DBRS Morningstar Confirms Ratings on All Classes of BANK 2019-BNK16

DBRS Limited (DBRS Morningstar) confirmed its ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2019-BNK16 issued by BANK 2019-BNK16 as follows:

-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class X-B at A (high) (sf)
-- Class C at A (sf)
-- Class D at BBB (high) (sf)
-- Class X-D at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class X-F at BB (high) (sf)
-- Class F at BB (sf)
-- Class X-G at B (high) (sf)
-- Class G at B (sf)
-- Class X-H at B (sf)
-- Class H at B (low) (sf)

All trends are Stable.

The rating confirmations reflect the stable performance of the transaction since issuance as illustrated by the strong financial performance of the pool with a weighted-average (WA) debt service coverage ratio (DSCR) above 2.0 times (x) based on the most recent year-end financials. In addition, there are no loans in special servicing and no delinquent loans. As of the August 2023 remittance, 68 of the 69 original loans remain in the pool, representing a collateral reduction of 3.4% since issuance. Two loans are fully defeased, representing 0.6% of the pool balance. Eight loans are on the servicer’s watchlist, representing 15.8% of the pool, and are being monitored for performance-related concerns, tenant rollover risk, deferred maintenance, and upcoming maturity.

The pool is concentrated by property type with loans backed by office and retail properties making up 32.2% and 31.5% of the pool, respectively. Most of those office loans continue to perform in line with issuance expectations, but the concentration is noteworthy given the overall stress for the office market as a whole in recent years and the risk is compounded especially for loans with upcoming maturity, which includes the Regions Tower loan (Prospectus ID#7, 4.6% of the pool) that is scheduled to mature in October 2023. Both the most recent occupancy rate and net cash flow (NCF) have been trending downwards in recent years, suggesting increased refinance risk, and will likely require an extension. Given these concerns, the loan was analyzed with a stressed loan-to-value ratio (LTV), resulting in an expected loss that was more than triple the pool average expected loss.

The largest loan on the servicer’s watchlist, Southeast Hotel Portfolio (Prospectus ID#2, 6.9% of the pool), is secured by a hotel portfolio of five properties totaling 759 keys. The portfolio consists of four limited-service and one full-service hotels located across three cities in the United States, with two in Atlanta, Georgia; two in Orlando, Florida; and one in Gastonia, North Carolina. Three hotels operate under the Marriott flag, while two operate under the Hilton flag.

The loan was previously in special servicing as the borrower requested relief as a result of challenges arising from the Coronavirus Disease (COVID-19) pandemic; however, the loan was returned to the master servicer in January 2023 after a loan modification was executed. The loan is currently on the servicer’s watchlist for low DSCR and deferred maintenance concerns. While the deferred maintenance is in the process of being remediated, the subject’s performance continues to lag.

According to the March 2023 STR report, the portfolio reported a trailing 12-month (T-12) WA occupancy rate, average daily rate (ADR), and revenue per available room (RevPAR) of 73.1%, $109.18, and $79.52, respectively, compared with the YE2022 RevPAR of $77.52 and issuance RevPAR of $86.71. As of the T-12 March 31, 2023, financials, the DSCR was reported at 1.05x, compared with the YE2022 DSCR of 0.95x and the DBRS Morningstar DSCR of 1.38x. While the overall performance has improved year-over-year as exhibited by the growth in DSCR and RevPAR, performance remains below DBRS Morningstar’s expectations. In terms of the analysis, the loan inherently has an elevated expected loss that was nearly triple the pool average, which was maintained with this review.

A loan that DBRS Morningstar is currently monitoring is US Bank Centre (Prospectus ID#8, 3.4% of the pool), which is secured by a 256,000-square-foot (sf) office property in downtown Cleveland, Ohio. The loan was previously watchlisted because of the trigger of a cash management account tied to the former third-largest tenant, U.S. Department of Housing and Urban Development, which had announced its intent to vacate. However, the tenant downsized its space to 3,300 sf in 2021 from approximately 34,200 sf. As of the May 2023 rent roll, the property was 74.1% occupied and tenants representing more than 35.0% of the net rentable area (NRA) had leases that expired/expiring in the next 12 months, which includes the three largest tenants at the subject: Cohen & Company Ltd (Cohen & Company; 14.7% of NRA, lease expiry in July 2024), GCA Services (12.67% of NRA, lease expiry in January 2024), and U.S. Bank (11.16% of NRA, lease expiry in July 2024). According to the servicer, the borrower has already identified replacement tenants for majority of GCA Servicer’s space, some of which are subleased tenants that will sign a direct lease. In addition, a LoopNet posting noted approximately 70,000 sf of space is available for lease, which does not include the spaces occupied by Cohen & Company and U.S. Bank.

As per the YE2022 financials, the loan reported a DSCR of 1.15x, which is above YE2021 figure of 1.07x but still below the DBRS Morningstar DSCR of 1.27x. According to the loan level reserve report, there is $2.5 million held across all reserves, including $2.0 million in tenant reserves and approximately $318,000 in other reserves. The loan should be in cash managed since a sweep is triggered 12 months prior to Cohen & Company and U.S. Bank’s lease expiration. DBRS Morningstar will continue to closely monitor this loan for updates.

At issuance, DBRS Morningstar shadow-rated Millenium Partners Portfolio (Prospectus ID#3, 6.8% of the pool) and Willowbend Apartments (Prospectus ID#11, 2.5% of the pool) as investment-grade. The Millenium Partners Portfolio is pari passu with several other commercial mortgage-backed securities (CMBS) transactions including three DBRS Morningstar rated transactions: Morgan Stanley Capital I Trust 2018-MP, Morgan Stanley Capital I Trust 2018-L1, and BANK 2018-BNK14. For this review, DBRS Morningstar confirmed that the performance of these loans continues to be in line with investment-grade loan characteristics.

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 (July 4, 2023) https://www.dbrsmorningstar.com/research/416784.

Classes X-A, X-B, X-D, X-F, X-G, and X-H 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 credit ratings are subject to surveillance, which could result in credit 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 credit rating was initiated at the request of the rated entity.

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

This is a solicited credit rating.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

DBRS Limited
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Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

The credit 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)/North American CMBS Insight Model v 1.1.0.0 (https://www.dbrsmorningstar.com/research/410913

Rating North American CMBS Interest-Only Certificates (December 19, 2022; https://www.dbrsmorningstar.com/research/407577)

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 (June 9, 2023; https://www.dbrsmorningstar.com/research/415687)

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

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/417279.

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