Research: Rating Action: Moody’s affirms eighteen classes of Morgan Stanley Capital I Trust 2020-HR8

Approximately $516.4 million of structured securities affected

New York, February 16, 2023 — Moody’s Investors Service, (“Moody’s”) has affirmed the ratings on eighteen classes in Morgan Stanley Capital I Trust 2020-HR8, Commercial Mortgage Pass-Through Certificates, Series 2020-HR8 as follows:

Cl. A-1, Affirmed Aaa (sf); previously on Aug 5, 2020 Definitive Rating Assigned Aaa (sf)

Cl. A-3, Affirmed Aaa (sf); previously on Aug 5, 2020 Definitive Rating Assigned Aaa (sf)

Cl. A-3-1, Affirmed Aaa (sf); previously on Aug 5, 2020 Definitive Rating Assigned Aaa (sf)

Cl. A-3-2, Affirmed Aaa (sf); previously on Aug 5, 2020 Definitive Rating Assigned Aaa (sf)

Cl. A-3-X1*, Affirmed Aaa (sf); previously on Aug 5, 2020 Definitive Rating Assigned Aaa (sf)

Cl. A-3-X2*, Affirmed Aaa (sf); previously on Aug 5, 2020 Definitive Rating Assigned Aaa (sf)

Cl. A-4, Affirmed Aaa (sf); previously on Aug 5, 2020 Definitive Rating Assigned Aaa (sf)

Cl. A-4-1, Affirmed Aaa (sf); previously on Aug 5, 2020 Definitive Rating Assigned Aaa (sf)

Cl. A-4-2, Affirmed Aaa (sf); previously on Aug 5, 2020 Definitive Rating Assigned Aaa (sf)

Cl. A-4-X1*, Affirmed Aaa (sf); previously on Aug 5, 2020 Definitive Rating Assigned Aaa (sf)

Cl. A-4-X2*, Affirmed Aaa (sf); previously on Aug 5, 2020 Definitive Rating Assigned Aaa (sf)

Cl. A-S, Affirmed Aa2 (sf); previously on Aug 5, 2020 Definitive Rating Assigned Aa2 (sf)

Cl. A-S-1, Affirmed Aa2 (sf); previously on Aug 5, 2020 Definitive Rating Assigned Aa2 (sf)

Cl. A-S-2, Affirmed Aa2 (sf); previously on Aug 5, 2020 Definitive Rating Assigned Aa2 (sf)

Cl. A-S-X1*, Affirmed Aa2 (sf); previously on Aug 5, 2020 Definitive Rating Assigned Aa2 (sf)

Cl. A-S-X2*, Affirmed Aa2 (sf); previously on Aug 5, 2020 Definitive Rating Assigned Aa2 (sf)

Cl. A-SB, Affirmed Aaa (sf); previously on Aug 5, 2020 Definitive Rating Assigned Aaa (sf)

Cl. X-A*, Affirmed Aaa (sf); previously on Aug 5, 2020 Definitive Rating Assigned Aaa (sf)

* Reflects Interest-Only Classes

RATINGS RATIONALE

The ratings on the P&I classes were affirmed because of their credit support and 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 ratings on the P&I exchangeable classes, Cl. A-3-1, Cl. A-3-2, Cl. A-4-1, Cl. A-4-2, Cl. A-S-1, Cl. A-S-2 were affirmed due to the credit quality of their referenced exchangeable classes.

The ratings on the IO classes (including the exchangeable IO classes) were affirmed based on the credit quality of their referenced classes.

Moody’s rating action reflects a base expected loss of 4.8% of the current pooled balance. Moody’s base expected loss plus realized losses is now 4.7% 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 “US and Canadian Conduit/Fusion Commercial Mortgage-Backed Securitizations Methodology” published in July 2022 and available at https://ratings.moodys.com/api/rmc-documents/391056. The methodologies used in rating interest-only classes were “US and Canadian Conduit/Fusion Commercial Mortgage-Backed Securitizations Methodology” published in July 2022 and available at https://ratings.moodys.com/api/rmc-documents/391056 and “Moody’s Approach to Rating Structured Finance Interest-Only (IO) Securities” published in February 2019 and available at https://ratings.moodys.com/api/rmc-documents/59126. 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 https://ratings.moodys.com for a copy of these methodologies.

DEAL PERFORMANCE

As of the January 18, 2023, distribution date, the transaction’s aggregate certificate balance has decreased by 0.5% to $687.4 million from $690.9 million at securitization. The certificates are collateralized by 43 mortgage loans ranging in size from less than 1% to 8.7% of the pool, with the top ten loans (excluding defeasance) constituting 59.2% of the pool. Two loans, constituting 11.5% of the pool, have investment-grade structured credit assessments. One loan, constituting 0.6% of the pool, has defeased and is secured by US government securities.

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 21, compared to 22 at securitization.

As of the January 2023 remittance report, loans representing 93% were current or within their grace period on their debt service payments and 7% were beyond their grace period but less than 30 days delinquent.

Two loans, constituting 9.9% of the pool, are on the master servicer’s watchlist. 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 no loans are currently in special servicing.

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 2021 operating results for 84% of the pool, and full or partial year 2022 operating results for 95% of the pool (excluding defeased loans). Moody’s weighted average conduit LTV is 123%, compared to 122% 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 13% to the most recently available net operating income (NOI).  Moody’s value reflects a weighted average capitalization rate of 9.4%.

Moody’s actual and stressed conduit DSCRs are 1.86X and 0.84X, respectively, compared to 1.88X and 0.85X 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 525 Market Street Loan ($40.0 million – 5.8% of the pool), which represents a pari-passu portion of a $470 million senior mortgage loan. The mortgage debt also includes $212 million of junior B-notes. The loan is secured by the fee simple interest in a 38-story, Class A office tower located in downtown San Francisco, California. The property is part of the city’s South Financial District submarket, approximately 13 miles north of the San Francisco international airport. The collateral improvements total approximately 1,034,170 square feet (SF) of space primarily comprised of office above the first floor and retail at grade level. The retail component comprises 14,655 SF (1.4% of NRA). The property was 86% leased as of June 2022 compared to 97% in December 2019. The property faces rollover risk prior to loan maturity as leases representing approximately 91.7% of NRA and 89.4% of base rent are scheduled to expire prior to the loan’s maturity date. The greatest potential for rollover concentration occurs in 2025, when Wells Fargo (10.9% of NRA) has a lease expiration and Amazon’s (39.5% of NRA) early termination option becomes available. Moody’s structured credit assessment and stressed DSCR are baa1 (sca.pd) and 1.17X, respectively.

The second largest loan with a structured credit assessment is Bellagio Hotel and Casino Loan ($39.0 million – 5.7% of the pool), which represents a pari-passu portion of a $1.676 billion senior mortgage loan. The mortgage debt also includes $1.333 billion of junior B-notes. The loan is secured by the borrower’s fee simple and leasehold interests in a full-service luxury resort and casino located in Las Vegas, Nevada. The Bellagio is a AAA Five Diamond full-service resort and casino that spans 77 acres on the Las Vegas Strip. The hotel contains 3,933 guestrooms and suites across two hotel towers — Main Tower (3,005 rooms) and Spa Tower (928 rooms). The property offers an expansive package of attractions including approximately 154,000 SF of casino space, 200,000 SF of meeting, convention and ballroom facilities, over 29 restaurants, lounges and bars, 30 luxury retailers across approximately 94,000 SF of space, approximately 55,000 SF of spa facilities, five swimming pools, Bellagio Gallery of Fine Art, Bellagio Conservatory and Botanical Gardens, and the Bellagio Fountains, a choreographed water feature with performances set to light and music. The property is also home to Cirque du Soleil’s “O”, an aquatic acrobatic theater production. The property is centrally located on the west side of the Las Vegas Strip at the intersection of S. Las Vegas Boulevard and E. Flamingo Road. With frontage on the Strip, the property sits between the Cosmopolitan to the south and Caesar’s Palace to the north. For the trailing twelve months (TTM) period ending September 30, 2022, the occupancy, ADR and RevPAR were 93%,  $316, and  $294, respectively, compared to 94.8%, $282, and  $277, respectively for TTM period ending September 2019. Moody’s structured credit assessment and stressed DSCR are a1 (sca.pd) and 2.44X, respectively.

The top three conduit loans represent 25% of the pool balance. The largest loan is The Liz Loan ($60.0 million – 8.7% of the pool), which is secured by the borrower’s fee simple interested in a 7-story, mixed-use property located in Washington, D.C. within the 14th and U Street Corridors bookended by DuPont Circle and Logan Circle.  The property includes 24,424 SF of retail (first floor), 57,293 SF of office (second and third floor), and 77 multifamily units (floors 4-7).  The three office tenants are Whitman-Walker Clinic Inc, Goethe-Institut E.V. and Fivesquares Development. The largest retail tenants include Amazon, Sephora and Bluestone Lane. As of September 2022, the total occupancy was 99% leased compared to 100% in September 2021 and 93% leased at securitization.  Moody’s LTV and stressed DSCR are 136% and 0.71X, respectively, the same at as securitization.

The second largest loan is the Bayview Corporate Tower Loan ($58.0 million – 8.4% of the pool), which is secured by the borrower’s fee interest in an office property located at 6451 North Federal Highway in Fort Lauderdale, Florida. The property was developed in 1973 on North Federal Highway, less than 2 miles east from Florida’s interstate I-95.  The building is 12 stories tall, contains approximately 413,813 SF of rentable area, and is of cast-in-place concrete construction. The property also features 1,931 covered surface parking spaces (4.67 spaces per 1,000 SF of NRA).  The largest two tenants are CHG Healthcare (32.9% NRA; 37.6% of base rent) and Whole Foods (8.2% NRA; 7.7% of base rent). CHG Healthcare has occupied the property since 2002 and has nearly doubled its footprint during their long-term tenancy, growing and expanding a total of six times.  CHG Healthcare has two 5-year extension options remaining on their lease. Whole Foods has occupied the property since 2006 and expanded their space in 2013.  Whole Foods’ space functions as the company’s main South Florida corporate and support office. As of June 2022, total occupancy was 91% leased compared to 86% at securitization. Moody’s LTV and stressed DSCR are 129% and 0.82X, respectively, compared to 130% and 0.81X at securitization.

The third largest loan is the FTERE Bronx Portfolio 5 Loan ($53.9 million – 7.8% of the pool), which is secured by the borrower’s fee interest in five multifamily properties (six buildings) located in Bronx, New York. The properties were constructed in the early 20th century except for 1791 Walton Avenue, which was constructed in 2003. Together, the properties contain 381 residential apartment units and four commercial units. As of the June 2022, the portfolio was 98% occupied compared to 99.5% at securitization. Moody’s LTV and stressed DSCR are 117% and 0.76X, respectively, the same as at securitization.

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 on https://ratings.moodys.com/rating-definitions.

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 issuer/deal page for the respective issuer on https://ratings.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 https://ratings.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://ratings.moodys.com/documents/PBC_1288235.

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 https://ratings.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.

Please see https://ratings.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 issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

Lacey Morgan
Asst Vice President – 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