DBRS Morningstar Upgrades Ratings on Six Classes of LoanCore 2019-CRE2 Issuer Ltd., Confirms Two Classes

DBRS Limited (DBRS Morningstar) upgraded the ratings on the following six classes of floating-rate notes issued by LoanCore 2019-CRE2 Issuer Ltd.:

-- Class B to AA (sf) from AA (low) (sf)
-- Class C to A (high) (sf) from A (low) (sf)
-- Class D to A (sf) from BBB (high) (sf)
-- Class E to BBB (sf) from BBB (low) (sf)
-- Class F to BB (sf) from BB (low) (sf)
-- Class G to B (sf) from B (low) (sf)

DBRS Morningstar also confirmed the following ratings on two classes:

-- Class A at AAA (sf)
-- Class A-S at AAA (sf)

All trends are Stable.

The rating upgrades reflect the increased credit support to the bonds as a result of successful loan repayment as there has been collateral reduction of 31.2% since issuance. In conjunction with this press release, DBRS Morningstar has published a Surveillance Performance Update report with in-depth analysis and credit metrics for the transaction and with business plan updates on select loans. For access to this report, please click on the link under Related Documents below or contact us at info@dbrsmorningstar.com.

At issuance, the collateral consisted of 33 floating-rate mortgages secured by 49 mostly transitional properties totalling approximately $1.06 billion, excluding approximately $120.2 million of future funding commitments. The transaction includes an initial 24-month Reinvestment Period, which ended with the May 2021 Payment Date.

As of the February 2022 remittance, a total of 19 loans secured by 29 properties remain in the trust with an aggregate principal balance of $727.3 million. The loans are secured by transitional properties with plans to stabilize property operations and increase asset value. Since issuance, 26 loans have been repaid in full, and as the Reinvestment Period ended in May 2021, loan payoffs were used to subsequently pay down the transaction sequentially.

Most borrowers are progressing toward completing the stated business plans. According to an update from the collateral manager, $46.9 million of loan future funding across eight of the remaining loans has been advanced to individual borrowers since contribution to aid in property stabilization. The majority of this funding has been advanced to the borrowers on the El Centro ($15.6 million) and Spring Mill Corporate Center ($13.5 million) loans. An additional $47.8 million of loan future funding allocated to eight individual borrowers remains outstanding to fund capital expenditures, leasing costs, and operating shortfalls. Of the 19 loans in the transaction, eight loans, representing 46.9% of the aggregate principal balance, have pari passu companion notes securitized in the LoanCore 2019-CRE3 transaction, also rated by DBRS Morningstar.

The collateral pool is concentrated by property type as six loans (33.9% of the current pool balance) are secured by office properties, five loans (23.6% of the current pool balance) are secured by mixed-use properties, and four loans (18.6% of the current pool balance) are secured by hospitality properties. The collateral is also primarily in core markets as 14 loans, representing 73.8% of the current pool balance, are in urban markets with DBRS Morningstar Market Ranks of 6, 7, and 8. These markets have historically shown greater liquidity and demand.

As of February 2022 reporting, all loans remain current and there are six loans on the servicer’s watchlist, representing 34.7% of the pool balance. All of these loans are on the servicer’s watchlist because of upcoming loan maturity dates; however, all loans feature extension options. Eleven of the remaining loans (54.6% of the current pool balance) have received loan modifications at least once over the past two years, largely stemming from impacts of the Coronavirus Disease (COVID-19) pandemic. Loan modifications have included terms such as waivers on certain extension option conditions and the allowance of borrowers to access funds held in reserves to cover shortfalls or rent relief for certain tenants. The lender has generally required some type of concession from the borrower, and as a result of these loan modifications, many of these loans will remain in a cash management period until the debt has been fully repaid.

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.

DBRS Morningstar materially deviated from its North American CMBS Insight Model when determining the rating assigned to Class G as the quantitative results suggested a higher rating. The material deviation is warranted given the uncertain loan-level event risk as the transaction has an increased concentration of loans secured by transitional properties that have had interruptions to their business plans amid the pandemic.

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#2 – 183 Madison Avenue (14.2% of the pool)
-- Prospectus ID#9 – Spring Mill Corporate Center (7.0% of the pool)
-- Prospectus ID#10 – El Centro (10.0% of the pool)
-- Prospectus ID#36 – 1 Whitehall Street (5.0% of the pool)
-- Prospectus ID#42 – Moxy NYC Chelsea (8.1% of the pool)
-- Prospectus ID#47 – Kimpton Hotel Eventi (6.3% of the pool)

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 4, 2022), 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 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.

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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