DBRS Morningstar Confirms All Classes of Ready Capital Mortgage Trust 2018-4

DBRS Limited (DBRS Morningstar) confirmed its ratings on the following classes of Ready Capital Mortgage Trust 2018-4 Commercial Mortgage Pass-Through Certificates issued by Ready Capital Mortgage Trust 2018-4:

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

All trends are Stable.

The rating confirmations reflect the overall stability of the transaction since DBRS Morningstar’s last review. At issuance, the transaction consisted of 50 loans at an original trust balance of $165.0 million, and per the January 2023 remittance, 26 loans remained in the transaction at a current trust balance of $74.2 million, representing a collateral reduction of 55.0%. There are 12 loans, representing 41.7% of the pool, on the servicer’s watchlist and two loans, representing 7.4% of the pool, in special servicing. Of the 12 loans being monitored on the servicer’s watchlist, nine loans, representing 27.1% of the pool, are being monitored for low cash flow. These loans reported a weighted-average Q3 2022 debt service coverage ratio (DSCR) of 0.88 times (x), as compared with the pool average of 1.35x.

The largest loan in special servicing is Morrison Opera House (Prospectus ID#7, 6.4% of the pool). The loan transferred to special servicing in June 2020 because of monetary default amid the Coronavirus Disease (COVID-19) pandemic. In addition to the business interruption as a result of the pandemic, cash flow has been depressed after the property’s previous second-largest tenant, Hard Rock Cafe (21.2% of net rentable area (NRA)), vacated at its lease expiry in April 2019. Occupancy has remained depressed since Hard Rock Cafe’s departure, being reported at 57.6% as of December 2022. Per the January 2023 remittance, the loan is flagged as more than 90 days delinquent, with its last reported loan payment from September 2020.

According to special servicer commentary, the property was under contract to sell for $5.0 million in November 2022; however, the sale has since fallen through. In the event of the aforementioned sale failing to close, the borrower executed a deed in lieu of foreclosure agreement and consented to a receivership order. The special servicer now has the opportunity to enforce via the appointment of a receiver and filing of foreclosure or transition of title via a deed in lieu. The special servicer and borrower are reportedly finalizing discussions for a short-term forbearance.

The most recent appraisal reported by the servicer, dated December 2022, valued the property at $4.1 million, down 4.7% from the April 2022 appraised value of $4.3 million and down 47.3% from the issuance appraised value of $7.7 million. According to the financials for the trailing six-month period ended June 30, 2022, the loan reported a DSCR of 0.34x, as compared with the issuer’s underwritten DSCR of 1.30x. Occupancy was reported at 57.6% in December 2022, with tenancy comprising three tenants, including Kenzie Academy (43.2% of NRA; lease expires in January 2024), Brannon Sowers & Cracraft PC (10.0% of NRA; lease expires in January 2025), and Wild Beaver Saloon (4.4% of NRA; lease expires April 2026). Given the loan’s current total exposure of $6.4 million and an appraised value below the current loan amount, DBRS Morningstar anticipates the loan to be liquidated with a loss to the trust, with the loss being fully contained to the nonrated first-loss piece.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/396929 (May 17, 2022).

Classes IO-A and IO-B/C 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.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology (October 3, 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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