DBRS Morningstar Confirms Ratings on BBCMS Mortgage Trust 2018-C2

DBRS, Inc. (DBRS Morningstar) confirmed the ratings of the Commercial Mortgage Pass-Through Certificates, Series 2018-C2 issued by BBCMS Mortgage Trust 2018-C2 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-5 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class X-B at AA (sf)
-- Class C at AA (low) (sf)
-- Class D at A (sf)
-- Class X-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)
-- Class H-RR at B (low) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since issuance. At issuance, the collateral for the trust consisted of 44 loans secured by 87 commercial and multifamily properties, with an initial balance of $891.9 million. As of the December 2021 remittance, all of the original 44 loans remain in the pool, with a collateral reduction of 0.8% as a result of scheduled amortization. Defeasance has been minimal given the vintage, with just one small loan secured by defeasance collateral, representing 0.9% of the pool. The pool remains fairly concentrated by property type, as loans representing 30.1% of the current pool balance are secured by office, 24.6% secured by retail, and 19.1% secured by lodging collateral.

At issuance, DBRS Morningstar shadow rated the following loans investment grade: Christiana Mall (Prospectus ID#2; 6.2% of the pool), Moffett Towers – Buildings E,F,G (Prospectus ID#12; 2.8% of the pool), Moffett Towers II – Building 1 (Prospectus ID#16; 2.5% of the pool), and Fair Oaks Mall (Prospectus ID#30; 1.2% of the pool). DBRS Morningstar maintains that the performance of these loans remains consistent with investment-grade characteristics.

As of the December 2021 remittance report, there were nine loans, representing 19.9% of the current pool balance, on the servicer’s watchlist, with no loans reported as delinquent or in special servicing. The loans on the watchlist include five loans secured by hotel properties that combine for 15.3% of the pool and are being monitored for low debt service coverage ratios (DSCR) and/or as a result of the loans being provided relief by the lender for issues that were driven by disruptions related to the early phases of the Coronavirus Disease (COVID-19) pandemic. This includes the largest loan in the pool, Dream Inn (Prospectus ID#1, 6.2% of the current pool), which is secured by a 165-key full-service beachfront hotel in Santa Cruz, California. While initially added to the watchlist in June 2020 for a coronavirus-related relief request, the borrower subsequently withdrew the request. However, cash flow declines prompted a second add to the servicer’s watchlist in January 2021. Prior to the pandemic, the loan was performing above the issuance expectations, but the YE2020 reporting period showed a DSCR of 0.92 times. DBRS Morningstar notes the property’s ideal beachfront location, the very limited supply in the market, and the property’s strong historical performance are mitigating factors for the near- to moderate-term risks amid the pandemic.

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.

An updated model run was not completed as part of this review, as performance was deemed to be generally unchanged over the last 12 months. The model results were most recently updated as of the January 31, 2020, rating actions, when a material deviation from the predictive model results was reported for Classes B, C, and D. At the time of the 2020 rating actions, the transaction was not seasoned and the material deviations were deemed to be warranted given the sustainability of loan performance trends had not yet been demonstrated.

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

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

-- Prospectus ID#1 – Dream Inn (6.2% of the pool)

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 the 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 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.

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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