DBRS Morningstar Confirms All Ratings on Morgan Stanley Capital I Trust 2019-L2

DBRS Limited (DBRS Morningstar) confirmed the ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2019-L2 issued by Morgan Stanley Capital I Trust 2019-L2 as follows:

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

DBRS Morningstar maintained the Negative trends on Classes F-RR and G-RR as a reflection of continued performance challenges for select loans as discussed below, caused primarily by the Coronavirus Disease (COVID-19) pandemic. All other trends are Stable.

At issuance, the transaction consisted of 50 fixed-rate loans secured by 68 commercial and multifamily properties with a total trust balance of $934.9 million. As of the September 2021 remittance report, all original loans and collateral remained in the pool, with negligible collateral reduction of 0.6% since issuance. The pool has a moderate concentration of loans secured by retail and hospitality properties, representing 17.8% and 17.3% of the current pool balance, respectively. These concentrations are noteworthy because retail and hotel property types have been the most severely affected by the coronavirus pandemic to date.

As of the September 2021 remittance, seven loans, representing 13.9% of the pool, were on the servicer’s watchlist, primarily because of cash flow declines and/or drops in occupancy rates. Two top-10 loans are on the watchlist, including Ohana Waikiki Malia Hotel & Shops (Prospectus ID#1, 6.8% of current pool balance) and Lincoln Commons (Prospectus ID#9, 3.2% of the current pool balance). In addition, there are five loans, representing 12.2% of the current pool balance, in special servicing. The specially serviced loans are backed by anchored retail, unanchored retail, full-service hotel, and limited-service hotel property types.

The largest loan in special servicing is secured by Le Meridien Hotel Dallas (Prospectus ID#4, 4.5% of the current pool balance), a 258-key full-service hotel in Dallas, approximately 12.0 miles north of the Dallas central business district (CBD). The $42.8 million loan refinanced existing debt and returned approximately $8.1 million of cash equity to the borrower. The most recently reported financial metrics show a Q1 2020 occupancy rate of 79.4%, with a debt service coverage ratio (DSCR) of 1.37 times (x). The loan first fell delinquent in April 2020 and was transferred to special servicing in June 2020. As of the September 2021 remittance, the loan was 121+ days delinquent. An April 2021 appraisal obtained by the special servicer showed an as-is value of $53.9 million, down moderately from $61.2 million at issuance. Although the April 2021 value suggests that the loan remains above water, the extended delinquency and workout period for the loan suggest significantly increased risks from issuance; as such, DBRS Morningstar applied a probability of default penalty in the analysis to increase the expected loss for this review.

The second-largest loan in special servicing is Shingle Creek Crossing (Prospectus ID#14, 2.5% of the current pool balance), secured by a 173,107-square-foot (sf) anchored retail centre in Brooklyn Center, Minnesota, approximately 10 miles north of the Minneapolis CBD. The property is part of a larger 800,000-sf retail redevelopment on the 65-acre former Brookdale Mall site. The collateral portion of the property was anchored by LA Fitness, TJMaxx, and Michaels at issuance, with a non collateral shadow anchor in Walmart Supercenter. The loan was transferred to the special servicer in July 2020 because of imminent monetary default, and, as of the September 2021 remittance, the loan reported current. The special servicer continues to negotiate with the borrower regarding the loan workout, with commentary suggesting a potential sale of the $3.5 million mezzanine loan that was in place at issuance. The borrower and servicer are also in discussions regarding the backfill of Michaels (12.5% of the net rentable area), which vacated ahead of its May 2025 lease expiry in early 2021. Although the loan’s transfer to special servicing and the loss of Michaels suggests increased risks from issuance, DBRS Morningstar believes that the overall outlook for the loan remains generally stable, particularly given the loan’s current status and the servicer’s reported DSCR for the loan of 1.81x as of Q1 2021, which suggests cushion against occupancy declines for the near to moderate term.

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, X-B, and X-D are interest-only (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.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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.

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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