DBRS Morningstar Confirms Credit Ratings on All Classes of BBCMS Mortgage Trust 2020-C6

DBRS, Inc. (DBRS Morningstar) confirmed its credit ratings on the Commercial Mortgage Pass-Through Certificates, Series 2020-C6 issued by BBCMS Mortgage Trust 2020-C6 as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class A-SB 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 A (low) (sf)
-- Class X-D at BBB (high) (sf)
-- Class E at BBB (sf)
-- Class F-RR at BBB (low) (sf)
-- Class G-RR at BB (sf)
-- Class H-RR at B (high) (sf)
-- Class J-RR at B (low) (sf)

DBRS Morningstar also confirmed its credit ratings on the loan-specific certificates as follows:

-- Class F5T-A at A (low) (sf)
-- Class F5T-B at BBB (low) (sf)
-- Class F5T-C at BB (low) (sf)
-- Class F5T-D at B (low) (sf)

The credit rating confirmations reflect the overall stable performance of the underlying loans in the transaction, as evidenced by the pool’s weighted-average (WA) debt service coverage ratio (DSCR) of 2.90 times (x) based on the most recent year-end financials, up slightly from 2.75x at issuance. The trust consists of 45 fixed-rate loans secured by 118 commercial and multifamily properties, which had an initial trust balance of $904.0 million at issuance. As of the October 2023 reporting, all of the original loans remain in the pool, and there has been nominal collateral reduction of 1.1% since issuance. Amortization has generally been limited, as 25 of the loans representing 68.0% of the current pool balance are interest-only (IO) and another two loans representing 6.8% are partial-IO remaining in their IO periods. The collateral pool’s property type concentration is relatively diverse with office, retail, and mixed-use properties, each representing around 20.0% of the current pool balance. Two loans, representing 2.9% of the current pool balance, are secured by collateral that is defeased. There are currently no specially serviced or delinquent loans, but 10 loans, representing 25.0% of the current pool balance, are on the servicer’s watchlist for a variety of reasons.

Parkmerced - Pooled (Prospectus ID#1, 7.3% of the current pool balance) is secured by a 3,165-unit apartment complex in San Francisco. The noncontrolling pari passu loan has other pieces of the whole loan secured in several transactions, including four other transactions that are also rated by DBRS Morningstar. It was added to the servicer’s watchlist in March 2021 because of performance declines with the loan reporting below breakeven DSCRs in the past several years and is currently cash managed. Occupancy dropped to around the 70.0% range over the last two years from issuance levels of 94.3%, but it had improved to 81.2% per the March 2023 rent roll. The transaction closed during the height of the Coronavirus Disease (COVID-19) pandemic in 2020, and DBRS Morningstar had noted declines in rent caused by disruptions related to the pandemic. In addition, a portion of the units are under the Section 8 rent subsidy program.

The subject is well located, adjacent to San Francisco State University’s campus and directly east of Lake Merced and Lake Merced Park. According to Reis, multifamily properties in the West San Francisco submarket reported a Q2 2023 vacancy rate of 1.2%, the same as the Q2 2022 vacancy rate. The property benefits from an experienced sponsor, Maximus Real Estate Partners, and a low loan-to-value ratio (LTV) of 25.9% at issuance. The sponsor’s long-term development plan is scheduled for after the loan term ends in December 2024, when all the townhomes will be demolished and replaced by apartment towers. Although stabilization efforts are taking longer than expected following the impacts of the pandemic and the general challenges within the San Francisco market, occupancy at the subject has improved from prior years and the loan has remained current despite reporting low DSCRs, suggesting that the sponsor continues to be committed to the property. In addition, the low issuance LTV provides cushion for any declines in value. At issuance, the loan was shadow-rated investment grade primarily because of the low LTV, sponsorship strength, and desirable location. DBRS Morningstar maintained the shadow rating with this review with the expectation that the net cash flow (NCF) should stabilize in the near term given the uptick in occupancy, but it will continue to closely monitor the loan for developments.

650 Madison Avenue - Pooled (Prospectus ID#2, 6.7% of the pool) is secured by a Class A office and retail tower at 650 Madison Avenue in the Plaza district of New York City. The property consists of approximately 544,000 square feet (sf) of office space, 22,000 sf of ground-floor retail space, and 34,000 sf of storage and flex space. The loan is pari passu with other pieces of the whole loan secured in several transactions, including four other transactions that are also rated by DBRS Morningstar. The loan was added to the servicer’s watchlist in April 2023 because of a drop in DSCR, which was mainly driven by the departure of the former second-largest tenant, Memorial Sloan Kettering Cancer Center, upon its lease expiration in June 2022. As a result, the occupancy rate dropped to 77.6%, according to the January 2023 rent roll, compared with 90.2% at YE2021 and 97.0% at issuance. In addition, the lease for the current second-largest tenant, BC Partners Inc. (11.7% of the net rentable area (NRA)), was set to expire in June 2023, but the company appears to have remained at the property as the location is still listed on its website. While there is minimal rollover risk through the next 12 months, the lease of the largest tenant, Ralph Lauren (40.7% of the NRA), is scheduled to expire in December 2024. The loan has a cash flow sweep if the tenant does not provide written notice of renewing its lease 18 months prior to expiration. The amount to be swept is $80 per square foot (psf), or approximately $20.0 million. According to a June 2023 article from The Real Deal, Ralph Lauren is planning to reduce its North American footprint by 30% in the coming years, and it may downsize or vacate the subject. DBRS Morningstar has requested an update from the servicer and a response is pending as of the date of this press release.

According to the most recent financials for the trailing 12 months ended March 31, 2023, the NCF was $37.8 million (reflecting a DSCR of 1.77x on the senior debt; 1.39x on the whole loan), compared with the YE2021 NCF of $63.2 million (DSCR of 2.82x on the senior debt; 2.23x on the whole loan) and the DBRS Morningstar NCF of $50.8 million (DSCR of 2.45x on the senior debt). Reis reports the property’s average base rent is $89.36 psf for office space as of January 2023, which is below the current average rental rate of $95.31 psf for Class A office space within a one-mile radius. However, leases that were executed at the subject in 2022 have rates that are well above $100 psf, with rental abatements provided and contributing to the lower YE2022 NCF. At issuance, the loan was shadow-rated investment grade primarily because of the low A note LTV of 32.1% and high DBRS Morningstar Term DSCR; however, given the declines in occupancy rate and NCF and the increased rollover risk, DBRS Morningstar removed the shadow rating for this review. DBRS Morningstar will continue to closely monitor this loan.

In general, the office sector has been challenged, given the low investor appetite for the property type and high vacancy rates in many submarkets as a result of the shift in workplace dynamics. While the majority of loans backed by office properties continue to perform as expected, DBRS Morningstar identified two additional loans backed by office properties, Satellite Flex Office Portfolio (Prospectus ID#16, 2.9% of the current pool balance) and 2000 Park Lane (Prospectus ID#17, 3.0% of the current pool balance), exhibiting declines in performance since issuance, with vacancy rates hovering around 25% and significant exposure to tenant rollover in 2024. In its analysis, these loans were analyzed with stressed LTVs to capture the likely decline in value, resulting in expected losses that were nearly five times higher than the pool average.

At issuance, DBRS Morningstar assigned an investment-grade shadow rating on three additional loans (excluding Parkmerced and 650 Madison Avenue mentioned above): Prospectus ID#3 – Kings Plaza (6.7% of the current pool); Prospectus ID#5 – F5 Tower (5.6% of the current pool); and Prospectus ID#7 – Bellagio Hotel and Casino (4.9% of the current pool). With this review, DBRS Morningstar confirmed that the respective performance of each of these loans remains consistent with the characteristics of an investment-grade loan.

The loan-specific Class F5T-A, F5T-B, F5T-C, and F5T-D certificates are backed by the $112.6 million subordinate companion loan of the $297.6 million F5 Tower whole loan, which is secured by 515,518 sf of Class A office space and a 259-space underground parking garage in Seattle. The office space is 100% occupied by F5 Networks, Inc., which uses the space as its headquarters, on a lease through September 2033. The loan-specific certificates are not pooled with the remainder of the trust loans. With this review, DBRS Morningstar confirmed that the performance of the underlying loan remains in line with the expectations at issuance, supporting the rating confirmations for those classes.

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/416784 (July 4, 2023).

Classes X-A, X-B, and X-D are interest-only (IO) certificates that reference a single rated tranche or multiple rated tranches. The IO credit 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 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.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and credit ratings are monitored.

DBRS, Inc.
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Chicago, IL 60602 USA
Tel. +1 312 332-3429

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 version 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, 2023; https://www.dbrsmorningstar.com/research/420984))

North American Commercial Mortgage Servicer Rankings (August 23, 2023; https://www.dbrsmorningstar.com/research/419592)

Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023; https://www.dbrsmorningstar.com/research/415687)

Legal Criteria for Canadian Structured Finance (June 20, 2023;
https://www.dbrsmorningstar.com/research/416101)

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