DBRS Morningstar Confirms All Classes of LoanCore 2019-CRE3 Issuer Ltd.

DBRS Limited (DBRS Morningstar) confirmed the ratings on the following classes of floating-rate notes issued by LoanCore 2019-CRE3 Issuer Ltd. (the Issuer):

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

All trends are Stable.

The rating confirmations reflect the increased credit support to the bonds as a result of successful loan repayment, resulting in a collateral reduction of 59.0% since issuance. The increased credit support to the bonds serves as a mitigant to potential adverse selection in the transaction as two loans are secured by office properties (48.2% of the current pool balance). As a result of complications initially arising from impacts of the Coronavirus Disease (COVID-19) pandemic and the ongoing challenges with leasing available space, the borrowers of these loans have generally been unable to increase occupancy and rental rates, resulting in lower than expected cash flows. Given the decline in desirability for office product across tenants, investors, and lenders alike, there is greater uncertainty regarding the borrowers’ exit strategies upon loan maturity. 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.

As of the April 2023 remittance, the trust reported an outstanding balance of $170.3 million with just five loans remaining in the trust. All five loans in the transaction have pari passu companion notes securitized in the LoanCore 2019-CRE2 transaction, also rated by DBRS Morningstar. Since issuance, 17 loans have repaid in full, and as the Reinvestment Period ended in May 2021, loan payoffs were used to subsequently pay down the transaction sequentially. The remaining loans in the transaction beyond the office concentration noted above include two loans secured by multifamily properties (46.5% of the current trust balance) and one loan secured by a hotel (5.3% of the current trust balance).

All five loans have scheduled maturity dates in 2023 and do not have any additional loan extension options. Borrowers are in the process of securing refinancing or negotiating loan modifications in order to extend the loan to provide more time to stabilize their respective properties. Loan modification discussions are still in preliminary stages but will generally include a maturity extension and will require additional cash equity infusion or principal paydown.

The remaining loans in the pool are primarily secured by properties in urban and suburban markets. Three loans representing 75.4% of the pool are secured by properties in urban markets as defined by DBRS Morningstar with a DBRS Morningstar Market Rank of 6, 7, or 8, and two loans representing 24.6% of the pool are secured by properties with a DBRS Morningstar Market Rank of 3 or 4, which denotes a light suburban market. In comparison with the pool composition at issuance, properties in urban markets represented 55.3% of the collateral, and properties in suburban markets represented 25.5% of the collateral. The location of the assets within urban markets potentially serves as a mitigant to loan maturity risk, as urban markets have historically shown greater liquidity and investor demand.

As of March 2023, the lender has advanced $29.0 million in loan future funding to three of the remaining individual borrowers to aid in property stabilization efforts, with the largest advances made to the borrowers of the El Centro ($15.6 million) and 183 Madison Avenue ($9.5 million) loans. A majority of the future funding advanced for the El Centro loan was used to cover debt service payment shortfalls in order to give the sponsor time to lease the property up to stabilized levels. Future funding for the 183 Madison Avenue property was primarily used for TI/LC funds. Across the three loans that are structured with future funding, approximately $18.2 million remains outstanding as of March 2023. These funds are mainly to be used to fund capital expenditures and leasing costs.

As of the April 2023 remittance, there are no loans in special servicing and two loans, representing 46.4% of the pool, on the servicer’s watchlist. All five loans have received some form of loan modification or forbearance over the past three years, largely stemming from impacts of the 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 two loans on the servicer’s watchlist are being monitored for upcoming maturities. In addition to the two watchlisted loans, there is also one loan, Sunset PCH (Prospectus ID#9, 13.4% of the current trust balance), that is flagged as delinquent. This loan is secured by an office property in Los Angeles. The sponsor’s business plan was to leverage the property’s recent renovation, ocean side location, and affluent demographics to lease up vacant space. The property’s former largest tenant, Bay Club (previously 21.1% of net rentable area), vacated upon its lease expiry in June 2022 decreasing occupancy to 26.5%, where it currently stands as of March 2023. The sponsor is reportedly negotiating with a replacement gym tenant that will pay significantly more base rent than Bay Club had paid. Debt service coverage ratio was reported at just 0.27 times as of the trailing 12-month period ended November 30, 2022, and cash flow remains well below the DBRS Morningstar stabilized figure.

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).

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 (March 16, 2023; https://www.dbrsmorningstar.com/research/410912).

Other methodologies referenced in this transaction are listed at the end of this press release.

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 rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process for this rating action.

DBRS Morningstar had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is a solicited credit rating.

DBRS Morningstar notes that a sensitivity analysis was not performed for this review as the transaction is in wind down, with only five remaining loans. In these cases, the DBRS Morningstar ratings are typically based on a recoverability analysis for the remaining loans.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

North American CMBS Multi-Borrower Rating Methodology (March 16, 2023), https://www.dbrsmorningstar.com/research/410913

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 12, 2022), https://www.dbrsmorningstar.com/research/402646

North American Commercial Mortgage Servicer Rankings (September 8, 2022), https://www.dbrsmorningstar.com/research/402499

Interest Rate Stresses for U.S. Structured Finance Transactions (August 30, 2022), https://www.dbrsmorningstar.com/research/402153

Legal Criteria for U.S. Structured Finance (December 7, 2022),
https://www.dbrsmorningstar.com/research/407008

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.