DBRS Morningstar Confirms Ratings on LCCM 2021-FL2 Trust

DBRS Limited (DBRS Morningstar) confirmed the ratings on all classes of notes issued by LCCM 2021-FL2 Trust 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. To access this report, please click on the link under Related Documents below or contact us at [email protected].

At issuance, the initial collateral consisted of 23 floating-rate mortgages or pari passu participation interests in mortgage loans secured by 27 mostly transitional properties, with a cut-off balance totaling $607.5 million, excluding approximately $125.8 million of future funding commitments. Most loans are in a period of transition with plans to stabilize and improve the asset value. The transaction is managed and is structured with a 24-month Reinvesment Period ending with the July 2023 Payment Date.

As of the March 2022 remittance, the pool comprises 17 loans secured by 18 properties with a cumulative trust balance of $514.9 million. Since issuance, two loans, with a current cumulative trust balance of $85.4 million, have been contributed to the trust. Eight loans, which had a cumulative trust balance of $176.8 million, have successfully repaid from the pool. The current Cash Reinvesment Account has a current balance of $92.6 million as of the March 2022 remittance.

The transaction is concentrated by property type because five loans, totalling 32.1% of the current cumulative loan balance, are secured by mixed-use properties, and three loans, totalling 29.2% of the current cumulative loan balance, are secured by office properties. The transaction is also concentrated by loan size, as the 10 largest loans represent 69.1% of the pool balance of $607.5 million. In general, borrowers continue to progress toward completing their stated business plans as, through December 2021, the collateral manager had released $16.5 million in loan future funding to seven individual borrowers since the transaction closed in July 2021. The majority of this amount has been released to the borrowers of the Clark Tower ($5.7 million) and Southside Works ($5.2 million) loans. An additional $117.0 million of loan future funding allocated to 12 borrowers to further aid in property stabilization efforts remains outstanding. Of this amount, $37.3 million is allocated to the borrower of the Citigroup Center loan, $21.6 million is allocated to the borrower of the Southside Works loan, $19.9 million is allocated to the borrower of The Met loan, and $17.7 million is allocated to the borrower of the Clark Tower loan.

As of the March 2022 remittance, there are no delinquent loans, and no loans are in special servicing; however, five loans, representing 16.8% of the current pool balance, are on the servicer’s watchlist for a variety of reasons. Two loans have been flagged for occupancy-related issues because of the ongoing business plan progression, which was expected at issuance, and three loans have been flagged for upcoming maturities. The largest loan on the watchlist, The Met (Prospectus ID#4, 9.0% of the current pool balance), is secured by a 1.0 million-square-foot mixed-use property in Atlanta and has been flagged for a low occupancy; however, the borrower is currently progressing through its leaseup plan. As of the YE2021 reporting, the property was 45.4% occupied, below the issuance rate of 52.5%, as the borrower has been shifting its focus to securing more high-quality tenants on long-term lease terms. In addition, the borrower noted that event fees have been strong, and filming inquiries remain steady. Of the three loans flagged for upcoming maturities, two are expected to repay from the trust in the near term, while the remaining loan, 302/312 Broadway (Prospectus ID#17, 2.2% of the current pool balance), has an upcoming maturity date in June 2022. According to the collateral manager, the borrower has been contacted regarding its plan to extend or pay off the loan.

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#1 – Citigroup Center (11.7% of the pool)
-- Prospectus ID#25 – Regions Harbert (10.8% of the pool)
-- Prospectus ID#4 – The Met (9.8% of the pool)
-- Prospectus ID#5 – Southside Works (9.6% of the pool)
-- Prospectus ID#6 – Sheraton Imperial RDU (5.8% 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.

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.

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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