Morningstar DBRS Downgrades Credit Ratings on 14 Classes of Benchmark 2019-B9 Commercial Mortgage Trust, Changes Trends on 10 Classes to Stable from Negative

DBRS Limited (Morningstar DBRS) downgraded its credit ratings on 14 classes of Commercial Mortgage Pass-Through Certificates, Series 2019-B9 issued by Benchmark 2019-B9 Mortgage Trust as follows:

-- Class X-A to AA (high) (sf) from AAA (sf)
-- Class A-S to AA (sf) from AAA (sf)
-- Class B to A (high) (sf) from AA (sf)
-- Class X-B to A (sf) from A (high) (sf)
-- Class C to A (low) (sf) from A (sf)
-- Class D to BBB (low) (sf) from BBB (high) (sf)
-- Class X-D to BB (high) (sf) from BBB (sf)
-- Class E to BB (sf) from BBB (low) (sf)
-- Class X-F to B (sf) from BB (high) (sf)
-- Class F to B (low) (sf) from BB (sf)
-- Class G to CCC (sf) from B (high) (sf)
-- Class H to CCC (sf) from B (low) (sf)
-- Class X-G to CCC (sf) from BB (low) (sf)
-- Class X-H to CCC (sf) from B (sf)

In addition, Morningstar DBRS confirmed its credit ratings on the remaining classes as follows:

-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-AB at AAA (sf)

Morningstar DBRS changed the trends on Classes A-S, B, C, D, E, F, X-A, X-B, X-D, and X-F to Stable from Negative. There are no trends on Classes G, H, X-G, and X-H, which have credit ratings that do not typically carry trends in commercial mortgage-backed securities (CMBS) transactions. The trends on all other classes are Stable.

On October 25, 2023, Morningstar DBRS changed the trends on Classes A-S, X-A, B, X-B, C, X-D, D, E, X-F, F, X-G, G, X-H, and H to Negative from Stable because of concerns about the high concentration of loans in the pool secured by office collateral (37.7% as of the September 2024 remittance), most of which are located in suburban markets. The credit rating downgrades with this review reflect Morningstar DBRS' view that those loans are exhibiting increased risks from issuance that are likely to be sustained through the longer term and could contribute to increased losses over the life of the deal.

The most notable of these loans are the largest loans in the pool: 3 Park Avenue (Prospectus ID#1; 10.4% of the pool), secured by an office tower in New York that is reporting an occupancy rate around 50%; Plymouth Corporate Center (Prospectus ID#3; 5.5% of the pool), backed by an office campus in suburban Minneapolis with significant rollover risk; and the Fairbridge Office Portfolio (Prospectus ID#7; 3.7% of the pool) loan, secured by a portfolio of two office properties in suburban Chicago that is exhibiting increased vacancy and a declining debt service cover ratio (DSCR). In addition, since the previous credit rating action, 120 Spring Street (Prospectus ID#32; 1.2% of the pool), backed by a single-tenant retail property in New York, transferred to special servicing in December 2023 for maturity default. The loans are discussed in further detail below. To account for these risks, Morningstar DBRS analyzed stressed scenarios for seven of the 11 non-specially serviced office- or mixed-use with office-backed loans. Those scenarios considered stressed loan-to-value ratios (LTV) and/or probability of default (POD) adjustments. The risk for further performance and/or value deterioration of loans backed by office properties is exacerbated by the relatively skinny class structure at the bottom of the capital stack, which results in a relatively low cushion against liquidated losses over the remainder of the deal term.

The credit rating confirmations at the top of the capital stack are reflective of the overall healthy performance of the underlying loans in the pool, as well as the significant cushion against loss remaining for those classes. As the analysis for this review accounts for the increased risks as described above and as reflected in the credit rating downgrades, the change in trends to Stable from Negative was warranted.

As of the September 2024 remittance, 48 of the original 50 loans remained in the pool with a trust balance of $843.5 million, representing a collateral reduction of 4.5% from issuance. Twelve loans, representing less than 30% of the deal, are on the servicer's watchlist being monitored for deferred maintenance items, low occupancy rate and/or low DSCRs, and three loans, representing 3.2% of the pool, are in special servicing. Four loans , representing 3.6% of the pool balance, are defeased. Loans backed by office properties represent the largest concentration in the pool at 37.7%.

The largest loan in special servicing is the aforementioned 120 Spring Street. After the default on the December 2023 maturity, a 12-month forbearance, which required an undisclosed principal payment, closed in January 2024. The agreement is structured with a one-time 12-month extension to November 30, 2025, with an additional principal payment required. The 2,306 square foot retail property is solely occupied by Birkenstock, on a lease running through 2033. Performance remains stable, with a healthy DSCR. Given the maturity default and the unknown details about the required paydown amounts, with this review, Morningstar DBRS applied a probability of default (POD) adjustment resulting in an expected loss (EL) equal to the pool average.

The largest loan on the servicer's watchlist, 3 Park Avenue, is secured by a mixed-use office and retail building on the corner of 34th Street and Park Avenue in New York. The loan first became delinquent in May 2020 and has subsequently faced multiple short-term periods of delinquency but was current as of the September 2024 reporting. The loan is being monitored because of a low DSCR and occupancy rate, most recently reported at 0.67 times (x) and 54.0%, respectively, as of December 2023. The decline in occupancy rate from 85.4% at issuance followed the loss of two tenants and the downsizing of another. Cash flow has declined significantly since issuance, with the financial reporting for the trailing12 months (T-12) ended December 31, 2023, reflecting an annualized net cash flow (NCF) of $5.8 million. Although higher than the YE2022 figure of $4.9 million (DSCR of 0.56x), NCF remains 64.0% below the issuance figure of $16.1 million (DSCR of 1.84x). In its analysis, Morningstar DBRS applied a stressed LTV and maintained a conservative POD adjustment for this loan, resulting in an EL approximately 15.0% greater than the pool average.

Morningstar DBRS also has concerns about the Plymouth Corporate Center loan, backed by a suburban office property in Plymouth, Minnesota, part of the greater Minneapolis area. The largest tenant at the property, TCF National Bank (69.0% of net rentable area (NRA)) was acquired by Huntington Bank in June 2021, and is in place on a lease scheduled to expire in December 2025. The loan is structured with a cash management trigger to that trap excess cash 30 months prior to lease expiry. Given that a lease renewal does not appear to have been signed to date, Morningstar DBRS believes a cash sweep should have been initiated in July 2022 and has asked the servicer to confirm. According to the financials for the trailing six months (T-6) ended June 30, 2024, the property generated annualized NCF of $3.4 million (DSCR of 1.16x), a notable decline from $4.4 million (DSCR of 1.83x) at YE2023. The decline is attributed to decreased revenue and increased expenses, although the occupancy rate was reported at 91.0%, unchanged from YE2023. The low in-place cover is exacerbated by the near-term scheduled rollover for the largest tenant amid sluggish demand within the submarket, as Reis reported a Q2 2024 vacancy rate of 19.2%. Given these increased risks, Morningstar DBRS analyzed the loan with a stressed scenario that considered a high LTV, resulting in an EL that was approximately triple the pool average.

The Fairbridge Office Portfolio loan, secured by two suburban office properties in the Chicago suburbs of Oak Brook, Illinois, and Warrenville, Illinois, was added to the servicer's watchlist in September 2021 for a low DSCR. Performance declines have persisted since, and coverage fell below breakeven as of the March 2024 reporting. The decline is attributable to the loss of tenants over the past few years, pushing the occupancy rate down to 58.8% as of March 2024, well below the issuance rate of 84.7%. According to Reis, the submarket reported an average office vacancy rate of 25.9% as of Q2 2024. The servicer does report some positive developments in a recent renewal for Lewis University (7.4% of the total NRA), and other renewals or new leases, all with relatively small footprints, in ongoing discussions. Based on the financial reporting for the T-6 ended June 30, 2024, the property generated NCF of $2.4 million, below the YE2022 NCF and Morningstar DBRS NCF derived at issuance of $3.2 million and $4.3 million, respectively. At issuance, the property was valued at $64.7 million; however, given the low occupancy rate and general challenges for office properties in suburban markets, Morningstar DBRS expects that the collateral's value has significantly declined since that time. As such, Morningstar DBRS stressed the LTV and POD for this loan, resulting in an EL approximately three times the pool average.

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 at https://dbrs.morningstar.com/research/437781 (August 13, 2024).

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 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 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-DBRS@morningstar.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.

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. 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.

-- Morningstar DBRS Commercial Real Estate Property Analysis Criteria (September 19, 2024), https://dbrs.morningstar.com/research/439702

-- North American Commercial Mortgage Servicer Rankings (August 23, 2024), https://dbrs.morningstar.com/research/438283

-- Legal Criteria for U.S. Structured Finance (April 15, 2024), https://dbrs.morningstar.com/research/431205

A description of how Morningstar DBRS analyzes structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/417279 (July 17, 2023).

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