DBRS Morningstar Confirms Ratings on BX Trust 2019-IMC

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

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

All trends are Stable.

The rating confirmations reflect the generally stable outlook for the underlying collateral since DBRS Morningstar’s last rating action. The collateral for the first-mortgage loan is secured by a portfolio of 16 properties comprising 9.6 million square feet (sf) of premier showroom space situated across two campuses (or markets) in High Point, North Carolina, and Las Vegas. The collateral represents 88.0% and 92.7% of the Class A trade show and showroom space in the High Point and Las Vegas markets, respectively, with the allocated loan amount (ALA) split between the 13 High Point properties (50.1% of the ALA) and the three Las Vegas properties (49.9% of the ALA).

Each market holds biannual home and furnishings trade shows, staggered so that an event occurs once every quarter throughout the year with the spring and fall events held in High Point and the summer and winter events held in Las Vegas. The High Point market is convenient for its proximity to manufacturers, while the Las Vegas market serves as a regional hub for buyers in the western U.S. The quarterly events are the most important demand drivers for the portfolio, positioned as business-to-business trade shows focused on the home furnishings, decor, and gift industries. The events are essential for buyers to efficiently access and view products in these highly fragmented industries, with thousands of manufacturers and more than 60,000 commercial buyers attending each event.

While the coronavirus pandemic has had a significant effect on the trade shows, with the subject portfolio’s YE2020 weighted-average (WA) occupancy rate declining to 73.4% from 83.9% at YE2019, the overall impact was relatively minimal as only the Spring 2020 event at the High Point Market was outright canceled while others were postponed. Attendance at the August 2020 event (which was originally scheduled for July) at the Las Vegas market was reportedly down 80.0% compared with the previous year, but attendance at the April 2021 event at the Las Vegas market surged 346.0% compared with the August 2020 figures. The organizers, in an April 2021 press release, noted that the surge in demand for home furnishings had led to more than 60 new, relocated, expanded, and recommitted showrooms at the International Home Furnishings Center property alone. That asset is the largest of the High Point properties and represents 27.8% of the total portfolio net rentable area, or 25.9% of the ALA.

As of YE2021, the WA occupancy rate for the portfolio increased to 75.2% compared with 73.4% at YE2020. The summer event at the Las Vegas market is currently scheduled from July 24, 2022, to July 28, 2022, while the fall event at the High Point Market is slated from October 22, 2022, to October 26, 2022. According to the borrower, as of April 2022, many of the furniture, home decor, and apparel tenants at the subject property reported record-high financial performances in F2020 and F2021 because of a surge in consumer spending on goods rather than services during pandemic-related restrictions. However, the borrower noted that some of the smaller furniture/home decor and gift tenants struggled to either pivot their business to online sales or sustain financial downturns during the pandemic. The borrower expects the occupancy rate to rebound to pre-pandemic levels by 2023.

The loan is sponsored by affiliates of the Blackstone Group Inc. (Blackstone), which began purchasing individual properties in the High Point market in 2011 and has owned all of the collateral properties since 2017 when it purchased the three World Market Center properties in Las Vegas and the 2.66 million-sf International Home Furnishings Center in High Point. Property management is provided by International Market Centers (IMC), an affiliate of Blackstone, which is the largest operator of premier showroom space for the furniture, gift, home decor, rug, and apparel industries in the world. Including its ownership of the non-collateral AmericasMart Atlanta, the sponsor owns the majority of the Class A showroom space throughout the United States. At loan closing, Blackstone maintained $400.0 million of cash equity in the deal. The maturity is scheduled for May 2023 as the borrower recently exercised its second of three one-year extension options.

In response to the ongoing pandemic, Blackstone increased the pace of and emphasis on its digital strategies. IMC continues to develop and offer virtual experiences and buyer options. DBRS Morningstar expects these initiatives to work in concert with the physical quarterly events rather than compete with them directly as the in-person trade shows will likely continue to be the most important demand drivers for the collateral.

According to the consolidated YE2021 financials, the reported net cash flow (NCF) of $155.0 million was up 19.6% over the DBRS Morningstar NCF of $129.6 million, and 9.0% over the issuer’s underwritten NCF of $142.0 million. This equates to a YE2021 debt service coverage ratio of 3.61 times (x), up from 3.00x and 1.73x based on the YE2020 and YE2019, respectively. While total operating expenses have increased 119.0% from the issuer’s underwritten levels, largely because of increased general and administrative expenses, the 43.0% increase in revenue compared with the issuer’s figure has offset the increase in expenses.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/396929.

Class X-NCP 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.

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for this transaction.

The DBRS Viewpoint platform provides additional information on this transaction and underlying loans 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.

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 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.

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].

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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