DBRS Confirms All Classes of BSPRT 2017-FL1 Issuer, Ltd.

DBRS Limited (DBRS) confirmed the following classes of secured Floating-Rate Notes (the Notes) issued by BSPRT 2017-FL1 Issuer, Ltd.:

-- Class A Notes at AAA (sf)
-- Class B Notes at AA (high) (sf)
-- Class C Notes at BBB (low) (sf)

All trends are Stable.

The rating confirmations reflect the performance of the transaction, which remains in line with DBRS’s expectations at issuance. At issuance, the pool consisted of 25 interest-only floating rate loans, 15 of which had pari passu companion participations held outside of the Trust by a subsidiary of the seller and sponsor, Benefit Street Partners Realty Operating Partnership, L.P.

As of the June 2018 remittance, the pool consisted of 25 interest-only floating rate loans secured by 37 commercial properties with an aggregate principal balance of $417.7 million. To date, 13 loans (52.5% of the pool) have remaining unfunded pari passu companion participations totalling $28.1 million. Most of the properties are currently cash-flowing assets in a period of transition with viable plans and loan structure in place to facilitate stabilization and value growth. All loans are structured with cash management in place at origination.

The transaction features a replacement period through July 2018, whereby the issuer can substitute collateral in the pool subject to certain Eligibility Criteria, including Rating Agency Condition, by DBRS. The transaction pays sequentially after the replacement period ends. Since issuance, five loans have paid off and another five loans (21.3% of the pool) have been re-invested into the pool during the replacement period. Because 17 of the loans (25.1% of the pool) are cross-collateralized, DBRS analyzed these loans as five portfolio loans. Most loans have an initial term of two or three years, with extension options generally available, subject to loan document criteria. Eight loans (34.2% of the pool) have initial maturities prior to YE2018.

The pool is concentrated by loan size, as the largest 15 loans represent 73.1% of the pool. The pool is also concentrated by property type as office (33.6% of the pool), retail (21.8% of the pool) and multifamily (19.7% of the pool) properties represent 75.1% of the pool. However, most of the properties (86.7% of the pool) are in urban and suburban markets, which benefit from greater liquidity. Per the most recent financials available (generally T-12 or annualized partial-year figures ending in February 2018), the pool had a weighted-average debt yield of 7.6%, based on the fully funded whole loan amount (inclusive of the unfunded pari passu companion participations).

The largest loan in the pool, the TDC Portfolio (7.7% of the pool), was contributed to the trust in October 2017. The $32.0 million trust participation loan (part of a $67.8 million fully funded whole loan) is secured by a six-property office portfolio. The properties are all located in Tampa Bay, Florida, and were built between 1986 and 2000. Most were built prior to 1990 and have not been renovated since. To date, the $5.8 million future funding component has not been drawn upon. At contribution, the sponsor planned to utilize $10.8 million of reserves ($4.0 million of which was funded up front and $6.8 million was to be collected over the initial term of 24 months – some to be drawn from the future funding component) to address $7.2 million of planned capital improvements and fund $3.6 million for TI/LC costs. The borrower plans to invest heavily in renovations of a couple of assets, as well as lease the assets to market and manage upcoming lease expirations. The loan was also structured with an in-place lockbox, which was sweeping upon contribution. The sweep will end when the largest tenant at the 9000 Town Center property, TriNet (100% of the NRA, through March 2021), executes an acceptable lease or the sweep collects in excess of $2.0 million. To date, $1.1 million has been collected and the tenant has indicated that they will wait closer to lease maturity to negotiate. As of February 2018, the portfolio had an occupancy rate of 87.5% and an average rental rate of $24.92 psf, compared with rates of 93.0% and $21.63 psf in March 2017. Per CBRE’s Q1 2018 market report, office properties in Tampa Bay reported a vacancy rate of 11.7% and an average rental rate of $22.71 psf.

All ratings will be subject to ongoing surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed or discontinued by DBRS.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is CMBS North American Surveillance, which can be found on dbrs.com under Methodologies. For a list of the Structured Finance-related methodologies that may be used during the rating process, please see the DBRS Global Structured Finance Related Methodologies document on www.dbrs.com. Please note that not every related methodology listed under a principal Structured Finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

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.com.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

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

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