DBRS Morningstar Confirms Ratings on All Classes of BSST 2021-1818 Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed its ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2021-1818 issued by BSST 2021-1818 Mortgage Trust as follows:

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

All trends are Stable.

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

The transaction is secured by the borrower's fee-simple and leasehold interest in 1818 Market Street, a 999,828-square-foot (sf) Class A office building in Philadelphia, on the corner of Market Street and 19th Street. The property is in Market Street West, one of Philadelphia’s most desirable submarkets, and in close proximity to Dilworth Plaza, which offers commuter and subway access to City Center. The sponsor, Shorenstein Realty Investors Eleven L.P, has spent more than $94.1 million renovating and upgrading the property since acquisition in 2015, including lobby upgrades and a tenant-only fitness center and conference room.

The $222.9 million floating-rate mortgage loan was used to pay off existing debt of $174.1 million, return $43.9 million in equity, and fund ground rent reserves. The loan pays interest only (IO) throughout the fully extended loan term. The loan is structured with an initial two-year term maturing in March 2023, plus three one-year extension options. The servicer reports the borrower has requested a maturity extension. DBRS Morningstar has inquired about the loan’s maturity but has not yet received information on whether an extension has been executed or whether the loan conditions have been met.

According to the September 2022 rent roll, the property was 80.5% occupied, down from 84.2% at issuance. The largest tenants include WSFS Financial Corporation (9.7% of net rentable area (NRA)), expiring December 2028); eResearch Technology, Inc (5.9% of NRA, expiring February 2032); and McCormick Taylor (5.8% of NRA, expiring December 2033). Within the next 12 months, leases representing 6.4% of NRA are scheduled to roll. Two tenants, Martin Law, LLC (2.1% of NRA) and Bank of America (less than 1.0% of NRA) have renewed their leases at the property at consistent rental rates, with new lease expirations in July 2026 and January 2028, respectively. Additionally, several prospective tenants have been touring the property, and discussions remain ongoing. As of September 2022, the trailing nine-month annualized net cash flow was $13.6 million, up from $11.8 million at YE2021. The increase was due to rent commencements for a number of tenants following the end of free rent periods. According to Reis, Class A office properties within a one-mile radius of the subject reported average vacancy and rental rates of 10.0% and $39.24 per sf (psf), respectively. The property currently achieves an average rental rate of $38.57 psf. Despite the below-market rates, occupancy has declined slightly since issuance; however, DBRS Morningstar believes recent renewals and continued property tours indicate healthy leasing activity for the asset and point to stable ongoing performance.

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 X-EXT 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 the 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. 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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