DBRS Morningstar Assigns Provisional Ratings to BX Commercial Mortgage Trust 2022-CSMO

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the following classes of Commercial Mortgage Pass-Through Certificates, Series 2022-CSMO to be issued by BX Commercial Mortgage Trust 2022-CSMO:

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

All trends are Stable.

The BX Commercial Mortgage Trust 2022-CSMO single-asset/single-borrower (SASB) transaction is collateralized by The Cosmopolitan Las Vegas Resort & Casino, a 3,032-key hotel with an approximately 110,000-square-foot casino on the Las Vegas Strip. The $3.025 billion loan and $1.032 billion of sponsor equity funded the acquisition of the collateral by a joint venture 80.0% indirectly owned by BREIT Operating Partnership L.P., a Blackstone Fund Entity, and 20.0% owned by Stonepeak Partners LP. The borrower entered into a 30-year triple-net master/operating lease with three 10-year renewal options with a wholly owned subsidiary of MGM Resorts International. The lease payments will be fully guaranteed by MGM, which will have approximately $1.625 billion of equity value in the property based on the aggregate purchase price of $5.650 billion. The $3.025 billion whole loan represents a relatively conservative loan-to-value ratio (LTV) of 75.74% on the DBRS Morningstar concluded value, which is below the typical leverage point for most SASB transactions.

The exceptional-quality asset is one of the newest resort-casinos on The Strip, boasting sleek modern architecture, condominium-quality finishes, and some of The Strip’s most popular and unique restaurants. The subject has historically been one of the top-performing assets on The Strip and its top-of-market performance has not faltered coming out of the Coronavirus Disease (COVID-19) pandemic. Its premier location and quality saw The Cosmopolitan achieve the highest revenue per available room (RevPAR) and second-highest EBITDAR per key on The Strip as of Q4 2021 at $441 and approximately $105,000, respectively. Performance at The Cosmopolitan suffered in 2020 and 2021 as the ongoing coronavirus pandemic besieged the economy, crippled domestic and international travel, and resulted in mandated closures and other operating restrictions. However, the property experienced a robust rebound in performance as vaccinations rolled out and as Americans emerged from months of restrictions. In 2022, combined monthly EBITDAR during February, March, and April exceeded EBITDAR in the same periods in 2019. Additionally, the financials for the trailing 12 month period (T-12) ended April 2021 rebounded 48% above the stabilized 2019 levels on a net cash flow (NCF) basis.

The addition of MGM, one of the most experienced casino operators in the world with a large database of members in its rewards program, as the tenant should provide a tailwind to casino revenue. Prior ownership invested a significant amount of capital, nearly $520 million, into the property since 2014 to maintain and improve performance. All rooms were renovated from 2017 to 2018, with approximately $150.0 million spent in total on rooms since 2017. Under the terms of the master lease, MGM is required to invest a minimum of 2.0% of net revenues in capex through December 2026. Additionally, the loan is structured with a monthly reserve equal to 1.5% of actual net revenues for furniture, fixtures, and equipment (FF&E). The MGM lease requirements for capital expenditures and FF&E should help maintain the property quality throughout the loan term. DBRS Morningstar determined the property quality to be Excellent based on the site inspection.

The collateral has been securitized three times prior to this securitization, and the loans have historically performed as agreed upon. The subject senior note financing leverage at $997,691 per key is well above the $295,708 senior note per key leverage in the JPMCC 2015-COSMO transaction and the $455,859 senior note per key in the CHT 2017-COSMO transaction. While future mezzanine debt is permitted for the subject securitization, previous securitizations included mezzanine debt at the initial securitization. The property’s NCF as of the T-12 ended April 2022 at $449.8 is substantially above the T-12 ended January 2015 NCF of $122.1 for JPMCC 2015-COSMO and the T-12 ended August 2017 NCF of $223.3 million for CHT 2017-COSMO. The current as-is appraised value of $5.6 billion for the subject transaction is nearly double the as-is appraised value of $2.9 billion in the CHT 2017-COSMO transaction and nearly triple the as-is appraised value of the JPMCC 2015-COSMO transaction.

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 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.

With regard to due diligence services, DBRS Morningstar was provided with the Form ABS Due Diligence-15E (Form-15E), which contains a description of the information that a third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While due diligence services outlined in Form-15E do not constitute part of DBRS Morningstar’s methodology, DBRS Morningstar used the data file outlined in the independent accountant’s report in its analysis to determine the ratings referenced herein.

The principal methodology is North American Single-Asset/Single-Borrower Ratings Methodology (February 28, 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 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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