DBRS Morningstar Confirms All Ratings on LoanCore 2021-CRE4 Issuer Ltd.

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on all classes of the Commercial Mortgage Pass-Through Certificates, Series 2021-CRE4 issued by LoanCore 2021-CRE4 Issuer Ltd. as follows:

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

All trends are Stable.

The rating confirmations reflect the increased credit support to the bonds as a result of successful loan repayment, resulting in a collateral reduction of 33.7% since issuance. The increased credit support to the bonds serves as a mitigant to potential adverse selection in the transaction as four loans are secured by office properties, representing 51.3% of the current trust loan balance. As a result of complications initially arising from impacts of the Coronavirus Disease (COVID-19) pandemic and the ongoing challenges with leasing available space, the borrowers of these loans have generally been unable to increase occupancy and rental rates to initially projected levels, resulting in lower-than-expected cash flows.

While all loans remain current, given the decline in desirability for office product across tenants, investors, and lenders alike, there is greater uncertainty regarding the borrowers’ exit strategies upon loan maturity. In the analysis for this review, DBRS Morningstar evaluated these risks by stressing the current property values for five loans, representing 59.9% of the current trust balance, collateralized by both office and nonoffice property types. The stressed loan-to-value (LTV) ratios ranged between 100.9% and 195.9% on an as-is basis. That analysis suggested the rated bonds remain sufficiently insulated (relative to the respective rating categories) against potential liquidated losses. In conjunction with this press release, DBRS Morningstar has published a Surveillance Performance Update report with in-depth analysis and credit metrics for the transaction and with 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].

As of the April 2023 remittance, the trust reported an outstanding balance of $398.0 million with 10 loans remaining in the trust. The transaction is static and was structured with a 36-month Replenishment Period that will expire with the January 2024 Payment Date. Through this date, the collateral manager can acquire funded loan participation interests into the trust. As of April 2023 reporting, the Replenishment Account had a balance of $13.8 million. Since the previous DBRS Morningstar rating action in November 2022, there has been collateral reduction of $18.8 million as a result of the successful repayment of one loan. The remaining loans in the transaction beyond the office concentration noted above include three loans secured by retail properties (22.8% of the current trust loan balance), two loans secured by multifamily properties (22.1% of the current trust loan balance), and one loan secured by a mixed-use property (3.7% of the current trust loan balance). The transaction’s property type concentration has remained relatively stable since July 2022 when 51.6% of the trust loan balance was secured by office collateral, 20.7% of the trust loan balance was secured by retail collateral, and 19.9% of the trust loan balance was secured by multifamily collateral.

The remaining loans are primarily secured by properties in urban and suburban markets. Four loans, representing 28.8% of the pool, are secured by properties in urban markets, as defined by DBRS Morningstar, with a DBRS Morningstar Market Rank of 6, 7, or 8. Six loans, representing 71.2% of the pool, are secured by properties with a DBRS Morningstar Market Rank of 3, 4, or 5, denoting a suburban market. In comparison with the pool composition in July 2022, properties in urban markets represented 29.2% of the collateral, and properties in suburban markets represented 70.8% of the collateral. The location of the assets within urban markets potentially serves as a mitigant to loan maturity risk, as urban markets have historically shown greater liquidity and investor demand.

Leverage across the pool has reportedly improved since issuance as the current weighted-average (WA) as-is appraised value LTV ratio is 77.2% with a current WA stabilized LTV ratio of 62.6%. In comparison, these figures were 80.0% and 73.4%, respectively, at issuance and 73.9% and 66.9%, respectively, as of July 2022. DBRS Morningstar recognizes these values may be inflated as the individual property appraisals were completed in 2020 and do not reflect the current rising interest rate or widening capitalization rate environments.

Through March 2023, the lender had advanced $57.3 million in loan future funding to four of the remaining individual borrowers to aid in property stabilization efforts. The largest loan advances included $30.7 million to the borrower of the Horizon Sunnyvale loan and $24.2 million to the borrower of the 15000 Aviation loan. Future funding dollars for each borrower were provided to complete capital improvement plans, fund leasing costs, and provide carry reserves during the renovation program. The Horizon Sunnyvale loan is secured by an office property in Sunnyvale, California, while the 15000 Aviation loan is secured by an office property in Hawthorne, California.

An additional $34.0 million of loan future funding allocated to five individual borrowers remains available. The largest individual allocation, $10.1 million, is allocated to the borrower of the One Whitehall loan, which is secured by an office property in Lower Manhattan, New York. The funds are available to primarily fund accretive leasing costs with an additional $2.0 million allocated for debt service shortfalls. Since loan closing in 2020, the borrower has yet to request any advances from available future funding dollars.

As of the April 2023 reporting, two loans were in special servicing and three loans on the servicer’s watchlist, representing 7.5% and 21.2% of the current trust balance, respectively. The 60 Tenth Avenue loan (Prospectus ID#16; 3.7% of the current trust balance) is secured by a single-story retail property in the Meat Packing District of Manhattan. The loan has a current A note balance of $46.0 million, with a $14.9 million piece in the trust. The loan transferred to special servicing at the March 2023 maturity date and is categorized as a matured nonperforming loan. At loan closing, the borrower’s business plan was to secure new long-term leases at the property, but it has only been able to secure short-term leases with tenants using the collateral as pop-up space. The property is not cash flowing, and there are no extension options. A recent request from the special servicer detailed a new 12-month tenant lease for 62.0% of the net rentable area, which would provide $1.9 million of annual rental income. The revenue is expected to cover operating expenses but not debt service. The loan is sponsored by Savanna Real Estate Fund III, L.P., which is seen as a mitigant given the sponsor’s experience in the New York market; however, according to the collateral manager, discussions regarding the cure of the maturity default remain ongoing. At issuance, the property had an in-place valuation of $80.0 million; however, DBRS Morningstar believes the current market value of the property has likely declined.

The other specially serviced loan, 1404-1408 3rd Street Promenade (Prospectus ID#14; 3.5% of the current trust balance), is secured by mixed-use property in Santa Monica, California. The loan transferred to special servicing in December 2022 for maturity default as the loan matured in September 2022 and the borrower’s takeout financing was delayed. The borrower’s business plan was to demolish the existing improvements and secure construction financing to complete a redevelopment project. According to an update from the collateral manager, the demolition was completed, and the sponsor is expected to close on construction takeout financing in the next 60 days. In conjunction with the multiple executed loan extensions, the loan has been paid down by $3.5 million.

The largest loan on the servicer’s watchlist, Horizon Sunnyvale (Prospectus ID#4; 13.2% of the current trust balance), is secured by an office property in Sunnyvale. The loan has been flagged for its pending May 2023 maturity as well as prolonged low cash flow as the property is only 1.0% occupied. The borrower’s business plan was to implement a significant $21.5 million capital improvement plan and lease the property to stabilization. Although the renovation plan was completed, the borrower has been unsuccessful in securing new tenants. The loan has been modified twice previously and has been paid down by $4.0 million. The loan has a current balance of $52.5 million with an additional $7.0 million available to fund leasing costs. The loan remains current and according to the collateral manager, discussions regarding an additional loan extension are ongoing. Any extension agreement is expected to include fresh sponsor equity into the operating and debt service reserve.

ENVIRONMENTAL, SOCIAL, AND 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).

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 (March 16, 2023; https://www.dbrsmorningstar.com/research/410912).

Other methodologies referenced in this transaction are listed at the end of this press release.

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 rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process for this rating action.

DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is a solicited credit rating.

DBRS Morningstar notes that a sensitivity analysis was not performed for this review as the transaction is in wind down, with only ten remaining loans. In these cases, the DBRS Morningstar ratings are typically based on a recoverability analysis for the remaining loans.

DBRS, Inc.
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Tel. +1 312 332-3429

The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

North American CMBS Multi-Borrower Rating Methodology (March 16, 2023)/North American CMBS Insight Model Version 1.1.0.0, https://www.dbrsmorningstar.com/research/410913

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 12, 2022)
https://www.dbrsmorningstar.com/research/402646/dbrs-morningstar-north-american-commercial-real-estate-property-analysis-criteria

North American Commercial Mortgage Servicer Rankings (September 8, 2022)
https://www.dbrsmorningstar.com/research/402499/north-american-commercial-mortgage-servicer-rankings

Interest Rate Stresses for U.S. Structured Finance Transactions (August 30, 2022)
https://www.dbrsmorningstar.com/research/402153/interest-rate-stresses-for-us-structured-finance-transactions

Legal Criteria for U.S. Structured Finance (December 7, 2022)
https://www.dbrsmorningstar.com/research/407008/legal-criteria-for-us-structured-finance

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