted figures. Real estate taxes and insurance premiums were inflated if a current bill was not provided. Capex was deducted based on the higher of the engineer’s inflated estimates or the DBRS Morningstar standard, according to property type. Finally, leasing costs were deducted to arrive at the DBRS Morningstar NCF. If a significant upfront leasing reserve was established at closing, DBRS Morningstar reduced its recognized costs. DBRS Morningstar gave credit to tenants not yet in occupancy if a lease had been signed and the loan was adequately structured with a reserve, LOC, or holdback earn-out. The DBRS Morningstar sample had an average NCF variance of -12.8% and ranged from -36.5% (18 West 25th Street) to -4.7% (Grand Oaks Plaza).

Classes X-A, X-B, X-D, X-F, X-G, and X-H are 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.

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

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

-- Prospectus ID#1 -- FTERE Bronx Portfolio 3 (6.4% of the pool)
-- Prospectus ID#2 -- Bravern Office Commons (6.2% of the pool)
-- Prospectus ID#3 -- 560 Mission Street (5.8% of the pool)
-- Prospectus ID#4 -- 200 West 57th Street (5.8% of the pool)
-- Prospectus ID#5 -- 545 Washington Boulevard (5.0% of the pool)
-- Prospectus ID#6 -- 55 Hudson Yards (4.7% of the pool)
-- Prospectus ID#7 -- AD1 Hotel Portfolio (4.0% of the pool)
-- Prospectus ID#8 -- 1633 Broadway (3.3% of the pool)
-- Prospectus ID#9 -- Bellagio Hotel and Casino (2.9% of the pool)
-- Prospectus ID#10 -- K Street and F Street Office Portfolio (2.6% of the pool)
-- Prospectus ID#11 -- Marriott Richmond Dual Brand (2.5% of the pool)
-- Prospectus ID#12 -- Steeples Apartments (2.4% of the pool)
-- Prospectus ID#13 -- Coral Sky Plaza (2.2% of the pool)
-- Prospectus ID#14 -- Embassy Suites - Charlotte (2.1% of the pool)
-- Prospectus ID#15 -- Prince William Square (2.1% of the pool)

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrs.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.

DBRS Morningstar notes that above press release was amended on July 2, 2020, to correct the name of the Commercial Mortgage Pass-Through Certificates, Series 2020-BNK26, Class A-3-2 in the rating table.

Notes:
All figures are in U.S. 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 the 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 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.

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.

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