DBRS Morningstar Upgrades Six Classes of BDS 2020-FL5 Ltd.

DBRS Limited (DBRS Morningstar) upgraded its ratings on six classes of notes issued by BDS 2020-FL5 Ltd. as follows:

-- Class B Notes to AA (sf) from AA (low) (sf)
-- Class C Notes to A (sf) from A (low) (sf)
-- Class D Notes to A (low) (sf) from BBB (high) (sf)
-- Class E Notes to BBB (sf) from BBB (low) (sf)
-- Class F Notes to BB (sf) from BB (low) (sf)
-- Class G Notes to B (high) (sf) from B (low) (sf)

In addition, DBRS Morningstar confirmed the remaining classes as follows:

-- Class A Notes at AAA (sf)
-- Class A-S Notes at AAA (sf)

All trends are Stable.

The rating upgrades reflect the increased credit support to the bonds as a result of successful loan repayments as well as the continued stable performance of the remaining collateral in the transaction. In conjunction with this press release, DBRS Morningstar has published a Surveillance Performance Update rating report with in-depth analysis and credit metrics for the transaction and business plan updates on select loans. For access to this report, please click on the link under Related Documents below or contact us at [email protected].

At issuance, the trust consisted of 24 loans secured by transitional real estate properties with a cut-off pool balance of $492.2 million. The $57.8 million ramp-up period ended in August 2020, increasing the pool balance to $550.0 million. The trust featured a two-year reinvestment period that expired with the February 2022 Payment Date. According to the August 2022 remittance report, there are 16 mortgages secured by 17 properties remaining in the pool with a total trust balance of $374.7 million, representing a 31.9% collateral reduction. Since issuance, 25 loans have been repaid from the pool.

The current composition of the transaction is concentrated by property type with eight loans secured by multifamily properties, representing 40.9% of the pool, and six loans secured by office assets, representing 44.0% of the pool balance. In comparison with October 2021, loans secured by multifamily properties represented 67.0% of the pool, and loans secured by office properties represented 22.4% of the pool. Loan repayments since October 2021 have been heavily weighted by multifamily properties (14 loans totalling $310.8 million).

The loans are secured by properties concentrated in suburban markets with 11 loans, representing 75.6% of the pool in locations with DBRS Morningstar Market Ranks of 3, 4, and 5. An additional four loans, representing 22.9% of the pool, are secured by properties in urban locations with a DBRS Morningstar Market Rank of 6 and 7. In comparison with the pool composition in October 2021, loans comprising 85.0% of the pool were in suburban markets with 15.0% of the pool in urban markets. In terms of leverage, the current pool has a current weighted average (WA) appraised loan to value ratio (LTV) of 70.1% and a WA stabilized LTV ratio of 65.8%. By comparison, these figures were 72.8% and 66.9%, respectively, as of October 2021 and 75.1% and 73.9%, respectively, at closing.

Through June 2022, the collateral manager had advanced $50.7 million in loan future funding to 14 individual borrowers to aid in property stabilization efforts. The largest advance, $15.1 million, was made to the borrower of the Northbridge I and II loan, which is secured by two suburban office buildings in Herndon, Virginia. The borrower’s business plan is to complete a capital improvement program with upgrades to the lobbies, food service, conference rooms, fitness centres, tenant collaboration spaces, and various exterior upgrades with a subsequent lease up of the property. An additional $10.9 million of loan future funding, allocated to nine borrowers, remains outstanding. Of this amount, $4.3 million is allocated to the borrower of the Briarwood Office loan, and $1.5 million is allocated to the borrower of Morris Corporate Center I and II loan for further capital improvement and prospective leasing costs. Generally, borrowers continue to progress toward completing the stated business plans. There are no loans in special servicing, and two loans, representing 16.1% of the pool are on the servicer’s watchlist with both loans flagged for an upcoming maturity in October 2022 and November 2022.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor 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/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

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#32 – Northridge I and II (9.9% of the pool)
-- Prospectus ID#5 – The Collective (9.9% of the pool)
-- Prospectus ID#7 – Tiger Towne Apartments (6.7% of the pool)
-- Prospectus ID#29 – New York LaGuardia Airport Marriott (4.0% of the pool)
-- Prospectus ID#34 – Briarwood Office (6.6% of the pool)

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 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. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS Morningstar long-term rating scale definition indicates that ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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