DBRS Morningstar Confirms Ratings on BSST 2021-1818 Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed the ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2021-1818 issued by BSST 2021-1818 Mortgage Trust:

-- Class A at AAA (sf)
-- Class X-EXT at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (high) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class F at B (low) (sf)

All trends are Stable. DBRS Morningstar discontinued the rating for Class X-CP as the class will no longer receive interest distributions following the March 2022 remittance.

The rating confirmations reflect the overall stable performance of the transaction, which has remained in line with DBRS Morningstar’s expectations since issuance. The transaction is collateralized by the borrower’s fee-simple and leasehold interest in a Class A office and retail building, 1818 Market Street, in the Market Street West submarket of Philadelphia. DBRS Morningstar notes the subject transaction benefits from the collateral property's desirable location and the improvements and significant capital invested by the loan sponsor, Shorenstein Realty Investors Eleven, L.P., which acquired the property in 2015. Since the sponsor’s acquisition, more than $90 million has been invested in property upgrades, tenant improvements, and other leasing costs. Improvements included lobby upgrades, elevator and facade renovations, and renovations to the property’s fitness and conference centres. The subject transaction resulted in a $43.9 million cash out to the sponsor, and the DBRS Morningstar loan-to-value ratio is high at 117.9%; however, DBRS Morningstar notes mitigating factors such as the limited rollover over the loan term, a healthy DBRS Morningstar debt service coverage ratio (DSCR) of 1.61 times (x), and below-market rents for many tenants at the property.

The Market Street West submarket remains one of the most desirable office submarkets in Philadelphia because of its high-quality office buildings and increasing demand with a limited new supply. According to Reis Q4 2021 data, the Center City submarket reported an overall vacancy rate of 9.1% with an average asking rent of $32.77 per square foot (psf) and effective rent of $25.91 psf.

As of the September 2021 rent roll, the property was 83% occupied, with the top five tenants having a weighted-average (WA) lease term of 10.7 years, as compared with the WA lease term of 7.5 years for the property as a whole. No tenant at the property occupies more than 10% of total net rentable area (NRA). The largest tenant is WSFS Bank, which occupies 9.7% of the total NRA and accounts for 8.9% of the DBRS Morningstar-adjusted total base rent. WSFS Bank acquired the space following its acquisition of Beneficial Bank. The Q3 2021 DSCR was reported at 1.32x, compared with the DBRS Morningstar DSCR of 1.61x. The low DSCR is driven by a rent deduction from two tenants as well as reduced parking income in 2021. The decline is deemed to be temporary given the impact of the Coronavirus Disease (COVID-19) pandemic.

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-EXT is an interest-only (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.

The DBRS Viewpoint platform provides additional information on this transaction 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 4, 2022), 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 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 [email protected].

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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