DBRS Morningstar Finalizes Provisional Ratings of BANK 2021-BNK32

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2021-BNK32 issued by BANK 2021-BNK32:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-4-1 at AAA (sf)
-- Class A-4-2 at AAA (sf)
-- Class A-4-X1 at AAA (sf)
-- Class A-4-X2 at AAA (sf)
-- Class A-5 at AAA(sf)
-- Class A-5-1 at AAA(sf)
-- Class A-5-2 at AAA(sf)
-- Class A-5-X1 at AAA(sf)
-- Class A-5-X2 at AAA(sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA(sf)
-- Class A-S at AAA (sf)
-- Class A-S-1 at AAA (sf)
-- Class A-S-2 at AAA (sf)
-- Class A-S-X1 at AAA (sf)
-- Class A-S-X2 at AAA (sf)
-- Class B at AAA (sf)
-- Class B-1 at AAA (sf)
-- Class B-2 at AAA (sf)
-- Class B-X1 at AAA (sf)
-- Class B-X2 at AAA (sf)
-- Class C at AA (high) (sf)
-- Class C-1 at AA (high) (sf)
-- Class C-2 at AA (high) (sf)
-- Class C-X1 at AA (high) (sf)
-- Class C-X2 at AA (high) (sf)
-- Class D at A (high) (sf)
-- Class X-D at A (sf)
-- Class E at A (low) (sf)
-- Class X-F at BBB (low) (sf)
-- Class F at BB (high) (sf)
-- Class X-G at BBB (low) (sf)
-- Class G at BB (high) (sf)

All trends are Stable. Classes X-D, X-F, X-G, X-H, D, E, F, G, and H have been privately placed. Class RR is a nonoffered certificate.

The Class X-A, Class X-B, Class X-D, Class X-F, Class X-G, and Class X-H certificates (collectively referred to as the Class X Certificates) 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.

The Class A-4-1, Class A-4-2, Class A-4-X1, Class A-4-X2, Class A-5-1, Class A-5-2, Class A-5-X1, Class A-5-X2, Class A-S-1, Class A-S-2, Class A-S-X1, Class A-S-X2, Class B-1, Class B-2, Class B-X1, Class B-X2, Class C-1, Class C-2, Class C-X1, and Class C-X2 certificates are also offered certificates. Such classes of certificates, together with the Class A-4, Class A-5, Class A-S, Class B, and Class C certificates, constitute the Exchangeable Certificates. The Class A-1, Class A-2, Class A-SB, Class A-3, Class D, Class E, Class F, Class G, and Class H certificates, together with the RR Interest and the Exchangeable Certificates with a certificate balance, are referred to as the principal balance certificates.

With regard to the Coronavirus Disease (COVID-19) pandemic, the magnitude and extent of performance stress posed to global structured finance transactions remain highly uncertain. This considers the fiscal and monetary policy measures and statutory law changes that have already been implemented or will be implemented to soften the impact of the crisis on global economies. Some regions, jurisdictions, and asset classes are, however, feeling more immediate effects. DBRS Morningstar continues to monitor the ongoing coronavirus pandemic and its impact on both the commercial real estate sector and the global fixed income markets. Accordingly, DBRS Morningstar may apply additional short-term stresses to its rating analysis, for example by front-loading default expectations and/or assessing the liquidity position of a structured finance transaction with more stressful operational risk and/or cash flow timing considerations.

The collateral consists of 64 fixed-rate loans secured by 106 commercial and multifamily properties. The transaction is a sequential-pay pass-through structure. Two loans, representing 13.9% of the pool, are shadow-rated investment grade by DBRS Morningstar. Additionally, 19 loans in the pool, representing 8.3% of the pool, are backed by residential co-operative loans, which typically have very low expected losses. The conduit pool was analyzed to determine the provisional ratings, reflecting the long-term probability of loan default within the term and its liquidity at maturity. When the cut-off balances were measured against the DBRS Morningstar Net Cash Flow and their respective actual constants, the initial DBRS Morningstar Weighted-Average (WA) Debt Service Coverage Ratio (DSCR) of the pool was 3.03 times (x). There were only five loans, representing 4.5%, that exhibited a DSCR Morningstar DSCR below 1.32x, a threshold indicative of a higher likelihood of midterm default. The pool additionally includes five loans, representing 8.8% of the allocated pool balance, that exhibit a DBRS Morningstar Loan-to-Value (LTV) ratio in excess of 67.1%, a threshold generally indicative of above-average default frequency. The WA DBRS Morningstar LTV of the pool at issuance was 51.0% and the pool is scheduled to amortize down to a DBRS Morningstar WA LTV of 49.6% at maturity. These credit metrics are based on the A-note balances. Excluding the shadow-rated loans, the deal still exhibits a favorable WA DBRS Morningstar LTV of 53.4%.

Two of the loans, 605 Third Avenue and Seventh Avenue Leased Fee, exhibit credit characteristics consistent with investment-grade shadow ratings. Combined, these loans represent 13.9% of the pool. 605 Third Avenue has credit characteristics consistent with a A (low) shadow rating. Seventh Avenue Leased Fee has credit characteristics consistent with a AAA shadow rating. Additionally, nineteen loans in the pool, representing 8.3% of the transaction, are backed by residential co-operative loans. Residential co-operatives tend to have minimal risk, given their low leverage and low risk to residents if the co-operative associations default on their mortgages. The WA DBRS Morningstar LTV for these loans is 16.1%.

Thirty-nine loans, representing a combined 65.9% of the pool by allocated loan balance, exhibit issuance LTVs of less than 59.3%, a threshold historically indicative of relatively low-leverage financing and generally associated with below-average default frequency. The WA DBRS Morningstar LTV of 51.0% compares favorably against BANK 2020-BNK30 at 52.4% and BANK 2020-BNK29 at 58.4%, both of which were rated by DBRS Morningstar. Even with the exclusion of the shadow-rated loans and the loans secured by co-operative properties, collectively representing 22.2% of the pool, the deal exhibits favorable DBRS Morningstar Issuance LTV of 55.9%.

While the pool demonstrates favorable loan metrics with WA DBRS Morningstar Issuance and Balloon LTVs of 51.0% and 49.6%, respectively, it also exhibits heavy leverage barbelling. There are two loans, accounting for 13.9% of the pool, with investment-grade shadow ratings and a WA LTV of 36.4% and 19 loans, representing 8.3% of the transaction, secured by co-operatives with a WA DBRS Morningstar LTV of 16.1%. The pool also has 39 loans, representing a combined 65.9% of the pool by allocated loan balance, with an issuance LTV lower than 59.3%, a threshold historically indicative of relatively low-leverage financing. There are five loans, comprising a combined 8.8% of the pool balance, with an issuance LTV higher than 67.1%, a threshold historically indicative of relatively high-leverage financing and generally associated with above-average default frequency. The WA expected loss of the pool’s investment-grade and co-operative component was approximately 0.4%, while the WA expected loss of the pool’s conduit component was substantially higher at approximately 1.8%, further illustrating the barbelled nature of the transaction.

Sixteen loans, representing 21.5% of the pool, are in areas identified as DBRS Morningstar Market Ranks 7 or 8, which are generally characterized as highly dense urbanized areas that benefit from increased liquidity driven by consistently strong investor demand, even during times of economic stress. Markets with these ranks benefit from lower default frequencies than less dense suburban, tertiary, and rural markets. Urban markets represented in the deal include New York and San Francisco. Furthermore, 30 loans, representing 41.1% of the pool balance, have collateral in MSA Group 3, which represents the best-performing group in terms of historical CMBS default rates among the top 25 MSAs. MSA Group 3 has a historical default rate of 17.2%, which is nearly 40.0% lower than the overall CMBS historical default rate of 28.0%.

DBRS Morningstar deemed three loans, representing 27.7% of the pool balance, received a property quality of Average (+) or better including two loans, representing 19.9% of the pool balance, to have Above Average quality. Four loans, which represent the largest four loans in the pool, representing 37.7% of the pool, have Strong sponsorship. Furthermore, DBRS Morningstar identified only one loan, representing just 0.80% of the pool, as having a sponsorship and/ or loan collateral that results in DBRS Morningstar classifying the sponsor strength as Weak.

The pool has a relatively high concentration of loans secured by office and retail properties; these 16 loans represent 51.2% of the pool balance. The ongoing coronavirus pandemic continues to pose challenges globally and the future demand for office and retail space is uncertain with many store closures, companies filing for bankruptcy or downsizing, and more companies extending their remote-working strategy. One of the six off loans, 605 Third Avenue, representing 27.8% of the office concentration, is shadow-rated investment grade by DBRS Morningstar. Furthermore, 74.0% of the office loans are located in MSA Group 3, which represents the lowest historical CMBS default rates. Of the retail concentration, four loans, representing 31.1% of the retail concentration, are secured by multiple properties (22 in total), which insulate the loans from issues at any one property. Furthermore, 53.1% of the total retail concentration is in an area with a DBRS Morningstar Mark Rank of 6 or higher. The office and retail properties exhibit favorable WA DBRS Morningstar DSCRs of 3.39x and 1.97x, respectively. Additionally, both property types exhibit favorable WA Morningstar LTVs at 51.3% and 56.8%, respectively. Two of the loans secured by office properties, representing 63.0% of the concentration, have sponsors that were deemed to be Strong.

Thirty-eight loans, representing 78.5% of the pool balance, are structured with full-term IO periods. An additional 14 loans, representing 16.4% of the pool balance, are structured with partial-IO terms ranging from one month to 60 months. Of the 38 loans structured with full-term IO periods, 10 loans, representing 27.8% of the pool by allocated loan balance, are located in areas with a DBRS Morningstar Market Rank of 6, 7, or 8. These markets benefit from increased liquidity even during times of economic stress. Two of the 38 identified loans, representing 13.9% of the total pool balance, are shadow-rated investment grade by DBRS Morningstar: 605 Third Avenue and 530 Seventh Avenue Fee. The full-term IO loans are effectively preamortized, as evidenced by the very low WA DBRS Morningstar Issuance LTV of only 52.1% for these loans.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792. All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

For supporting data and more information on this transaction, please log into www.viewpoint.dbrsmorningstar.com. DBRS Morningstar provides analysis and in-depth commentary in the DBRS Viewpoint platform.

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

-- Pathline Park 9 & 10 (9.9% of the pool)
-- Miami Design District (9.9% of the pool)
-- Extra Space Rock ‘N Roll Self Storage Portfolio (9.9% of the pool)
-- 605 Third Avenue (7.8% of the pool)
-- 530 Seventh Avenue Fee (6.1% of the pool)
-- ExchangeRight Net Leased Portfolio (4.2% of the pool)
-- Boca Office Portfolio (3.3% of the pool)
-- Park Del Amo (3.1% of the pool)
-- Lakeshore Business Center (2.8% of the pool)
-- Southern Flexible-Apartment Portfolio (2.4% of the pool)
-- 250 Bedford Avenue (2.2% of the pool)
-- Lake Region Portfolio (2.1% of the pool)
-- Heath Town Center (1.9% of the pool)
-- McClellan Park (1.8% of the pool)
-- 111 Fourth Avenue (1.7% of the pool)
-- Extra Space Storage – DC (1.6% of the pool)
-- 12900 I Street (1.5% of the pool)

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes loan-level data for most outstanding CMBS transactions (including non-DBRS Morningstar-rated), as well as loan-level and transaction-level commentary for most DBRS Morningstar-rated and -monitored transactions.

DBRS Morningstar notes that this press release was amended on March 4, 2022, to include the rating of Class D in the text.

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

With regard to due diligence services, DBRS Morningstar was provided with the Form ABS Due Diligence-15E (Form-15E), which contains a description of the information that a third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While due diligence services outlined in Form-15E do not constitute part of DBRS Morningstar’s methodology, DBRS Morningstar used the data file outlined in the independent accountant’s report in its analysis to determine the ratings referenced herein.

The principal methodology is the North American CMBS Multi-Borrower Rating Methodology (August 7, 2020), which can be found on dbrsmorningstar.com under Methodologies & Criteria. For a list of the 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 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.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

The rated entity or its related entities did participate in the rating process for this rating action. 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 related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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