DBRS Morningstar Confirms All Ratings of Fontainebleau Miami Beach Trust 2019-FBLU, Maintains Negative Trends on Four Classes

DBRS Limited (DBRS Morningstar) confirmed the ratings of the Commercial Mortgage Pass-Through Certificates, Series 2019-FBLU issued by Fountainebleau Miami Beach Trust 2019-FBLU as follows:

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

DBRS Morningstar changed the trends on Classes A, B, X-A, and C to Stable from Negative. Classes D, E, F, and G continue to carry Negative trends given the general uncertainty surrounding the timeline for stabilization for the collateral hotel property amid the effects of the Coronavirus Disease (COVID-19) pandemic.

The rating confirmations reflect DBRS Morningstar’s view that the subject transaction remains relatively well positioned despite the challenges of the pandemic. The trend change to Stable for the four classes noted above is generally reflective of positive developments surrounding the recovery of the subject property and a recent injection of capital to cover capital improvements, operating costs, and debt service shortfalls throughout the pandemic.

The loan is secured by a four-diamond, 1,594-key luxury resort on the mid-beach area of an oceanfront location in Miami Beach, Florida. At issuance, the whole loan of $1.75 billion, which consisted of $975.0 million of senior debt held in the trust and $200.0 million of mezzanine debt held outside the trust, refinanced existing debt, returned $112.0 million of equity to the borrower, and funded $10.0 million of upfront reserves. The loan is interest only (IO) through its five-year term with no extension options.

The loan transferred to the special servicer in April 2020 following the borrower’s request for pandemic-related relief in the form of a forbearance agreement. The forbearance request primarily asked for the deferral of monthly furniture, fixture, and equipment (FF&E) deposits through 2020 and the exclusion of 2020 financials when calculating debt yield tests. The repayments began in January 2021 and, to date, all deferred amounts have been fully repaid. According to the July 2021 loan-level reserve report, the FF&E reserve showed an ending balance of $10.9 million.

The loan was returned to the master servicer in September 2020 and will remain on the servicer’s watchlist until the debt service coverage ratio improves. As of the YE2020 financials, the loan reported a negative net cash flow (NCF) of -$4.9 million, compared with the trailing 12 months (T-12) ended September 2019 NCF of $81.4 million and the DBRS Morningstar NCF of $77.2 million. The depressed performance was expected considering the subject was closed due to the pandemic and leisure travel remained stunted in the later months of 2020 while pandemic-related restrictions were being relaxed.

Amid the hotel’s temporary closure, the borrower continued to inject capital into improvements for the property. These investments included $5.8 million of capital improvements that were completed as reported by the servicer’s March 2021 site inspection. Of this amount, $5.0 million was allocated to the renovation of Bleau Bar, while the remaining amount was used for LED lighting upgrades and improvements for the deck of La Cote, a restaurant at the subject. In addition, the site inspection noted that an additional $5.0 million capital improvement project was in progress for upgrades to Hakkasan, another restaurant at the hotel.

According to the T-12 ended May 2021 Smith Travel Report (STR), the subject’s revenue per available room (RevPAR) was reported at $164.16, a figure that was higher than reported RevPAR figures for two of the three hotels in the competitive set as identified in the STR report. The property reported a trailing three months (T-3) ended May 2021 occupancy and average daily rate of 67.0% and $467.62, respectively, which resulted in a RevPAR of $313.38 for the T-3 period. In comparison, the competitive set reported T-3 RevPARs of $144.60, $140.53, and $419.64. These figures suggest the hotel’s performance is well on track to return to or beat historical trends, as the T-3 RevPAR figure cited above is higher than the historical metrics going back to 2017 as provided to DBRS Morningstar.

The DBRS Morningstar rating assigned to Class D had a variance that was higher than those results implied by the LTV Sizing Benchmarks from the October 9th, 2020 review, when market value declines were assumed under the Coronavirus Impact Analysis. The DBRS Morningstar ratings did not have any variances than those results implied by LTV Sizing Benchmarks considered with this year’s review, when a baseline valuation scenario was used. For additional information on these scenarios, please see the DBRS Morningstar press release dated October 9th, 2020 in respect of the subject transaction. DBRS Morningstar maintains Negative trends on certain classes as outlined in this press release as a reflection of our ongoing concerns with the Coronavirus impact to the subject transaction.

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.

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.

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 loan-level 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 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@dbrsmorningstar.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.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

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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