DBRS Morningstar Confirms All Classes of BX Commercial Mortgage Trust 2019-XL

DBRS, Inc. (DBRS Morningstar) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2019-XL issued by BX Commercial Mortgage Trust 2019-XL as follows:

-- Class A at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AA (high) (sf)
-- Class X-NCP at AA (low) (sf)
-- Class D as A (high) (sf)
-- Class E at A (low) (sf)
-- Class F at BBB (low) (sf)
-- Class G at BB (low) (sf)
-- Class J at B (low) (sf)

All trends are Stable. DBRS Morningstar discontinued the rating on Class X-CP as the bond has exceeded its stated maturity date of October 2020 and is no longer receiving interest payments.

The rating confirmations reflect the overall stable performance of the transaction, which remains in line with DBRS Morningstar’s expectations at issuance. At issuance, the collateral for the trust was a $5.6 billion first-lien mortgage loan on 406 industrial properties totaling more than 65 million square feet (sf) across 18 states. As of the January 2022 remittance, 337 properties remained as the pool had been paid down by $880.5 million (15.7% of the original balance) following the releases of 69 properties since issuance. The proceeds were distributed pro rata through the capital stack, reducing the total pool balance to $4.7 billion.

Original trust loan proceeds of $5.6 billion along with $1.0 billion of mezzanine financing, a $1.9 billion balance sheet loan, $9.4 million of assumed debt, and $2.6 billion of borrower equity were used to facilitate the acquisition of the portfolio for approximately $11.1 billion. The underlying loan for the subject transaction pays interest only (IO) with a two-year initial term, and the borrower has exercised its first of three one-year extension options. The portfolio is a part of Blackstone Real Estate Partners’ larger $18.7 billion acquisition of more than 170 million sf of U.S. industrial assets from Singapore-based GLP.

At issuance, the portfolio had a property Herfindahl score of over 200 by allocated loan amount, which is among the highest scores DBRS Morningstar has seen for single-borrower industrial portfolios. The properties are located across 18 U.S. states in multiple regions, and the portfolio also exhibits substantial tenant diversity and granularity. Of more than 2,000 unique tenants, no tenant accounted for more than 2.3% of in-place base rent at issuance, and no property accounted for more than 2.1% of trailing 12-month (T-12) net operating income. As of Q3 2021, the T-12 debt service coverage ratio (DSCR) was reported at 2.20 times (x) with an occupancy rate of 94.1%, in line with the YE2020 DSCR and occupancy rate of 1.63x and 92%, respectively. The increase in the DSCR is largely the result of the favorable interest rate environment on this floating-rate loan.

The loan is currently on the servicer’s watchlist, with the servicer commentary providing few details but citing a trigger code for upcoming lease rollover. Although recent rent rolls were not provided, DBRS Morningstar noted at issuance that leases representing 17.8% of the portfolio’s net rentable area had expiration dates in 2022. However, given the granularity of the tenant roster, favorable market locations, and demand for this type of industrial product, the borrower is expected to be able to backfill any tenants that vacate relatively quickly. Additionally, DBRS Morningstar noted that the in-place rental rates for the portfolio at issuance were on average 10% below market, suggesting the potential for some upside as leases roll.

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.

Class X-NCP is an IO certificate that references 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.

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 this transaction.

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.

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

The principal methodology is the 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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