DBRS Morningstar Confirms Ratings on SG Commercial Mortgage Securities Trust 2020-COVE

DBRS Limited (DBRS Morningstar) confirmed its ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2020-COVE issued by SG Commercial Mortgage Securities Trust 2020-COVE as follows:

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

All trends are Stable. The rating confirmations reflect the overall stable performance of the transaction.

The trust debt of $160.0 million is a pari passu participation in a whole loan totaling $210.0 million. The loan has a five-year interest-only term and is backed by a 283-unit Class A multifamily property on 20 waterfront acres in Tiburon, Marin County, California. The deal closed in March 2020 and the most recent financial reporting is dated June 2021 with an annualized net cash flow debt service coverage ratio of 1.48 times. The September 2021 rent roll indicated some stress to the property’s occupancy rate, which is reportedly because there were fewer than expected move-ins following lease expirations. The property was 89.4% occupied as of September 2021, down from 93.3% in June 2021 and 96% at issuance. Despite challenges related to the pandemic, the subject property's increasing rents, waterfront location, and superior amenity set combined with Marin County's strong submarket fundamentals mitigate what DBRS Morningstar expects to be a short-term decline in occupancy.

The sponsor acquired the property in 2013 and subsequently invested $50.4 million ($178,042 per unit) in extensive exterior, common area, and in-unit renovations. Average rents have continued to increase year over year. The property is in an irreplaceable waterfront location in Marin County, with many units having unobstructed views of the San Francisco skyline. Amenities include a 52-slip boat marina, three pools, two spas, a playground, a clubhouse, and a fitness center. Tenant services include on-site fitness classes and a personal trainer, housekeeping, dry-cleaning, firewood delivery, and package drop-off and pick-up. Downtown San Francisco is directly across the bay from the property, approximately 14 miles by car or 30 minutes by ferry. The supply of multifamily properties is limited in the immediate area, given the lack of vacant land and environmental constraints on further development. Submarket vacancy has historically been low.

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 is an interest-only (IO) certificate that references 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 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.

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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