Morningstar DBRS Downgrades Credit Ratings of Three Classes of Morgan Stanley Capital I Trust 2019-PLND

DBRS, Inc. (Morningstar DBRS) downgraded credit ratings on three classes of Commercial Mortgage Pass-Through Certificates, Series 2019-PLND issued by Morgan Stanley Capital I Trust 2019-PLND as follows:

-- Class A to CCC (sf) from BB (sf)
-- Class B to CCC (sf) from B (sf)
-- Class X-EXT to CCC (sf) from BB (high) (sf)

DBRS Morningstar also confirmed the credit ratings on the following classes:

-- Class C at CCC (sf)
-- Class D at C (sf)
-- Class E at C (sf)
-- Class F at C (sf)
-- Class G at C (sf)

All credit ratings have been removed from the Under Review with Negative Implications designation where they had been placed on July 5, 2024, following the shorting of interest to the entire capital stack that began in May 2024. In May 2024, the servicer provided a Notice of Non-Recoverability, citing the proceeds implied by the December 2023 appraisals. As of the September 2024 remittance, cumulative interest shortfalls on Morningstar DBRS rated bonds totalled $11.0 million (with all classes being shorted interest), up from $5.8 million at Morningstar DBRS' last credit rating action in July 2024. Inclusive of the $39.5 million in previously advanced principal and interest, the total exposure as of September 2024 stood at $289.5 million.

There has been no interest distributed to bondholders since May 2024, when the Notice of Non-Recoverability was provided. The credit rating downgrades for Classes A, B, and X-EXT are reflective of continued interest shortfalls. Morningstar DBRS has limited tolerance for unpaid interest, limited to six reporting periods for the BB (sf) and B (sf) credit rating categories. The underlying assets, The Hilton Portland Downtown (Hilton Downtown) and The Duniway Portland (the Duniway), have been real estate owned (REO) since January 2023, and Morningstar DBRS remains concerned regarding the properties' deteriorated performance and uncertain disposition timeline. Since the last credit rating action, the special servicer has provided minimal updates with regards to plans for stabilization and/or disposition. Although a liquidation scenario based on the most recent appraised value indicates the senior classes are insulated from loss, Morningstar DBRS' credit ratings are constrained given the expectation of untimely interest. Morningstar DBRS expects interest shortfalls will continue to increase through the remainder of the workout period, a key contributing factor for the credit rating downgrades.

At issuance, the floating rate transaction was secured by a $240.0 million first-lien mortgage loan on two Hilton-branded, full-service hotels on adjacent city blocks in Portland, Oregon. The Hilton Downtown and The Duniway are near the corner of SW Taylor Street and SW 6th Avenue in Portland's downtown core. The two hotels combine for 782 rooms, approximately 63,000 square feet of meeting space, and three food and beverage outlets. The loan initially transferred to the special servicer for monetary default in June 2020, with a foreclosure action finalized in January 2023, and the assets are now REO. There is a planned property improvement plan in 2025 for both properties, which is targeted to renovate guest rooms, the meeting space, and common areas. The special servicer is reportedly working to stabilize property performance ahead of disposition.

The December 2023 appraisals value the properties on an as-is basis at $204.5 million combined, a decline from the March 2023 combined value of $254.8 million and the issuance value of $340.6 million. Including the expected liquidation expenses, Morningstar DBRS estimates a trust exposure in excess of $307 million at final resolution. To determine the potential for recoverability, Morningstar DBRS applied a 15% haircut to the December 2023 appraised figures, resulting in a liquidated loss of $132.7 million. That scenario suggests losses will be realized through Class D; it is noteworthy that the transaction structure includes a concentration of smaller balance classes, which include Classes B and C, which combine for $30.0 million, meaning there is relatively low cushion against losses for the senior three classes against further value decline in the Morningstar DBRS liquidation scenario. This factor likely contributed to the servicer's decision to issue a Non-Recoverability Notice and to short the full capital stack.

For the trailing 12-month (T-12) period ended April 30, 2024, STR reported that occupancy, average daily rate, and revenue per available room (RevPAR) were 54.0%, $164.28, and $88.75, respectively, for the Hilton Downtown, and 53.25%, $164.21, and $87.85, respectively, for the Duniway. For the same T-12 period, the two properties achieved RevPAR penetrations of 103.6% and 100.3%, relative to their competitive sets. Both properties exhibited RevPAR and RevPAR penetration metrics that were mostly in line with the prior year reporting. The subject properties have seen some improvements across certain performance metrics coming out of the coronavirus pandemic; however, cash flows remain significantly depressed as compared with pre-pandemic figures. According to the most recent financials, YE2023 net cash flow (NCF) was reported at approximately $8.1 million, sharply below the Morningstar DBRS NCF of $18.2 million derived when credit ratings were assigned in 2020.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

ENVIRONMENTAL, SOCIAL, AND 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 Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024), https://dbrs.morningstar.com/research/437781.

Class X-EXT is an interest-only (IO) certificate that references 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 Morningstar DBRS.

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

The principal methodology is North American CMBS Surveillance Methodology (March 1, 2024), https://dbrs.morningstar.com/research/428798.

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

The credit ratings were initiated at the request of the rated entity.

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

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

These are solicited credit ratings.

The credit ratings of this transaction are highly subject to the asset's liquidation value. As a result, a sensitivity whereby Morningstar DBRS stresses the Morningstar DBRS Cap Rate and Morningstar DBRS NCF to evaluate the impact of a Morningstar DBRS value decline based on the LTV sizing benchmarks was not completed. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The Morningstar DBRS Long-Term Obligation Rating Scale definition indicates that credit ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

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

-- North American Single-Asset/Single-Borrower Ratings Methodology (September 19, 2024), https://dbrs.morningstar.com/research/439699
-- Rating North American CMBS Interest-Only Certificates (June 28, 2024), https://dbrs.morningstar.com/research/435294
-- North American Commercial Mortgage Servicer Rankings (August 23, 2024), https://dbrs.morningstar.com/research/438283
-- Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024), https://dbrs.morningstar.com/research/428623
-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (September 19, 2024), https://dbrs.morningstar.com/research/439702
-- Legal Criteria for U.S. Structured Finance (April 15, 2024), https://dbrs.morningstar.com/research/431205

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.