DBRS Morningstar Finalizes Provisional Ratings on Benchmark 2020-IG2 Mortgage Trust

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2020-IG2 issued by Benchmark 2020-IG2 Mortgage Trust (BMARK 2020-IG2):

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-M at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (sf)
-- Class X-A at AAA (sf)

-- Class UBR-B at AA (low) (sf)
-- Class UBR-C at A (low) (sf)
-- Class UBR-D at BBB (low) (sf)

All trends are Stable.

Classes UBR-B, UBR-C, and UBR-D are loan-specific certificates associated with the Chase Center Tower I/II loans. The Class X-A balance is notional. The Issuer elected to make certain changes to the transaction’s structure after DBRS Morningstar assigned provisional ratings. As such, DBRS Morningstar discontinued and withdrew its rating on Class X-B.

The BMARK 2020-IG2 transaction is a pooled securitization of 11 fixed-rate noncontrolling (with the exception of 1501 Broadway) pari passu senior notes with an aggregate cut-off pooled balance of $639.05 million. The collateral consists of 11 mortgage loans across 79 properties, with significant concentrations in California (nine properties; 49.2% of the pool) and New York (five properties; 27.8% of the pool).

The BMARK 2020-IG2 trust also issued three classes of loan-specific certificates (DBRS Morningstar rated) collateralized by two subordinate companion notes in an aggregate amount of $155 million on the Chase Center Tower I/II properties. The loan-specific certificates will be an asset of the issuing entity but are not being pooled with the other mortgage loans and are only entitled to payments of interest and principal from the subordinate companion notes.

DBRS Morningstar takes a positive view on the BMARK 2020-IG2 transaction and recognizes the benefits of pooling high investment-grade risk. Unlike a typical single-asset/single-borrower transaction, certificateholders in the transaction benefit from the pooling of multiple structurally senior investment-grade notes on largely institutional real estate in liquid primary markets. The transaction also benefits from a lack of exposure to lodging properties and very limited exposure to retail properties, both of which remain particularly sensitive to ongoing risks related to the Coronavirus Disease (COVID-19) pandemic.

DBRS Morningstar has also previously rated both the Moffett Towers A, B, C loan (MOFT 2020-ABC) and the 525 Market Street loan (MKT 2020-525M) on a stand-alone basis and previously rated pari passu components of the 1633 Broadway loan (GSMS 2020-GC45) and the 55 Hudson Yards loan (BANK 2020-BNK26) in prior conduit/fusion transactions.

All 11 of the senior notes that serve as the collateral for the pooled component of the transaction exhibit investment-grade credit characteristics on a stand-alone basis. The weighted-average (WA) credit profile of the underlying collateral is approximately A (sf)/A (low) (sf). Furthermore, 54.0% of the trust collateral by balance had a DBRS Morningstar property quality score of either Above Average or Excellent.

The pool has a WA in-trust DBRS Morningstar loan-to-value (LTV) of 59.48% and an Issuer LTV of 35.5%, both of which are substantially below the leverage point of other recently analyzed single-asset/single-borrower transactions. The DBRS Morningstar LTV is for the senior note components that serve as the collateral for this transaction.

Approximately 75.9% of the transaction by balance is located within the combined New York, San Francisco, and Los Angeles markets. DBRS Morningstar considers all three of these markets to be primary, highly liquid markets, and the primary market exposure is well above other recently analyzed conduit/fusion transactions.

The transaction benefits from no exposure to lodging properties and very limited exposure to retail properties, which DBRS Morningstar views as extremely favorable given the short- and medium-term uncertainty related to the ongoing coronavirus pandemic. Furthermore, DBRS Morningstar generally views lodging as the most volatile property type because of the dependence on occupancy and room rates that reset daily.

The trust collateral includes one portfolio loan, Stonemont Net Lease Portfolio (64 properties; 11.0% of the pool). Mortgage loans secured by portfolios of multiple properties generally benefit from greater diversification of cash flow and may exhibit more favorable default and loss severity characteristics.

All of the underlying mortgage loans are fixed-rate and therefore are not exposed to any potential uncertainty regarding the forthcoming elimination of Libor as a benchmark interest rate.

The pool has significantly higher loan concentration than previously analyzed multiborrower transactions, with a loan Herfindahl (Herf) score of only 9.39. Additionally, the transaction has substantial property type and geographic concentration, as indicated by property type and state Herf scores of 1.35 and 2.98, respectively. The top five loan exposure is 59.7% of the pool, which is above the typical exposure level for more diversified multiborrower transactions.

None of the pari passu participations being contributed to the pooled component of the transaction are the controlling interests in the related whole loans, with the exception of 1501 Broadway (seventh largest; 11.0% of the pool). The noncontrolling certificateholders may be in a less favorable position than those with control rights under certain adverse situations, including in the event of a workout.

All 11 of the loans in the transaction are interest-only (IO) during their entire loan terms and therefore do not benefit from deleveraging through amortization. DBRS Morningstar views amortization favorably because the reduction in principal balance can result in lower loss severities under a liquidation scenario.

Nine of the 11 loans (78.1% of the pool) have existing secured subordinate debt in place, and two of the 11 loans (1633 Broadway and 525 Market Street; 17.2% of the pool) permit the sponsors to incur additional debt in the form of mezzanine debt or debt-like preferred equity. The structural complexity of the mortgage loans poses a potential risk in the event of a default, whereby other noteholders could potentially exercise certain rights or remedies that are adverse to the interest of the certificate held by BMARK 2020-IG2. Furthermore, the presence of both secured and unsecured subordinate debt adds substantial incremental leverage, resulting in a WA all-in DBRS Morningstar LTV of 97.0% for the pool.

The 1633 Broadway loan (11.0% of the pool) and the 1501 Broadway loan (11.0% of the pool) are each subject to a ground lease, and the 1501 Broadway ground lease does not have a term that expires more than 20 years beyond loan maturity, which could potentially make it more difficult to obtain takeout financing. Additionally, the 525 Market Street loan (6.3% of the pool) is subject to ground lease and a ground sublease, and the related borrower owns the fee interest, the ground lease interest, and the ground sublease interest and has pledged all such interest as collateral for the related loan. For more information, please refer to the individual loan summaries that are a part of the presale report.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Class X-A is an 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.dbrsmorningstar.com. DBRS Morningstar provides analysis and in-depth commentary in the DBRS Viewpoint platform.

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 Single-Asset/Single-Borrower Ratings Methodology (March 1, 2020), 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.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

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@dbrsmorningstar.com.

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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