DBRS Morningstar Confirms Ratings on All Classes of BXMT 2020-FL2, Ltd.

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on all classes of notes issued by BXMT 2020-FL2, Ltd. (the Issuer), as follows:

-- 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 (low) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which has remained in line with DBRS Morningstar’s expectations since issuance. In conjunction with this press release, DBRS Morningstar has published a Surveillance Performance Update report with in-depth analysis and credit metrics for the transaction and with business plan updates on select loans. For access to this report, please click on the link under Related Documents below or contact us at [email protected].

At issuance, the collateral consisted of 34 floating-rate mortgages secured by 80 mostly transitional properties with a cut-off balance totaling $1.5 billion, excluding approximately $1.2 billion of participated loan future funding cut-off date commitment. Most loans are in a period of transition with plans to stabilize and improve asset value. The transaction is structured with a Permitted Funded Companion Participation Acquisition Period through the February 2022 Payment Date, whereby the Issuer may acquire Funded Companion Participations into the trust.

As of the January 2022 remittance, a total of 21 loans secured by 23 properties remain in the trust with a total balance of $1.5 billion. Since issuance, 13 loans have been repaid in full with the collateral manager using payoff proceeds to purchase loan participation interests into the trust. Most borrowers are progressing toward completion of the stated business plans, as according to the collateral manager, a total of $209.1 million of future funding across 15 loans has been advanced to individual borrowers through YE2021 to aid in property stabilization. An additional $315.0 million of loan future funding allocated to 17 individual borrowers remains outstanding to fund capital expenditures and leasing costs.

The collateral is concentrated by property type as there are 11 loans (57.5% of the current pool balance) secured by office properties, four secured by mixed-use properties (24.1% of the current pool balance), and six (18.4% of the current pool balance) secured by hospitality properties. The collateral is also primarily located in core markets as 14 loans, representing 75.4% of the current pool balance, are in urban markets with DBRS Morningstar Market Ranks of 6, 7, and 8. These markets have historically shown greater liquidity and demand.

As of January 2022 reporting, all loans remain current and there are four loans on the servicer’s watchlist, representing 20.4% of the pool balance. Most of these loans were placed on the servicer’s watchlist because of upcoming initial loan maturity dates; however, all loans feature extension options. While not on the servicer’s watchlist, the pool’s third-largest loan, One South Wacker (Prospectus ID#19, 8.1% of the pool), remains a concern. The $121.8 million trust loan is secured by a 1.2 million-sf, 43-story office building within the Central Loop submarket of downtown Chicago. As of the November 2021 rent roll, occupancy had decreased to 59.4%, down from 75.8% at issuance. The decline in occupancy was expected as the sponsor noted at issuance that the property’s former largest tenant, RSM (14.1% of the net rentable area (NRA)), vacated at its May 2021 lease expiration.

As a result of the Coronavirus Disease (COVID-19) pandemic, new and renewal leasing has been minimal. While the T-12 ended June 30, 2021, cash flow was $13.8 million, equating to a debt service coverage ratio (DSCR) of 1.10 times (x), the recent departure of RSM will result in property operations not being able to cover operating costs moving forward. The property is underperforming the submarket in terms of both vacancy and rental rates, as according to a Q3 2021 Reis report, office properties in West Loop submarket reported an average vacancy rate of 12.3% and average asking rental rate of $43.03 per square foot (psf). In comparison, the property reported a vacancy rate of 40.6% and a weighted-average rental rate of $25.51 psf. This risk is mitigated by the sponsor’s experience in the Chicago office market and the $41.2 million in outstanding future funding dollars available to the borrower. Based on the currently funded A note of $268.8 million, the loan has a loan-to-value ratio (LTV) of 84.5% against the issuance appraised value of $318.0 million. The appraiser projected a stabilized value of $410.0 million, which would result in a moderated fully funded LTV of 76.0%.

ESG 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.

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

-- Prospectus ID#17 – Falchi Building (7.0% of the pool)
-- Prospectus ID#12 – Liberty View Industrial Plaza (6.5% of the pool)
-- Prospectus ID#19 – One South Wacker (6.4% of the pool)
-- Prospectus ID#23 – Colony Square (6.4% of the pool)
-- Prospectus ID#17 – Bank of American Plaza (6.3% of the pool)

The DBRS Viewpoint platform provides additional information on this transaction and underlying loans including DBRS Morningstar metrics, commentary, servicer-reported cash flows, and other performance-related data.

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.

The principal methodology is North American CMBS Surveillance Methodology (March 26, 2021), 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.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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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