Commentary CMBS Weekly Chronicle – August 11, 2020

DBRS Morningstar DBRS, Inc. (DBRS Morningstar) is pleased to deliver the next issue of the CMBS Weekly Chronicle, which August 11, 2020 highlights important credit events as well as insights from the DBRS Morningstar CMBS team. Clicking on the blue hyperlinks will take readers to our loan-level research on our Viewpoint platform. For Contents 1 July Delinquency Rate Edges Lower, complimentary access to this content, please register for the DBRS Viewpoint platform at Special-Servicing Rate Rises www.viewpoint.dbrsmorningstar.com. The platform includes issuer and servicer data for most 2 A Simon Mall Lands in Special Servicing outstanding CMBS transactions (including non-DBRS Morningstar rated), as well as loan-level and for Delinquency 3 A Dallas Office Building Loan transaction-level commentary for most DBRS Morningstar-rated and -monitored transactions. Approaches Maturity with Sole Tenant Vacating July Delinquency Rate Edges Lower, Special-Servicing Rate Rises 3 Schlumberger Layoffs Threaten Single- Tenant Office Building in Houston The CMBS delinquency rate fell for the first time in five months. It improved 31 basis points to 5.56% as retail loans saw a 128-basis-point drop and hotel delinquency decreased 32 basis points.

Exhibit 1 Delinquency Steve Jellinek July June Vice President – Head of Research, Asset Type Balance ($) Dlq % of Total Prop Balance ($) Dlq % of Total Prop North American CMBS Type Balance Type Balance + 1 312 244-7908 Healthcare - - - - [email protected] Hotel 20,266,316,228 23.57 20,397,340,522 23.89 Stephen Bernard Industrial 237,081,320 0.81 255,988,601 0.87 Vice President – Corporate Communications + 1 312 806-3240 Multifamily 4,946,687,693 0.98 5,231,362,302 1.06 [email protected] Office 3,483,378,315 2.42 3,636,736,031 2.55

Other 4,485,764,343 5.51 4,446,219,194 5.50 Retail 20,725,279,447 16.10 22,386,511,832 17.38 Total 54,144,507,346 5.56 56,354,158,483 5.87

Source: DBRS Morningstar.

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Meanwhile, after rising to 4.67% in June, the special-servicing rate rose for the fifth consecutive month Page 2 of 5 to 5.38% in July as the lodging and retail special-servicing rates both climbed because of the

Page 2 of 5 Coronavirus Disease (COVID-19) pandemic.

Page 2 of 5 Exhibit 2 Special Servicing July June Page 2 of 5 Asset Type Balance ($) SS % of Total Prop Balance ($) SS % of Total Prop Type Balance Type Balance Healthcare - - - - Hotel 21,157,804,670 20.48 17,484,508,200 0.25 Industrial 266,762,903 0.84 248,256,254 0.01 Multifamily 1,575,706,948 0.28 1,406,682,952 0.00 Office 4,226,141,099 2.72 3,880,530,735 0.03 Other 3,380,218,082 3.44 2,781,300,362 0.04 Retail 21,763,124,790 14.75 18,998,271,281 0.17 Total 52,369,758,492 5.38 44,799,549,783 4.67

Source: DBRS Morningstar.

A Simon Mall Lands in Special Servicing for Delinquency The $84.9 million Crystal Mall loan in UBS 2012-C2 (not rated by DBRS Morningstar), secured by 518,480 sf of a 783,280-sf regional mall in Waterford, Connecticut, fell 90 days delinquent in July 2020 and was subsequently transferred to the special servicer. We note that the borrower and special servicer could negotiate a forbearance or loan modification given the borrower's prior coronavirus relief request.

The loan posted a 1.05x debt service coverage ratio at year-end 2019, down from the issuer's underwritten figure of 1.86x as net cash flow tumbled more than 40% over the same period. With reported occupancy falling to 78.0% as of December 2019, the mall is on pace for further decline in net cash flow. The property's largest collateral tenant, JCPenney, occupies 88,605 sf, or 17.1% of the gross leasable space, on a lease running through November 2024. Although the tenant's recent round of bankruptcy-led store closures does not include this location, it included a store near the property that closed because of lack of sales. Losing the store, however, would result in a large and hard-to-fill vacancy in the mall. Furthermore, noncollateral anchor tenant Sears closed its store at the property in 2019, which in turn would affect the mall's foot traffic and further stress occupancy as leases roll in the next few years and tenants may choose not to renew. Other collateral and noncollateral anchors that bear watching include Old Navy, Bed Bath & Beyond, and H&M, as they are under financial stress, and many have undergone a series of recent store closures.

Simon Property Group, Inc. is among the many retail landlords facing massive rent nonpayment issues because of mall closures during the pandemic. However, the company's financial strength and ability to transform high-quality retail assets into popular mixed-use destination properties would ensure minimal negative impact to Crystal Mall. Over the past eight years, the sponsor has invested a considerable amount to transform its properties into live, work, play, stay, and shop experiences, adding office space,

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residential units, and hotels to its shopping malls. It has also redeveloped retail space to serve the needs Page 3 of 5 of experiential tenants like restaurants and entertainment venues and brought in new retail concepts

Page 3 of 5 like online retailers. The sponsor has also taken an active role in making sure many of its tenants survive. The company has partnered with fellow mall owner Brookfield Asset Management Inc. to buy Page 3 of 5 Aeropostale and Forever 21 out of bankruptcy to revitalize those brands, so they can continue renting

Page 3 of 5 space in their malls. The company has also reportedly considered making bids on other bankrupt retailers, including JCPenney and Lucky Brand, seeing a real estate redevelopment opportunity with the former's department stores and a revitalization candidate with the latter.

A Dallas Office Building Loan Approaches Maturity with the Sole Tenant Vacating Baylor Healthcare occupies 278,124 sf, or 24.8% of the gross leasable space, at the 1.1 million-sf, 40- story office building in Dallas. According to published reports, Baylor Scott & White (Baylor) will construct a new office center near Baylor University Medical Center, which will consolidate five of Baylor's existing North Texas offices. We first wrote about Baylor's plans in 2018, alerting readers to our concerns surrounding the $59.6 million Bryan Tower loan in JPMCC 2010-C2 (not rated by DBRS Morningstar). Without Baylor’s rent, the property’s cash flow would decrease below breakeven and raise the risk of term default. Baylor’s lease expires at the end of August, two months before the loan's maturity in October 2020, making the loan a high maturity default risk as well. The property's occupancy is already low at 58.0% as of December 2019 and could fall to 33.0% when the tenant vacates. Although the borrower is renovating the property to appeal tenants, we believe backfilling this space will be a challenge. We are concerned with the submarket's high vacancy rate, most recently reported at 27.2% as of Q1 2020, per CBRE Econometric Advisors. Further, we found three other large office properties in the vicinity that are also reporting low occupancy, which would make stabilization even more difficult: Ross Tower in PFP 2019-5 (rated by DBRS Morningstar), 2100 Ross in BACM 2016-UBS10 (rated by DBRS Morningstar) and MSCI 2016-UBS9 (not rated by DBRS Morningstar), and Harwood Center in COMM 2014-CCRE20 and COMM 2014-UBS5 (both rated by DBRS Morningstar).

Schlumberger Layoffs Threaten Single-Tenant Office Building in Houston In late July 2020, Schlumberger Holdings Corp. (Schlumberger) announced that it would be cutting 21,000 jobs, nearly one-fifth of its total workforce. Schlumberger’s quarterly results for Q2 2020, one of its worst quarters in decades, showed revenue declines of 60% in its North American operations. An affiliate of the firm is the sole tenant at the Schlumberger Office property, which backs a $11.2 million loan in the DBRS Morningstar-rated WFRBS 2014-C23 transaction.

Schlumberger’s lease runs through December 2022, just shy of two years ahead of the loan's maturity in October 2024. Schlumberger, an international oil services provider whose headquarters are in Houston, has other office locations in the city separate from its headquarters. In addition to the subject, the company is in another Houston property backing CMBS debt (held in the DBRS Morningstar-rated GSMS 2014-GC26 transaction)—the 5599 San Felipe building, which is less than 10 miles away. The company occupies almost 315,000 sf at that location on a lease that expires in July 2027. Schlumberger also maintains a campus in Sugar Land, Texas, approximately 15 miles south of the subject. Given the layoffs, Schlumberger could consolidate its workforce into fewer locations within the Houston area, which

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would most likely affect the Schlumberger Office loan given the relatively near-term lease expiry, versus Page 4 of 5 the 5599 San Felipe loan, which benefits from a longer term lease. As a result, DBRS Morningstar placed

Page 4 of 5 the Schlumberger Office loan on its Hotlist and will closely monitor it.

Page 4 of 5 We have been monitoring the impact to commercial real estate performance in Houston as a result of

Page 4 of 5 the decline in oil prices over the past several years, a trend which has been exacerbated amid the pandemic. Most recently, we have outlined our concerns and observations in a commentary titled Coronavirus and Volatile Oil Prices Elevate Risk on Houston CMBS, published on August 6, 2020, and available here.

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