DBRS Morningstar Confirms All Ratings on STWD 2019-FL1, Ltd.

DBRS Limited (DBRS Morningstar) confirmed its ratings on the following classes of notes issued by STWD 2019-FL1, Ltd. (the Issuer):

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

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which remains in line with DBRS Morningstar’s expectations. 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. To access this report, please click on the link under Related Documents below or contact us at info@dbrsmorningstar.com.

At issuance, the collateral for the transaction consisted of 20 floating-rate mortgages and one fixed-rate mortgage secured by 38 mostly transitional commercial real estate properties, with a total balance of $1.1 billion, excluding approximately $116.0 million of future funding commitments. The transaction was structured with an initial 24-month Reinvestment Period that ended with the August 2021 Payment Date.

As of April 2022, the pool comprised 19 loans secured by 42 properties with a cumulative trust balance of $999.4 million. Since issuance, 16 loans with a former cumulative trust balance of $594.2 million have been successfully repaid, and 12 loans with a current cumulative trust balance of $454.7 million have been contributed to the trust. One of these loans, Woodbury Portfolio, was originally secured by 27 office properties; however, 13 properties have been released to date, resulting in a principal paydown. To date, seven of the original 21 loans, representing 54.5% of the current transaction balance, remain in the pool.

In general, borrowers are progressing toward completion of their stated business plans. Through April 2022, the collateral manager had advanced $78.2 million in loan future funding to 11 individual borrowers to aid in property stabilization efforts. The largest loan advances include $18.6 million to the borrower of the Hyatt Regency Houston loan, which is using funds to renovate guestrooms, meeting rooms, and public spaces across the property, and $16.7 million to the borrower of the Life Time Coral Gables loan, which is using the funds as a bridge to stabilization, given the collateral is a newly constructed multifamily property in Miami that was delivered to market during Q2 2021. An additional $102.3 million of unadvanced loan future funding allocated to 11 individual borrowers remains outstanding. The largest individual allocation of unadvanced future funding, $33.9 million, is to the borrower of the Life Time Coral Gables loan.

The pool is concentrated by property type as nine loans, representing 37.2% of the current trust balance, are secured by traditional multifamily assets; five loans, representing 27.8% of the current trust balance, are secured by office properties; and two loans, representing 13.5% of the current trust balance, are secured by hotel properties. The pool continues to be composed of properties in urban markets, those identified with a DBRS Morningstar Market Rank of 6 and 7. As of April 2022, this includes 10 loans, representing 69.1% of the current trust balance. An additional eight loans, representing 29.9% of the pool, are secured by properties in suburban markets, those identified with a DBRS Morningstar Rank of 3, 4 and 5. The transaction is also concentrated by loan size, as the largest 10 loans represent 74.7% of the pool. Overall pool leverage has declined since issuance. According to the April 2022 reporting, the weighted average (WA) as-is appraised current loan-to-value (LTV) is 64.6% and the WA stabilized appraised current LTV is 60.8%. In comparison, these figures were 76.8% and 65.3%, respectively, at closing.

As of the April 2022 remittance, there are no loans in special servicing, but there are five loans, representing 36.8% of the pool, on the servicer’s watchlist. Two loans, representing 16.5% of the current trust balance, Minkin Multifamily LLC and Brown Palace Hotel & Holiday Inn Express Denever Downtown are being monitored for upcoming loan maturities. An additional two loans, representing 11.2% of the current trust balance, Hyatt Regency Houston and Minkin Multifamily S-Corp are being monitored for upcoming loans maturities and a low DSCR or occupancy rate. The final loan on the watchlist, representing 9.1% of the current trust balance, Park at Pentagon Row, is being monitored for a low DSCR, as the property has yet to stabilize. The Park at Pentagon Row and Hyatt Regency Houston loans both have additional future funding commitments allocated to capital improvements, which have yet to be fully advanced and are expected to aid in property stabilization. The borrowers of the Brown Palace Hotel & Holiday Inn Express Denver Downtown and The Hyatt Regency Houston loans were previously granted three-month forbearances. Other modification terms included a waiver on furniture, fixtures and equipment (FF&E) reserve requirements, the use of outstanding FF&E funds to cover operating shortfalls, extensions and terminations of certain capex projects, and cash management provisions until the deferred interest is repaid. While there have been major disruptions to these borrowers’ business plans and property operations, all three of the subject hotels are open for business, and both loans are current on payments.

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 ratings assigned to Class G as the quantitative results suggested a higher rating. The material deviation is warranted given the sustainability of loan performance trends has not been demonstrated, as several properties securing loans in the transaction have yet to stabilize.

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 this transaction.

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 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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