DBRS Morningstar Confirms Ratings on BMO 2022-C1 Mortgage Trust 360 Rosemary Loan-Specific Certificates

DBRS Limited (DBRS Morningstar) confirmed its ratings on the following classes of 360 Rosemary Loan-Specific Certificates issued by BMO 2022-C1 Mortgage Trust:

-- Class 360A at AA (low) (sf)
-- Class 360X at AA (sf)
-- Class 360B at A (low) (sf)
-- Class 360C at BBB (low) (sf)
-- Class 360D at BB (low) (sf)
-- Class 360E at B (low) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which remains in line with DBRS Morningstar’s issuance expectations.

The transaction is secured by the fee-simple interest in 360 Rosemary, a newly constructed, Class-A office property in downtown West Palm Beach, Florida. The property includes 291,298 square feet (sf) of office space, 21,704 sf of retail space, and a parking garage. The property offers amenities, including panoramic views of Palm Beach Island, outdoor space, and an Equinox-designed fitness center, and is near shopping and entertainment attractions. The property benefits from close proximity to I-95 and U.S. Route 1, providing access to coastal cities along the east coast of Florida and Palm Beach International Airport. The sponsor, The Related Companies, L.P., a global real estate firm, built the property in 2021 and owns more than 1.4 million sf of office space in West Palm Beach.

The $210.0 million whole loan was used to acquire the property and is composed of seven promissory notes: five senior A notes totaling $85.0 million, a $100.8 million junior B note (the 360 Rosemary Subordinate Companion Loan), and a $24.2 million junior C note. The subject transaction consists of two senior A notes totaling $45.0 million, which are pari passu with the other three senior A notes held by the originator. The fixed-rate loan has a 10-year loan term with scheduled maturity in February 2032.

At closing, the property was 95.9% occupied and is primarily leased to finance, real estate, and legal tenants. The largest tenants include New Day USA (17.9% of net rentable area (NRA); expiring December 2032), Goldman Sachs (12.7% of NRA; expiring September 2032), and Comvest Partners (12.5% of NRA; expiring March 2033). Each of these three tenants have two, 60-month renewal options and represent more than 40.0% of the NRA and annual base rent. According to January 2023 Reis data, similar office properties within a one-mile radius of the subject reported average vacancy and rental rates of 9.0% and $70.33 per square foot (psf), respectively. At issuance, DBRS Morningstar noted the subject reported below-market rents, with an average rental rate of $41.70 psf. The property benefits from long-term tenancy and minimal rollover risk throughout the loan term, with the first lease expiration in 2026.

The derived DBRS Morningstar Net Cash Flow (NCF) at issuance was $12.4 million, approximately 16.2% less than the Issuer’s figure. The DBRS Morningstar’s concluded capitalization rate for the property was 6.75%, which resulted in a value of $183.8 million ($587 psf).

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/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022).

Class 360X 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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