DBRS Morningstar Confirms All Ratings on BDS 2021-FL7 Ltd.

DBRS Limited (DBRS Morningstar) confirmed its ratings on the following classes of notes issued by BDS 2021-FL7 Ltd. (the Issuer):

-- Class A 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].

The transaction closed in May 2021, with a cut-off pool balance totalling approximately $536.5 million, excluding approximately $59.3 million of future funding commitments. At issuance, the pool consisted of 22 floating-rate mortgage loans secured by 22 mostly transitional real estate properties. The majority of the collateral was in a period of transition, with plans to stabilize and improve asset value. The transaction was structured with an initial Ramp-Up Acquisition Period, which concluded with the November 2021 payment date when the cumulative trust loan balance totalled $593.3 million. The transaction also features a Reinvestment Period through the May 2023 Payment Date, whereby the Issuer may acquire Funded Companion Participations and new loan collateral into the trust subject to Eligibility Criteria as defined at issuance up to the maximum transaction amount of $600.0 million.

As of April 2022, the pool comprises 24 loans secured by 24 properties with a cumulative trust balance of $597.5 million, and there is $2.5 million of available cash in the Reinvestment Account. Since issuance, two loans with a former cumulative trust balance of $25.8 million have successfully repaid from the pool, and four loans with a current cumulative trust balance of $65.2 million have been contributed to the trust. In general, borrowers are progressing toward completion of their stated business plans. Through April 2022, the collateral manager had advanced $29.9 million in loan future funding to 20 individual borrowers to aid in property stabilization efforts. The largest loan advances include $5.4 million to the borrower of the Mailwell Drive loan, which is using funds to renovate and lease an industrial warehouse property in Milwaukee, Wisconsin, and $3.6 million to the borrower of the Seventh Apartments loan, which is using funds to renovate unit interiors and tenant amenities and upgrade exterior items across the property. An additional $52.3 million of unadvanced loan future funding allocated to 21 individual borrowers remains outstanding. The largest individual allocation of unadvanced future funding, $15.1 million, is to the borrower of the 40th Avenue Industrial loan. The loan was recently added to the transaction in April 2022 and is secured by an industrial property in Denver, Colorado. The borrower’s business plan is to modernize the property through a $13.1 million capital improvement plan and to spend up to an additional $5.7 million on accretive leasing costs.

The pool is concentrated by property type as 21 loans, representing 94.0% of the current trust balance, are secured by traditional multifamily assets. The remaining loans are secured by a manufactured housing community (one loan; 3.1% of the current trust balance) and industrial properties (two loans; 2.9% of the trust balance). The pool continues to be composed of properties located in suburban markets, those identified with a DBRS Morningstar Market Rank of 3, 4, and 5. As of April 2022, this includes 23 loans, representing 96.9% of the current trust balance. At issuance, 20 loans, representing 93.7% of the trust balance, were secured by properties located in suburban markets. The transaction is also concentrated by loan size, as the largest 10 loans represent 62.9% of the pool. Overall pool leverage has remained relatively consistent from issuance. According to the April 2022 reporting, the weighted-average (WA) as-is appraised loan-to-value (LTV) is 71.1% and the WA stabilized appraised LTV is 65.1%. In comparison, these figures were 70.1% and 64.8%, respectively, at closing.

As of the April 2022 remittance, there are two loans representing 4.5% of the pool on the servicer’s watchlist. Both loans, The Life at Westland Estates and The Reserve at Eagle Landing, are being monitored for low debt service coverage ratios (DSCRs); however, the individual borrower’s business plans called for stabilizing the occupancy and rental rates. Additionally, the borrower of The Reserve at Eagle Landing loan also planned to implement a $1.7 million capital improvement plan across the property. As a result, temporary cash flow disruption was expected and DBRS Morningstar does not view either loan as having increased credit risk from issuance.

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 this transaction.

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 the 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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