DBRS Morningstar Assigns Provisional Ratings to LoanCore 2021-CRE5 Issuer Ltd.

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the following classes of notes to be issued by LoanCore 2021-CRE5 Issuer Ltd.:

-- Class A at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class G at B (sf)

The initial collateral consists of 20 floating-rate mortgages secured by 45 mostly transitional properties with a cut-off balance of $909.6 million, excluding approximately $140.9 million of future funding participations and $353.8 million of funded companion participations. In addition, there is a 180-day ramp-up period during which the Issuer may use $125.0 million of funds deposited into the unused proceeds account to acquire additional eligible loans, subject to the eligibility criteria, resulting in a target pool balance of $1.035 billion. Of the 20 loans, there are three unclosed, targeted mortgage assets loans, representing 17.3% of the trust balance, as of May 21, 2021: The Paragon at Kierland (#1), representing 9.7% of the trust balance; The Reserve at Seabridge (#12), representing 4.3% of the trust balance; and Lotus Village (#15), representing 3.3% of the trust balance. If a delayed-close loan is not likely to close or fund prior to the purchase termination date or if the terms are materially different from the terms described in the offering memorandum, the expected purchase price can be credited to the unused proceeds amount for the Issuer to acquire ramp-up mortgage assets secured by multifamily properties during the ramp-up acquisition period. The eligibility criteria indicates that 70.0% of the loans acquired within the ramp-up period, other than mortgage assets that were targeted mortgage assets, must be secured by multifamily properties.

Of the 20 loans, there are two loans with funded companion participations, representing 12.1% of the trust balance: 345 Park Avenue South (#4), representing 7.1% of the trust balance, and One Whitehall (#9), representing 5.0% of the trust balance. During the replenishment period the Issuer may acquire up to $103.0 million of funded companion participations subject to the eligibility criteria, acquisition criteria, and acquisition requirements. During the reinvestment period, the Issuer may acquire future funding commitments, funded companion participations, and additional eligible loans subject to the eligibility criteria. The transaction stipulates a $5.0 million threshold on companion participation acquisitions before a rating agency confirmation is required if there is already a participation of the underlying loan in the trust. The transaction is managed and includes a ramp-up component and reinvestment period, which could result in negative credit migration and/or an increased concentration profile over the life of the transaction. The risk of negative migration is partially offset by eligibility criteria (detailed in the transaction documents) that outline debt service coverage ratio (DSCR), loan-to-value ratio (LTV), Herfindahl score minimum, property type, and loan size limitations for ramp and reinvestment. DBRS Morningstar accounted for the uncertainty introduced by the 180-day ramp-up period by running a ramp scenario that simulates the potential negative credit migration in the transaction, based on the eligibility criteria. As a result, the ramp component has a higher expected loss (E/L) than the weighted-average (WA) preramp pool E/L.

The transaction’s sponsor is LCC REIT, which is managed by a LoanCore Capital Credit Advisor LLC, a wholly owned subsidiary of LoanCore Capital (LoanCore). LoanCore 2021-CRE5 Issuer Ltd. and LoanCore 2021-CRE5 Co-Issuer LLC are each newly formed special-purchase vehicles (collectively, the Co-Issuers) and indirect wholly owned subsidiaries of the Sponsor. LoanCore is a leading investor and commercial real estate lender with a credit-focused alternative asset management platform that manages LLC REIT and LoanCore Capital Markets (LCM). As of March 31, 2021, LoanCore had $13.5 billion in assets under management between LCC REIT and LCM. This transaction represents LoanCore’s sixth commercial real estate collateralized loan obligation (CRE CLO) since 2013, and there have been no realized losses to date in any of its issued CRE CLO on approximately $5.6 billion of mortgage assets contributed including reinvestments. An affiliate of LCC REIT, an indirect wholly owned subsidiary of the Sponsor (as retention holder) will acquire the Class F notes, the Class G notes, and the Preferred Shares (Retained Securities), representing the most subordinate 18.125% of the transaction by principal balance.

Based on the initial pool balances, the overall WA DBRS Morningstar As-Is DSCR of 0.79 times (x) and WA As-Is LTV of 80.9% generally reflect high-leverage financing. The DBRS Morningstar As-Is DSCR for each loan at issuance does not consider the sponsor’s business plan, as the DBRS Morningstar As-Is Net Cash Flow (NCF) was generally based on the most recent annualized period. The sponsor’s business plan could have an immediate impact on the underlying asset performance that the DBRS Morningstar As-Is NCF is not accounting for. When measured against the DBRS Morningstar Stabilized NCF, the WA DBRS Morningstar DSCR is estimated to improve to 1.20x, suggesting that the properties are likely to have improved NCFs once the sponsors’ business plans have been implemented

Six loans, representing 38.8% of the DBRS Morningstar sample (28.8% of the mortgage asset cut-off date balance), had Above Average or Average + property quality scores based on physical attributes and/or a desirable location within their respective markets. Higher-quality properties are more likely to retain existing tenants/guests and more easily attract new tenants/guests, resulting in a more stable performance. No loans in the DBRS Morningstar sample had property quality scores below Average.

The properties are primarily in core markets with the overall pool’s WA DBRS Morningstar Market Rank at 5.5, which indicates dense suburban markets. Four loans, totaling 25.9% of the of the mortgage asset cut-off date balance, are in markets with a DBRS Morningstar Market Rank of 8, which indicate super dense market locations. These markets generally benefit from increased liquidity that is driven by consistently strong investor demand and therefore tend to benefit from lower default frequencies than less-dense suburban, tertiary, or rural markets. Only one loan, Boulder County Business Center, representing 6.5% of the of the mortgage asset cut-off date balance, is secured by a property in an area with a DBRS Morningstar Market Rank of 2, which indicates tertiary market characteristics.

DBRS Morningstar conducted site inspections for three loans in the pool, representing 16.1% of the loan allocated cut-off date balance—345 Park Avenue South, Latsko Portfolio, and Ace Hotel Chicago—because of health and safety constraints associated with the ongoing Coronavirus Disease (COVID-19) pandemic. DBRS Morningstar previously conducted site inspections for 471-476 Central Park West in conjunction with its original securitization in the LNCR 2019-CRE2 transaction and One Whitehall in conjunction with its original securitization in LNCR 2021-CRE4. Including the site inspections for 471-476 Central Park West and One Whitehall, the DBRS Morningstar site inspection sample by loan allocated cut-off balance is 26.3%. As a result, DBRS Morningstar relied more heavily on third-party reports, online data sources, and information from the Issuer to determine the overall DBRS Morningstar property quality assigned to each loan.

With regard to the 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, affected more immediately. 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.

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

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:

-- Prospectus ID#1 – The Paragon at Kierland (9.7% of the pool)
-- Prospectus ID#2 – Renaissance Park Portfolio (8.7% of the pool)
-- Prospectus ID#3 – 999 E Street NW (8.5% of the pool)
-- Prospectus ID#4 – 345 Park Avenue South (7.1% of the pool)
-- Prospectus ID#5 – Midtown Junction (6.9% of the pool)
-- Prospectus ID#6 – Boulder County Business Center (6.5% of the pool)
-- Prospectus ID#7 – 471-476 Central Park West (5.2% of the pool)
-- Prospectus ID#8 – The Magnolia at Crestview (5.2% of the pool)
-- Prospectus ID#9 – One Whitehall (5.0% of the pool)
-- Prospectus ID#10 – Palm Beach Retail Portfolio (4.8% of the pool)
-- Prospectus ID#11 – Latsko Portfolio (4.8% of the pool)
-- Prospectus ID#13 – Ace Hotel Chicago (4.1% of the pool)

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes issuer and servicer 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.

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 (March 26, 2021), which can be found on www.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 www.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 rating 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.

DBRS Morningstar will publish a full report shortly that will provide addi¬tional analytical detail on this rating action. If you are interested in receiving this report, contact us at [email protected].

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

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