DBRS Morningstar Confirms Key Commercial Mortgage Trust 2018-S1 Ratings

DBRS, Inc. (DBRS Morningstar) affirmed its ratings on Commercial Mortgage Transfer Certificates, Series 2018-S1, issued by Key Commercial Mortgage Trust 2018-S1 as follows.

Class A-1 to AAA (fs)

Class A-2 to AAA (fs)

Class A-3 to AAA (fs)

Class AS to AAA (fs)

Class X to AA (sf)

Class B to AA (low) (sf)

Class C to A (low) (sf)

Class D to BBB (sf)

Class E to BB (sf)

Class F to B (sf)

All trends are stable. Rating Confirmations and Stable Trends reflect the stable overall performance of the transaction, which was generally in line with DBRS Morningstar’s expectations at issuance.

At the time of issuance, the transaction consisted of 31 loans with a total trust balance of $132.3 million. Since the January 2022 installment, all loans remain in the pool and the trust has seen a collateral reduction of 4.9% since issuance due to scheduled amortization. In addition, one loan, representing 3.2% of the current pool balance, was canceled in October 2021. According to January 2022 server agent reports, seven loans, representing 27.6% of the current pool balance, are being tracked on the server agent watch list, and one loan, representing 1.5% of the pool balance, is in special management. The pool is relatively diverse in terms of property type, with commercial property-backed loans accounting for the largest concentration at 20.3% of the pool’s current balance. Loans backed by self-storage and manufactured housing properties represent the second and third largest concentrations of property types, at 18.6% and 17.1% of the current pool balance, respectively.

The biggest loan in the pool, Green Bay Squareis guaranteed by a retail shopping center located at Green Bay, Wisconsin. The loan in question funded the developer’s acquisition of the property out of receivership, as the former commercial mortgage-backed securities loan securing the property, which originated in 2006, defaulted in 2014. DBRS Morningstar followed the loan closely as the third-largest former tenant. , Office deposit representing 13.3% of the net leasable area (NRA), died out in 2019, and the former fifth tenant, Tuesday morning representing 8.8% of NRA, filed for bankruptcy and closed its location on the property in 2020. The property is also anchored in the shadow of a former Sears, vacant since 2017. Both Office deposit and Tuesday morning tenants remained on a rent register which was provided by the repairer, dated December 2020; however, both tenants are confirmed to have ceased operations. Although the repairer has previously confirmed that the Office deposit tenant was paying his contractual rent, the lease should expire in the short term in April 2022. The duty officer did not provide any up-to-date information on whether the Tuesday morning lease was dismissed as part of the tenant’s bankruptcy, but, assuming both tenants were counted as occupied and paying rent for 2020, DBRS Morningstar expects occupancy and cash flow to decline in the near term as Office deposit the lease expires. The removal of implicit rental income from both tenants would cause the occupancy rate and debt service coverage ratio (DSCR) to decline to 69.6% and 0.96 times (x), respectively, from the figures year-end 2020 of 91.6% and 1.52x, respectively, The property benefits from its location in Green Bay and the sponsor remains committed to the property as it has been able to retain two other major tenants, including TJ Maxx (20.7% of the ENR) and Large lots (14.4% of the NRA), both of which signed lease extensions in January 2021.

The only loan in special service, 775 Jackson Blvd Westis secured by a mixed-use property in the Greek Quarter neighborhood Chicago comprising retail and a small portion of basement office space. The loan transferred to the special manager in May 2020 for non-payment as performance declined due to the coronavirus disease (COVID-19) pandemic. The property has also been affected by the construction of a nearby road along Jackson Boulevardwhich was closed to vehicular traffic for most of 2020 and 2021. Construction was expected to be completed in late 2021 or early 2022. The borrower filed for bankruptcy in December 2020 with resolution negotiations with the servicer currently underway. Comments from special services indicate that there were hearings scheduled for November and December 2021; however, from the January 2022 reporting period, no further updates were provided as lockdown continues to be the stated training strategy. An updated appraisal dated January 2021 valued the property at $2.05 millionwhich represents a decrease of 41.3% compared to the appraised value of the issue of $3.5 million. When outstanding service advances are taken into account, the current loan balance exceeds the most recent appraisal value. Given the impending foreclosure, borrower bankruptcy, and decline in value, DBRS Morningstar assumed a hypothetical liquidation scenario that resulted in an implied loss severity of nearly 30% in its analysis for this review. Given the relatively small size of the loan; however, rated bonds are generally well insulated if the loan is resolved with a loss.

A description of how DBRS Morningstar considers ESG factors in the DBRS Morningstar analytical framework is available in DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

DBRS Morningstar deviated significantly from its North American CMBS Insight model when determining the Class B rating, as the quantitative results suggested a lower rating. The significant variance is warranted given the loan level uncertain event risk associated with many of the commercial property secured loans. Although some of the larger loans in the pool exhibit characteristics that suggest a higher probability of default, DBRS Morningstar believes the bond in question generally remains well insulated given its position in the cascade.

Class X is an Interest Only (IO) Certificate that refers to a single rated tranche or multiple rated tranches. The IO rating reflects the lowest rated applicable benchmark obligation tranche adjusted up one notch if senior in the cascade.

All ratings are subject to monitoring, which could result in ratings being upgraded, downgraded, revised, confirmed or discontinued by DBRS Morningstar.

DBRS Morningstar provides updated analysis and in-depth commentary on the DBRS Viewpoint platform for the following loans in the transaction:

Leaflet ID#1 – Green Bay Square (8.0% of pool)

Leaflet ID#6 – 72nd street square (5.0% of pool)

Leaflet ID#25 – 775 Jackson Blvd West (1.5% of pool)

For free access to this content, please register with the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com The platform includes issuer and service data for most outstanding CMBS transactions (including transactions not rated by DBRS Morningstar), as well as loan levels and transaction-level commentary for most transactions rated and monitored by DBRS Morningstar.

Remarks:

All figures are in we dollars unless otherwise specified.

The main methodology is the North American CMBS Surveillance Methodology (March 26, 2021), which can be found on dbrsmorningstar.com under Methodologies and Criteria. For a list of structured finance related methodologies that may be used during the rating process, please see the DBRS Morningstar Global Structured Finance Related Methodologies document, which can be found on dbrsmorningstar.com in the Commentary tab under Regulatory Affairs. Please note that not all related methodologies listed in a Principal Structured Finance Asset Class Methodology can be used to assess or monitor an individual structured finance or debt security.

DBRS Sovereign Morningstar group publishes reference macroeconomic scenarios for rated sovereigns. DBRS Morningstar’s analysis considered impacts consistent with baseline scenarios as set out in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

The rated entity or its related entities participated in the rating process for this rating metric. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the relevant appendix for more information on the sensitivity of the assumptions used in the rating process.

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

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Ratings

Date Issued	Debt Rated	Action	Rating	Trend	Attributesi

US = Lead Analyst based in the USA

CA = Lead Analyst based in Canada

EU = Lead Analyst based in EU

UK = Lead Analyst based in UK

E = EU approved

U = UK approved

Unsolicited participation with access

Unsolicited participation without access

Unsolicited Non Participating

31-Jan-22	Commercial Mortgage Pass-Through Certificates, Series 2018-S1, Class A-1	Confirmed	AAA (sf)	Stb	US

31-Jan-22	Commercial Mortgage Pass-Through Certificates, Series 2018-S1, Class A-2	Confirmed	AAA (sf)	Stb	US

31-Jan-22	Commercial Mortgage Pass-Through Certificates, Series 2018-S1, Class A-3	Confirmed	AAA (sf)	Stb	US

31-Jan-22	Commercial Mortgage Pass-Through Certificates, Series 2018-S1, Class A-S	Confirmed	AAA (sf)	Stb	US

31-Jan-22	Commercial Mortgage Pass-Through Certificates, Series 2018-S1, Class X	Confirmed	AA (sf)	Stb	US

31-Jan-22	Commercial Mortgage Pass-Through Certificates, Series 2018-S1, Class B	Confirmed	AA (low) (sf)	Stb	US

31-Jan-22	Commercial Mortgage Pass-Through Certificates, Series 2018-S1, Class C	Confirmed	A (low) (sf)	Stb	US

31-Jan-22	Commercial Mortgage Pass-Through Certificates, Series 2018-S1, Class D	Confirmed	BBB (sf)	Stb	US

31-Jan-22	Commercial Mortgage Pass-Through Certificates, Series 2018-S1, Class E	Confirmed	BB (sf)	Stb	US

31-Jan-22	Commercial Mortgage Pass-Through Certificates, Series 2018-S1, Class F	Confirmed	B (sf)	Stb	US