DBRS Morningstar Confirms All Classes of Natixis Commercial Mortgage Securities Trust 2019-NEMA

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on all classes of the Commercial Mortgage Pass-Through Certificates, Series 2019-NEMA issued by Natixis Commercial Mortgage Securities Trust 2019-NEMA as follows:

-- Class A at AAA (sf)
-- Class B at AAA (sf)
-- Class X at AA (high) (sf)
-- Class C at AA (sf)
-- Class D at BBB (sf)
-- Class V-ABC at AA (sf)
-- Class V-D at BBB (sf)
-- Class V2 at BBB (sf)

All trends are Stable.

The ratings confirmations reflect the long-term view that the property’s performance is likely to return to prior levels after being negatively affected by the Coronavirus Disease (COVID-19) pandemic. The property's occupancy decreased to 72% as of year-end (YE) 2020, down from 94% as of YE2019. The drop in occupancy resulted in the YE2020 net cash flow (NCF) decreasing by 30.2% year over year and 26.5% compared with issuance. As a result, the loan had a senior debt DSCR of 1.25 times (x) and a whole-loan DSCR of 0.84x as of YE2020. According to a March 2021 article in the Los Angeles Times, San Francisco experienced the largest percentage of residential exits of any county in California during the last three quarters of 2020. The exodus is likely the result of employees relocating to more affordable areas as tech companies shift to remote work. Among other local demand drivers, the subject property is adjacent to the headquarters of Twitter, which in May 2020 announced a new permanent work-from-home option as result of the pandemic, although a Twitter spokesperson has stated that the company will maintain a significant footprint at the property and that a majority of its workforce will be based in San Francisco for the foreseeable future.

While the subject property’s performance mirrored trends across the wider San Francisco metropolitan statistical area (MSA), CBRE’s Apartment Outlook for San Francisco from Q42020 reported that vacancy rates for multifamily properties within the San Francisco MSA are expected to decline from a current high of 6.1% to 2.9% by 2022. In addition, recent sales identified by CBRE from November and December 2020 resulted in an average sale price of $499,400 per unit, which compares favorably to the allocated senior debt of $363,400 per unit.

The transaction is backed by a $199 million nonrecourse, first-lien mortgage loan backed by NEMA San Francisco, which consists of 754 Class A luxury apartments in the South of Market submarket of San Francisco. The property, which was built in 2013, consists of four connected towers of varying heights with the tallest at 37 floors. Studio units total 312, or 41.4% of the units, and one-bedrooms total 323 units, or 42.8%. Two- and three-bedroom units are also available, but the unit mix favors millennials employed in the surrounding offices of global technology, software, and social media companies. The headquarters of Uber and Twitter are adjacent to the property. The property also includes 11,184 square feet of commercial retail space with frontage on Market Street and 10th Street.

The trust loan is part of a $384.0 million whole loan and is structured as a $130.0 million senior A-1 note and a $69.0 million senior-subordinate A-B note. There is $75 million of additional debt that is pari passu to the A-1 note and is held outside the trust. Natixis Real Estate Capital LLC originated the mortgage loan, which was used primarily to refinance existing mortgage debt. The trust loan has a 10-year term and pays interest only for the full term at a rate of 4.44%.

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/373262.

Classes X-A and X-B 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.

The DBRS Viewpoint platform provides additional information on this transaction and underlying loans including DBRS Morningstar metrics, commentary, servicer-reported cash flows, and other performance-related data.

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

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

The principal methodology is North American CMBS Surveillance Methodology (March 26, 2021), 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.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

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.

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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