DBRS Morningstar Assigns Provisional Ratings to Shelter Growth CRE 2023-FL5 Issuer Ltd

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the following classes of notes to be issued by Shelter Growth CRE 2023-FL5 Issuer Ltd (the Issuer or the Trust):

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

All trends are Stable.

RATING RATIONALE/DESCRIPTION
The static transaction consists of 15 short-term, floating-rate mortgage loans, secured by 16 properties, with an aggregate cut-off date balance of $345.5 million. The aggregate unfunded future funding commitment of the future funding participations as of the cut-off date is approximately $48.7 million. The holder of the future funding companion participations, Shelter Growth Master Commercial Real Estate Credit Fund B IV LP (Credit Fund B Seller), Shelter Growth Capital Partners LLC (SGCP), or another affiliate or entity managed by or under common management with SGCP, has full responsibility to fund the future funding companion participations. The collateral pool for the transaction is static with no ramp-up period or reinvestment period. However, the Issuer has the right to use principal proceeds to acquire funded pari passu companion participations subject to stated Acquisition Criteria during the Permitted Funded Companion Participation Acquisition period, which ends on the payment date in December 2024. Acquisition of future funding participations (when funded) of $500,000 or greater will require a DBRS Morningstar No Downgrade Confirmation.

The pool includes one delayed-close mortgage asset, Fontana Truck Yard, representing 2.3% of the total trust balance, which has not closed. The Issuer has 60 days after closing to acquire the delayed-close collateral interest. If the delayed-close collateral interest does not close, the $7.8 million deposited into the Unused Proceeds Account at deal closing will be distributed as principal proceeds according to the priority of payments. Fontana Truck Yard has an expected loss similar to the deal average.

The loans are primarily secured by cash-flowing assets, most of which are in a period of transition with plans to stabilize and improve the asset’s value. All loans are closed and have origination dates ranging from May 2022 to May 2023. Two loans are whole loans (11.4% of the mortgage asset cut-off date balance), while the other 13 loans (88.6% of the mortgage asset cut-off date balance) are participations with companion participations that have remaining future funding commitments totaling approximately $48.7 million. The future funding for each loan is generally to be used for capital expenditures to renovate the property or build out space for new tenants.

All of the loans in the pool have floating interest rates indexed to Term Secured Overnight Financing Rate (SOFR) and are interest only (IO) through their initial terms and extensions. DBRS Morningstar considered a stressed index rate, constrained by the strike price of the interest rate cap with the respective contractual loan spread added. The properties are often transitioning with potential upside in cash flow; however, DBRS Morningstar does not give full credit to the stabilization if there are no holdbacks or if the other loan structural features are insufficient to support such treatment. Furthermore, even if the structure is acceptable, DBRS Morningstar generally does not assume the assets will stabilize above market levels.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) 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 Multi-Borrower Rating Methodology (March 16, 2023; https://www.dbrsmorningstar.com/research/410913/north-american-cmbs-multi-borrower-rating-methodology).

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

With regard to due diligence services, DBRS Morningstar was provided with the Form ABS Due Diligence-15E (Form-15E), which contains a description of the information that a third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While due diligence services outlined in Form-15E do not constitute part of DBRS Morningstar’s methodology, DBRS Morningstar used the data file outlined in the independent accountant’s report in its analysis to determine the ratings referenced herein.

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

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].

DBRS, Inc.
22 West Washington Street
Chicago, IL 60602 USA
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.

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 12, 2022)
https://www.dbrsmorningstar.com/research/402646

Legal Criteria for U.S. Structured Finance (December 7, 2022)
https://www.dbrsmorningstar.com/research/407008)

Interest Rate Stresses for U.S. Structured Finance Transactions (August 30, 2022)
https://www.dbrsmorningstar.com/research/402153)

North American Commercial Mortgage Servicer Rankings (September 8, 2022)
https://www.dbrsmorningstar.com/research/402499

North American CMBS Insight Model v 1.1.0.0
https://www.dbrsmorningstar.com/research/410913