DBRS Morningstar Confirms Ratings on All Classes of BX Commercial Mortgage Trust 2021-IRON

DBRS Limited (DBRS Morningstar) confirmed its ratings on all classes of the Commercial Mortgage Pass-Through Certificates, Series 2021-IRON issued by BX Commercial Mortgage Trust 2021-IRON as follows:

-- Class A at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class F at B (low) (sf)
-- Class HRR at B (low) (sf)
-- Class X-NCP at BBB (sf)

All trends are Stable.

The rating confirmations and Stable trends reflect DBRS Morningstar’s unchanged credit opinion for the transaction since the previous rating action in January 2022.

The transaction closed in February 2021. The $232.0 million loan is secured by a portfolio of 14 industrial properties with a combined 2.3 million square feet throughout California, New Jersey, Pennsylvania, Maryland, and Virginia, with the largest concentration in California. The floating-rate, interest-only (IO) loan has a two-year initial term, with five one-year extension options for a fully extended maturity date of February 2028. The loan sponsors, BREIT, are affiliated entities of the Blackstone Group. The entire portfolio consists of function bulk warehouse products and was part of a sale-leaseback to Iron Mountain Inc. and serves as secure document storage and tape storage facilities for Iron Mountain’s record retention and storage clients. Iron Mountain is the sole tenant, occupying 100% of the NRA, on two triple-net leases that expire in November 2030. The leases are structured with four five-year renewal options with annual 3.0% rent escalations.

The loan was added to the servicer’s watchlist in November 2022 due to the upcoming initial loan maturity in February 2023. As of December 2022, according to the servicer, the borrower has not confirmed whether they intend to pay off the loan or execute the first one-year extension option. DBRS Morningstar expects that the borrower will be able to exercise the extension option as the loan meets the refinancing requirements. The servicer-reported net cash flow (NCF) for the year-to-date June 2022 period indicates a slight decline on an annualized basis from the DBRS Morningstar NCF linked to an increase in operating expenses such as Real Estate Taxes, Repairs and Maintenance, and Management Fees; however, given the triple-net nature of the lease, all these items should be ultimately reimbursed at year-end.

The sponsor has the right to incur future mezzanine debt on the portfolio subject to a maximum appraisal loan-to-value ratio of 57.0% and an aggregate debt yield of 7.98% or greater. As of this review, the servicer has confirmed that no additional mezzanine debt has been incurred. The loan is also subject to prepayment premium for the release of individual assets at 105.0% for the first 30.0% of the original principal balance and 110.0% thereafter. Lastly, the loan is structured with a partial pro rata/sequential-pay structure, as the loan allows for pro rata paydowns for the first 30.0% of unpaid principal balance. As of November 2022, there have been no property releases, and the trust remains in a pro rata payment schedule.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
General considerations include the following factors:
(1) Emissions, effluents, and waste
(2) Climate and weather risks

Environmental (E) Factors
Emissions, effluents, and waste were identified as a relevant factor with the current rating actions, and has remained a relevant factor since the transaction closed in February 2021. The factor is related to one of the properties, 2300 Newlins Mill Rd (6.3% of the allocated loan amount), which developed a sinkhole in a grassy area near the parking lot, as identified at issuance. This particular region of Pennsylvania is prone to forming sinkholes, and the cost of repairing the sinkhole is covered by the 2300 Newlins Mill Rd property’s insurance policy.

Climate and weather risks were identified as a relevant factor with the current rating actions, and has remained a relevant factor since the transaction closed in February 2021. This factor is related to one asset that is in a seismic zone and has a probable maximum loss in excess of 20%, 10 assets that are in hurricane-susceptible regions, and six assets that are in locations designated as Special Wind Areas.

Social (S) Factor
The social impact of products and services was identified as a relevant factor when the transaction closed in February 2021 and at the prior rating actions in January 2022. The rationale for this factor to be considered as relevant at the time was tied to the economic impact of the Coronavirus Disease (COVID-19) pandemic and the potential effect on tenants' ability to pay rent, and thus, the sponsors' ability to service debt. However, this factor is no longer a relevant consideration with the current rating actions given the general economic recovery from the pandemic in 2022.

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 (May 17, 2022).

Class X-NCP is an 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.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology (October 3, 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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