DBRS Morningstar Confirms Ratings on BX Trust 2021-LBA, Discontinues Two Classes

DBRS Limited (DBRS Morningstar) confirmed the ratings on the following classes of Commercial Mortgage Pass-Through Certificates issued by BX Trust 2021-LBA:

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

In addition, DBRS Morningstar discontinued the ratings on Classes X-V-CP and X-JV-CP as the bonds have exceeded their stated maturity date of February 2022 and are no longer receiving interest payments.

All trends remain Stable.

The rating confirmations reflect the transaction’s overall stable performance, which remains in line with DBRS Morningstar’s expectations. There are no changes to either leverage or credit support as the underlying loans are not amortizing, and all collateral properties remain in their respective pools, with no properties released to date. The transaction consists of two separate, uncrossed portfolios of assets, Pool 1 (Fund V; 17 assets) and Pool 2 (Fund JV; 35 assets), each of which supports the payments on its respective series of certificates. Generally, each of the portfolios consists of functional bulk warehouse product that exhibits strong functionality metrics and favorable locations within major industrial markets. Each of the loans is structured with a two-year initial term, with five one-year extension options. Both loans are currently being monitored on the servicer’s watchlist for upcoming maturity in February 2023. Although not yet confirmed, the sponsor is expected to exercise the first of its five extension options and DBRS Morningstar expects the loans to be removed from the watchlist once the maturity is extended.

According to the trailing 12 months ended June 30, 2022, financials, both portfolios are performing roughly in line with issuance expectations. DBRS Morningstar remains concerned with the elevated rollover risk throughout the fully extended loan term for both portfolios. Leases representing approximately 72.5% and 87.1% of DBRS Morningstar’s base rent are scheduled to roll through the fully extended loan term across the Fund V and Fund JV portfolios, respectively. The Fund V consists of 17 industrial properties, totaling approximately 2.9 million square feet (sf) in four states (Arizona, California, Oregon, and Washington) and reported an occupancy rate of 85.8% with a net cash flow (NCF) of $25.9 million, compared with the DBRS Morningstar NCF of $24.9 million. The Fund JV consists of 35 industrial properties, totaling about 6.6 million sf in six states (Washington, Nevada, California, Utah, Texas, and Colorado) and reported an occupancy rate of 99.4% with a NCF of $31.2 million, compared with the DBRS Morningstar NCF of $34.1 million. The underlying properties consist mainly of warehouse and distribution facilities with comparatively low proportions of office square footage. These property types have generally performed well given the continued dominance of e-commerce and demand for industrial space. The pool is located across several well-performing west coast markets, with a geographic concentration in Southern California.

Both mortgage loans have a partial pro rata/sequential-pay structure, which allows for pro rata paydowns for the first 30.0% of the unpaid principal balance. DBRS Morningstar penalizes transactions with this structure as it is considered to be credit negative, particularly at the top of the capital stack. Under a partial pro rata paydown structure, deleveraging of the senior notes through the release of individual properties occurs at a slower pace compared with a sequential-pay structure. The borrower can also release individual properties across both portfolios with customary requirements. However, in both cases, the prepayment premium for the release of individual assets is 105% of the allocated loan amount for the first 30% of the original principal balance of the mortgage loan and 110% thereafter. As of the January 2023 remittance, no properties have been released and there has been no paydown to the trust certificates.

The sponsors under the mortgage loans are joint venture partnerships between Blackstone Real Estate Income Trust, Inc. (BREIT) and LBA Logistics. BREIT is an affiliate of The Blackstone Group, Inc. (Blackstone), whose real estate group was founded in 1991 and has nearly $175 billion in investor capital under management. Blackstone is also one of the world's largest industrial landlords. LBA Logistics is the industrial arm of LBA Realty LLC, a full-service real estate investment and management company with a portfolio of logistics properties that totals more than 61 million sf throughout the United States.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE (ESG) 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 (May 17, 2022).

Classes X-V-CP, X-V-NCP, X-JV-CP, and X-JV-NCP are interest-only (IO) certificates that reference 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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