CSAIL 2018-C14 Commercial Mortgage Trust -- Moody's affirms seven classes of CSAIL 2018-C14
Rating Action: Moody's affirms seven classes of CSAIL 2018-C14
Global Credit Research - 25 Nov 2020
Approximately $574.3 million of structured securities affected
New York, November 25, 2020 -- Moody's Investors Service, ("Moody's") has affirmed the ratings on seven classes in CSAIL 2018-C14 Commercial Mortgage Trust, Commercial Mortgage Pass Through Certificates, Series 2018-C14 as follows:
Cl. A-1, Affirmed Aaa (sf); previously on Nov 29, 2018 Definitive Rating Assigned Aaa (sf)
Cl. A-2, Affirmed Aaa (sf); previously on Nov 29, 2018 Definitive Rating Assigned Aaa (sf)
Cl. A-3, Affirmed Aaa (sf); previously on Nov 29, 2018 Definitive Rating Assigned Aaa (sf)
Cl. A-4, Affirmed Aaa (sf); previously on Nov 29, 2018 Definitive Rating Assigned Aaa (sf)
Cl. A-S, Affirmed Aa3 (sf); previously on Nov 29, 2018 Definitive Rating Assigned Aa3 (sf)
Cl. A-SB, Affirmed Aaa (sf); previously on Nov 29, 2018 Definitive Rating Assigned Aaa (sf)
Cl. X-A*, Affirmed Aa1 (sf); previously on Nov 29, 2018 Definitive Rating Assigned Aa1 (sf)
*Reflects Interest-Only Class RATINGS RATIONALE
The ratings on six principal and interest (P&I) classes were affirmed due to their credit support and because the transaction's key metrics, including Moody's loan-to-value (LTV) ratio, Moody's stressed debt service coverage ratio (DSCR) and the transaction's Herfindahl Index (Herf), are within acceptable ranges.
The rating on the interest-only (IO) class, Class X-A, was affirmed based on the credit quality of the referenced classes.
The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Our analysis has considered the effect on the performance of commercial real estate from the current weak US economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. As a result, the degree of uncertainty around our forecasts is unusually high. Stress on commercial real estate properties will be most directly stemming from declines in hotel occupancies (particularly related to conference or other group attendance) and declines in foot traffic and sales for non-essential items at retail properties.
We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.
Moody's rating action reflects a base expected loss of 9.2% of the current pooled balance and Moody's base expected loss plus realized losses is now 9.2% of the original pooled balance. Moody's provides a current list of base expected losses for conduit and fusion CMBS transactions on moodys.com at http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF215255.
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:
The performance expectations for a given variable indicate Moody's forward-looking view of the likely range of performance over the medium term. Performance that falls outside the given range can indicate that the collateral's credit quality is stronger or weaker than Moody's had previously expected.
Factors that could lead to an upgrade of the ratings include a significant amount of loan paydowns or amortization, an increase in the pool's share of defeasance or an improvement in pool performance.
Factors that could lead to a downgrade of the ratings include a decline in the performance of the pool, loan concentration, an increase in realized and expected losses from specially serviced and troubled loans or interest shortfalls.
METHODOLOGY UNDERLYING THE RATING ACTION
The principal methodology used in rating all classes except interest-only classes was "Approach to Rating US and Canadian Conduit/Fusion CMBS" published in September 2020 and available at https://www.moodys.com/viewresearchdoc.aspx?docid=PBS_1244778. The methodologies used in rating interest-only classes were "Approach to Rating US and Canadian Conduit/Fusion CMBS" published in September 2020 and available at https://www.moodys.com/viewresearchdoc.aspx?docid=PBS_1244778 and "Moody's Approach to Rating Structured Finance Interest-Only (IO) Securities" published in February 2019 and available at https://www.moodys.com/viewresearchdoc.aspx?docid=PBS_1111179. Please see the list of ratings at the top of this announcement to identify which classes are interest-only (indicated by the *). Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.
DEAL PERFORMANCE
As of the November 18, 2020 distribution date, the transaction's aggregate certificate balance has decreased by 0.5% to $766.3 million from $770.2 million at securitization. The certificates are collateralized by 44 mortgage loans ranging in size from less than 1% to 9.1% of the pool, with the top ten loans (excluding defeasance) constituting 54.7% of the pool. Two loans, constituting 6.9% of the pool, have investment-grade structured credit assessments.
Moody's uses a variation of Herf to measure the diversity of loan sizes, where a higher number represents greater diversity. Loan concentration has an important bearing on potential rating volatility, including the risk of multiple notch downgrades under adverse circumstances. The credit neutral Herf score is 40. The pool has a Herf of 24, unchanged from securitization.
As of the November 2020 remittance report, loans representing 90% were current or within their grace period on their debt service payments, less than 1% were between 30 -- 59 days delinquent, and 9% were 90 days over more delinquent.
Six loans, constituting 13.1% of the pool, are on the master servicer's watchlist, of which one loan, representing 0.7% of the pool, indicate the borrower has requested relief in relation to coronavirus impact on the property. The watchlist includes loans that meet certain portfolio review guidelines established as part of the CRE Finance Council (CREFC) monthly reporting package. As part of Moody's ongoing monitoring of a transaction, the agency reviews the watchlist to assess which loans have material issues that could affect performance.
No loans have been liquidated from the pool and five loans, constituting 10.9% of the pool, are currently in special servicing. All of the specially serviced loans have transferred to special servicing since March 2020.
The largest specially serviced loan is the Sheraton Grand Nashville Downtown Loan ($30.0 million -- 3.9% of the pool), which represents a pari-passu portion of a $160.0 million mortgage loan. The loan is secured by a 482-room, full-service hotel located in downtown Nashville, Tennessee. A Skye meeting room and ballroom is located on the top floor and was renovated in early 2017. Hotel amenities include a restaurant, lounge, indoor pool, fitness center, business center and approximately 23,554 square feet (SF) of meeting space. The loan was transferred to special servicing in June 2020 for payment default . The property has been impacted by the coronavirus pandemic and the borrower submitted a modification request that is under review. In addition, the servicer is in process of establishing a lockbox to trap revenue and the borrower is marketing the property for sale via loan assumption. An updated July 2020 appraisal reported a decrease in property value to $183.0 million compared to $276.5 million in 2018, however, due to the reported value this did not result in an appraisal reduction. The loan is past due for its April 2020 payment.
The second largest specially serviced loan is the Holiday Inn FiDi Loan ($25.0 million -- 3.3% of the pool), which represents a pari-passu portion of a $87.0 million mortgage loan. The property is also encumbered by $50.0 million of subordinate debt. The loan is secured by a 50-story, 492-room, full-service hotel located in the Financial District in New York, New York. Hotel amenities include a fitness center, business center, and dining options at St. George Tavern. The loan was transferred to special servicing in May 2020 for imminent default at the borrower's request in relation to the coronavirus pandemic. The hotel was closed between March 2020 and July 2020 and has since re-opened. The servicer is dual-tracking the loan for foreclosure while considering the borrower's request for forbearance. There is currently a foreclosure moratorium in New York State through January 1, 2021. An updated August 2020 appraisal reported a decrease in property value to $138.6 million compared to $233.0 million in 2018, however, due to the reported value this did not result in an appraisal reduction. The loan is past due for its May 2020 payment and Moody's does not currently anticipate a loss on this loan.
The third largest specially serviced loan is the Utah Hotel Portfolio Loan ($14.6 million -- 1.9% of the pool), which is secured by four hotels located in Kanab, Springdale, Moab, and Monticello in Utah. The portfolio consists of a combined 251 rooms and are located in proximity to national parks, which represents a major demand generator in their respective markets. The portfolio was transferred to special servicing in July 2020 for imminent default at the borrower's request in relation to the coronavirus pandemic. The loan is past due for its April 2020 payment and discussions are ongoing for a short-term forbearance.
The remaining two specially serviced loans are cross-collateralized and are secured by a portfolio of retail properties located in South Carolina and one retail property located in North Carolina. The properties are all anchored by grocery tenants. The loans were transferred to special servicing in May 2020 for imminent monetary default at the borrower's request in relation to the coronavirus pandemic. The loans have since been brought current and are expected to be returned to the master servicer. Moody's does not currently anticipate a loss on these loans.
Moody's has also assumed a high default probability for one poorly performing loan, constituting 0.7% of the pool. Moody's has estimated an aggregate loss of $14.2 million (a 28.4% expected loss on average) for the troubled loan and two of the specially serviced loans.
The credit risk of loans is determined primarily by two factors: 1) Moody's assessment of the probability of default, which is largely driven by each loan's DSCR, and 2) Moody's assessment of the severity of loss upon a default, which is largely driven by each loan's loan-to-value ratio, referred to as the Moody's LTV or MLTV. As described in the CMBS methodology used to rate this transaction, we make various adjustments to the MLTV. We adjust the MLTV for each loan using a value that reflects capitalization (cap) rates that are between our sustainable cap rates and market cap rates. We also use an adjusted loan balance that reflects each loan's amortization profile. The MLTV reported in this publication reflects the MLTV before the adjustments described in the methodology.
Moody's received full year 2019 operating results for 96% of the pool, and partial year 2020 operating results for 87% of the pool (excluding specially serviced and defeased loans). Moody's weighted average conduit LTV is 118%, compared to 113% at securitization. Moody's conduit component excludes loans with structured credit assessments, defeased and CTL loans, and specially serviced and troubled loans. Moody's net cash flow (NCF) reflects a weighted average haircut of 18.8% to the most recently available net operating income (NOI). Moody's value reflects a weighted average capitalization rate of 10.1%.
Moody's actual and stressed conduit DSCRs are 1.60X and 0.95X, respectively, compared to 1.65X and 0.99X at securitization. Moody's actual DSCR is based on Moody's NCF and the loan's actual debt service. Moody's stressed DSCR is based on Moody's NCF and a 9.25% stress rate the agency applied to the loan balance.
The largest loan with a structured credit assessment is The Greystone Loan ($42.0 million -- 5.5% of the pool), which represents a pari-passu portion of a $52.0 million mortgage loan. The property is also encumbered by $43.0 million of subordinate debt and $23.0 million of mezzanine debt. The loan is secured by a 14-story, 363-unit multifamily located in the Upper West Side of New York, New York. As of the September 2020 rent roll, the property was 77% occupied compared to 93% in June 2020 and 100% at year-end 2019. The average rents for leases with start dates after March 2020 have decreased by approximately 10%. The loan is interest-only through its entire term and is current through its November 2020 payment. Moody's structured credit assessment and stressed DSCR are baa3 (sca.pd) and 1.26X, respectively.
The second loan with a structured credit assessment is the 20 Times Square Loan ($11.0 million -- 1.4% of the pool), which represents a pari-passu portion of a $265.0 million senior mortgage loan. The property is also encumbered with $485.0 million of B-note and $150.0 million of mezzanine debt. The loan is secured by the borrower's fee simple interest in a 16,066 SF parcel of land located along Seventh Avenue and West 47th Street in Times Square, New York, NY. The non-collateral improvements above the property are encumbered with a 99-year ground lease with an initial ground rent of $29.25 million per annum, subject to a 2.0% annual increases in years 1- 5 and 2.75% annual increase thereafter. The non-collateral property consists of 74,820 SF of retail space, 18,000 SF of digital signage on 7th avenue and the 452-room hotel. While hotel and retail properties in Times Square have been significantly impacted by the coronavirus pandemic, the loan benefits from its ground lease priority and in the event of default of the ground lease, ownership of the improvements would revert to the borrower (ground lessor) and serve as collateral for the loan. Moody's structured credit assessment is aaa (sca.pd).
The top three conduit loans represent 25.4% of the pool balance. The largest loan is the Prudential -- Digital Realty Portfolio Loan ($70.0 million -- 9.1% of the pool), which represents a pari-passu portion of a $212.0 million mortgage loan. The loan is secured by eight, Tier III, powered shell centers totaling approximately 1.0 million SF located across California, Texas, New Jersey, and Virginia. As of June 2020, the properties were 100% leased by four tenants. Cyxtera (46% of combined SF) leases three of the properties, VADATA, Inc. (25% of combined SF) leases two of the properties, and Equinix, LLC (19% of combined SF) leases two of the properties. The tenants invested their own capital to build out the internal infrastructure and improvements. The loan is interest-only through its entire term and is current through its November 2020 payment. Moody's LTV and stressed DSCR are 98% and 1.10X, respectively, unchanged from securitization.
The second largest loan is the Georgetown Squared & Seattle Design Center Loan ($65.0 million -- 8.5% of the pool), which represents a pari-passu portion of a $91.0 million mortgage loan. The loan is secured by an approximately 430,700 SF office and design center located in Seattle, Washington, approximately 4.4 mi. south of the Seattle central business district (CBD). The properties consists of two buildings attached by a second-floor enclosed glass sky bridge. Georgetown Squared comprises approximately 277,300 SF of Class A, creative office space and Seattle Design Center comprises approximately 153,500 SF of design and showroom space, which includes a glass-dome atrium that is frequently used as event space. As of June 2020, the properties were 88% occupied compared to 80% at year-end 2019. The largest tenants include Darigold Inc. (10% of net rentable area (NRA)) with a lease expiration in 2029, R.R. Donnelley & Sons Company (8% of NRA) with a lease expiration in 2025, and Association Services of Washington (7% of NRA) with a lease expiration in 2029. As of November 2020, the majority of the $17.0 million earnout reserve at securitization has been released with a balance of approximately $413,300. The loan is still within its interest-only period of 36 months and is current through its November 2020 payment. Moody's LTV and stressed DSCR are 147% and 0.71X, respectively.
The third largest loan is the Continental Towers Loan ($59.5 million -- 7.8% of the pool), which represents a pari-passu portion of a $84.5 million mortgage loan. The loan is secured by a 910,717 SF, 3-tower, Class A office complex located in Meadows, Illinois. The largest tenant, Cellco Partnership (Verizon) (18% of NRA) has a lease expiration in 2028. The second largest tenant, Komatsu America Corporation (Komatsu) (12% of NRA), has a lease expiration in July 2021. In 2018, Komatsu had provided a three-year advanced notice confirming they would not renew their space. The third and fourth largest tenants, Advocate Health (8% of NRA) and Panasonic (6% of NRA), have lease expirations in 2025 and 2022, respectively. As of June 2020, the properties were 74% leased, compared to 86% at year-end 2019. The decrease in occupancy was largely due to Ceannate Corporation (8% of NRA) vacating prior to their lease expiration in 2024. If the Komatsu tenant is excluded, the occupancy would decrease to 62%. The loan was placed on the watchlist in August 2020 due to a tax advancement of $2.6 million. The servicer issued a notice in July 2020 and is following up with the borrower. The loan is interest-only through its entire term and is current through its November 2020 payment. Moody's LTV and stressed DSCR are 137% and 0.81X, respectively.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
The analysis includes an assessment of collateral characteristics and performance to determine the expected collateral loss or a range of expected collateral losses or cash flows to the rated instruments. As a second step, Moody's estimates expected collateral losses or cash flows using a quantitative tool that takes into account credit enhancement, loss allocation and other structural features, to derive the expected loss for each rated instrument.
Moody's did not use any stress scenario simulations in its analysis.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s) announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Amy Wang Associate Lead Analyst Structured Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Romina Padhi VP - Senior Credit Officer Structured Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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