Morningstar DBRS Confirms Credit Ratings on All Classes of BX Trust 2018-GW

DBRS, Inc. (Morningstar DBRS) confirmed its credit ratings on all classes of the Commercial Mortgage Pass-Through Certificates, Series 2018-GW issued by BX Trust 2018-GW as follows:

-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (high) (sf)
-- Class X-EXT at A (low) (sf)
-- Class D at BBB (high) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class G at B (low) (sf)

All trends are Stable.

The credit rating confirmations and Stable trends are reflective of the continued stable performance of the underlying asset and the excellent property quality bolstered by continued investments by the sponsor. The subject collateral is the Grand Wailea, a luxury resort hotel property in Wailea Beach, on the island of Maui, Hawaii. The Grand Wailea is a 776-key, Four-Diamond, oceanfront luxury resort, operated under the Waldorf Astoria flag. The resort includes 120 noncollateral villas, 62 of which are enrolled in the hotel's rental program. The $800.0 million whole loan consists of $510.5 million held within the trust in the form of a two-year floating-rate interest-only (IO) loan with five 12-month extension options, fully extending to May 2025. An additional $289.5 million in mezzanine debt is held outside of the trust, which is co-terminous with the senior debt. The borrower exercised its final maturity extension in May 2024 and has an upcoming final maturity in May 2025.

The loan was previously on the servicer's watchlist because of water damage at the Spa Grande in 2021, resulting in an insurance claim of $25.0 million. Since the last credit rating action, the spa reopened as Kilolani Spa following a $55 million renovation, which was part of a larger $300 million capital project that included updates to rooms, club lounges, and restaurants.

As of the March 2024 STR report, the subject reported a trailing 12-month (T-12) occupancy, average daily rate (ADR), and revenue per available room (RevPAR) of 56.3%, $834.28, and $469.56, respectively, for the period ended March 31, 2024. RevPAR continues to trend positively, though ADR is down slightly from the prior year and the property is underperforming its competitive set in terms of occupancy. The subject's RevPAR penetration has improved to 89.7% from 77.1% last year. Room revenue and net cash flow (NCF) remain well above issuance expectations as of the YE2023 reporting; however, NCF has fluctuated some over the past few years. This may be a delayed result of the wildfires that devastated Maui in the summer of 2023. The events deeply strained the island's infrastructure and visitors were urged to reconsider travel plans while local communities grappled with the impact and worked to rebuild.

The reported YE2023 NCF was $53.7 million, down from $59.0 million at YE2022 and in line with the YE2021 NCF of $53.3 million. The loan's corresponding debt service coverage ratio (DSCR) declined to 0.93 times (x) from 1.97x at YE2022 and 2.46x at YE2021. The decline in NCF is primarily attributable to a lag in Other Income, described by the servicer as travel and tourism memberships, resort fees, and parking, among other expenses. The decrease in DSCR is primarily due to the increased debt service payments tied to the loan's floating-rate coupon. However, the borrower is required to maintain an interest rate cap agreement that would result in a minimum 1.10x DSCR on the combined mortgage and mezzanine debt.

Morningstar DBRS maintained its loan-to-value (LTV) Sizing approach for this asset from the prior credit rating action. The concluded Morningstar DBRS value of $606.7 million is based on an NCF of $47.0 million and a cap rate of 7.75%. Although this figure is exceeded by the YE2023 NCF, Morningstar DBRS notes the year-over-year fluctuation in performance and upcoming maturity in 2025. Positive qualitative adjustments totaling 4.5% were maintained to account for the asset's excellent property quality and irreplaceable beachfront location in a constrained market. Blackstone's significant investment in improvements for the property demonstrate strong commitment in investing back some of the increased returns since the 2018 acquisition of the property. Morningstar DBRS believes the loan is well positioned to refinance at its final maturity.

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 factors 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 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.

Morningstar DBRS 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, Inc.
22 West Washington Street
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://dbrs.morningstar.com/about/methodologies.

North American Single-Asset/Single-Borrower Ratings Methodology (July 11, 2024; https://dbrs.morningstar.com/research/436004)

Rating North American CMBS Interest-Only Certificates (June 28, 2024; https://dbrs.morningstar.com/research/435294)

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 (June 28, 2024; https://dbrs.morningstar.com/research/435293)

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

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 dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.