DBRS Morningstar Confirms Ratings on All Classes of Ready Capital Mortgage Trust 2019-6

DBRS Limited (DBRS Morningstar) confirmed its ratings on all classes of Commercial Mortgage Pass-Through Certificates issued by Ready Capital Mortgage Trust 2019-6 as follows:

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

All trends are Stable.

The rating confirmations and Stable trends reflect the continued performance of the transaction since DBRS Morningstar’s last review. As of the February 2023 remittance, 55 of the original 89 loans remain in the pool, representing a collateral reduction of 40.5% since issuance. At issuance, the pool contained a mix of stabilized properties along with short-term bridge loans, secured by properties in a period of transition with plans to stabilize. Although the majority of loans are fixed-rate, the loans backing transitional properties had a hybrid interest rate structure that features a fixed rate for the loan portion held within the trust but a floating rate for the future funding component outside of the trust. At issuance, five loans had future funding components; however, four such loans have repaid from the trust, with the Back Bay Center loan (Prospectus ID#6, 6.4% of the pool balance) remaining. There is one loan in special servicing and 21 loans on the servicer’s watchlist, representing 0.4% and 41.7% of the current pool balance, respectively. With the February 2023 remittance, one loan liquidated from the trust (Prospectus ID#18, Waynesboro Industrial), with no loss to the trust.

The largest loan on the servicer's watchlist, 1001 Ross (Prospectus ID#2, 9.6% of the pool balance), is secured by a mixed-use property consisting of 201 multifamily units and 30,165 square feet (sf) of ground-level retail in downtown Dallas. The loan was added to the servicer's watchlist for a low debt service coverage ratio (DSCR). At issuance, the sponsor’s business plan was to implement a $3.5 million capital improvement plan to modernize interior and exterior finishes, including $2.4 million ($16,597 per unit) for apartment interiors, which has not been completed fully. The largest former retail tenant, CVS, vacated in January 2020, and the sponsor planned to use $1.4 million held in an available leasing reserve to back-fill the space; however, no replacement tenant has been identified to date.

According to the September 2022 rent roll, the property was 84.9% occupied, compared with the year-end (YE) 2021 and YE2020 occupancy rates of 73.5% and 85.8%, respectively. The multifamily portion was 92.2% occupied with an average rental rate of $1,479 per unit, compared with the issuance occupancy rate of 95.0% and average rental rate of $1,276 per unit. The retail portion of the property was 44.3% occupied with an average rental rate of $22.52 per square foot (psf), compared with the issuance occupancy rate of 38.9% and average rental rate of $19.49 psf. According to the most recent financial reporting, the loan reported a trailing nine-month ended September 30, 2022, DSCR of 0.75 times (x), compared with YE2021, YE2020, and DBRS Morningstar Stabilized DSCRs of 0.69x, 0.55x, and 1.15x, respectively. DBRS Morningstar analyzed this loan with a stressed probability of default (POD) to increase the loan’s expected loss with this review given the lack of retail leasing traction and overall delays in the business plan.

The second-largest loan on the servicer’s watchlist is 777 East 12th Street (Prospectus ID#5, 7.3% of the pool balance), originally transferred to the special servicer in April 2020 for imminent monetary default. The loan is secured by a four-story mixed-use property in the Fashion District of Los Angeles. The ground-floor spaces are leased to tenants in the wholesale retail market with relatively small unit sizes. The loan was added to the servicer's watchlist in December 2021 because of a low DSCR, with a trailing three-month ended March 31, 2022, DSCR reported at 0.63x, comparing unfavorably with YE2021, YE2020, and YE2019 DSCRs of 0.89x, 1.14x, and 1.37x, respectively. The most recent decline in DSCR is attributable to a significant increase in expenses, particularly utilities, repairs and maintenance, and management fees. The property was 84.6% occupied as of the September 2022 rent roll, with a new tenant taking occupancy in October 2022, which would increase occupancy to 88.1% as compared with the January 2021 occupancy of 70.5% and the March 2020 occupancy rate of 83.6%. The largest tenants at the property include Pacific City Bank (18.8% of net rentable area (NRA); lease expiration in August 2023, extended from prior lease expiry of December 2021), Che Ran Jung Moon (9.9% of NRA, month to month), and Jea Whan You (5.6% of NRA, month to month). The tenant base primarily operated on month-to-month leases, resulting in fluctuating occupancy rates. Given the net cash flow, which has declined over the past few years, and the upcoming rollover of the largest tenant, DBRS Morningstar analyzed this loan with a stressed POD to increase its expected loss with this review.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) 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/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (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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