DBRS Morningstar Confirms All Ratings on LoanCore 2021-CRE6 Issuer Ltd.

DBRS, Inc. (DBRS Morningstar) confirmed the ratings on all classes of notes (CMBS) issued by LoanCore 2021-CRE6 Issuer Ltd. (the Issuer) as follows:

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

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which has remained in line with DBRS Morningstar’s expectations since issuance. 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 business plan updates on select loans. For access to this report, please click on the link under Related Documents below or contact [email protected].

The initial collateral pool consisted of 31 floating-rate mortgages secured by 46 mostly transitional properties with a cut-off date balance of $1.22 billion. The transaction is managed, with the Reinvestment Period scheduled to end with the November 2023 Payment Date. Through this date, the Issuer may acquire Funded Companion Participations and new loan collateral into the trust, subject to the stated Eligibility Criteria. As of June 2023 reporting, the Reinvestment Account had a $31.0 million balance.

As of the June 2023 remittance, the pool comprises 26 loans secured by 41 properties with a cumulative trust balance of $1.22 billion. Since issuance, eight loans with a former cumulative trust balance of $307.2 million have been successfully repaid from the pool. Of the original 31 loans, 24 loans, representing 94.1% of the current cumulative trust loan balance, remain in the transaction as of June 2023 reporting. Since the previous DBRS Morningstar rating action in November 2022, one loan with a current trust balance of $45.0 million, or 3.7% of the currently funded pool, has been added to the trust.

The transaction is concentrated by property type as 17 loans, representing 60.6% of the currently funded pool, are secured by multifamily properties and five loans, representing 25.9% of the currently funded pool, are secured by office properties. The remaining assets are secured by hotel, mixed-use, and industrial collateral. In comparison with closing, 65.7% of the pool was secured by multifamily collateral and 21.9% was secured by office collateral.

Leverage across the pool remains similar to issuance levels as the current weighted-average (WA) as-is appraised value loan-to-value (LTV) ratio is 71.1%, with a current WA stabilized LTV ratio of 64.3%. In comparison, these figures were 69.0% and 64.3%, respectively, at issuance. DBRS Morningstar recognizes that select property values may be inflated as the majority of the individual property appraisals were completed in 2021 and 2022 and may not reflect the current rising interest rate or widening capitalization rate environments. Based on the originally completed as-is appraised values and the most recent net operating income figures provided by the collateral manager, the implied capitalization rates range from 2.1% to 5.3%, which appears aggressive. Similarly, based on the appraiser’s individual asset projected stabilized appraised value estimates and the issuer’s stabilized net operating income estimate, the implied capitalization rates range from 3.8% to 6.8%, which also appears aggressive given the current financing environment.

In its analysis, DBRS Morningstar applied capitalization rate adjustments to eight loans, representing 34.0% of the fully funded pool balance. These loans included the six loans secured by office collateral, the two loans secured by hotel collateral, and the only loan secured by mixed-use collateral. The adjustments resulted in individual loan-level expected loss levels ranging from approximately 50.0% to 150.0% of the pool’s WA expected loss.

The loans are primarily secured by properties in suburban markets as 19 loans, representing 73.5% of the pool, are secured by properties with a DBRS Morningstar Market Rank of 3, 4, or 5. An additional six loans, representing 21.2% of the pool, are secured by properties with a DBRS Morningstar Market Rank of 6, 7, or 8, denoting an urban market, while one loan, representing 5.3% of the pool, is secured by property with a DBRS Morningstar Market Rank of 2, denoting a tertiary market. In comparison with closing, properties in suburban markets represented 72.3% of the collateral, properties in urban markets represented 21.4% of the collateral, and properties in tertiary markets represented 2.7% of the collateral.

Through May 2023, the lender had advanced cumulative loan future funding of $53.9 million allocated to 15 of the 26 remaining individual borrowers to aid in property stabilization efforts. The largest advances have been made to borrowers of loans secured by office properties, including 251 West 39th Street ($8.2 million), 433 North Camden ($7.5 million), and 110 Atrium ($7.5 million). These properties are located in Manhattan; Beverly Hills, California; and Bellevue, Washington, respectively, with the advanced funds having been used primarily to fund capital expenditure (capex) projects and accretive leasing costs. An additional $69.1 million of loan future funding allocated to 18 of the remaining individual borrowers remains available. The largest portion of available funds ($18.8 million) is allocated to the borrower of the 110 Atrium loan for additional capex and leasing costs as the borrower continues to implement its business plan.

As of the June 2023 remittance, no delinquent loans or loans are in special servicing and eight loans, representing 31.6% of the cumulative trust loan balance, are on the servicer’s watchlist. The loans have been flagged for upcoming loan maturity; however, according to the collateral manager, all borrowers are expected to exercise available loan extension options. In total, 16 loans, representing 59.9% of the cumulative trust loan balance, have scheduled maturity dates through YE2023 and the collateral manager expects all borrowers to exercise loan extension options. As such, DBRS Morningstar expects the loans to remain current.

Five loans, representing 12.1% of the current cumulative trust loan balance, have been modified or the borrowers have received a forbearance. Among the five loans are 251 West 39th Street and 580 8th Avenue, which are both secured by office properties in Manhattan and share sponsorship. The loans were modified in June 2022 at their first maturity date, whereby property management was changed and a new recourse guaranty was executed. Both loans are currently in a cash sweep period. The loans matured in June 2023 but the borrower has been unable to complete its business plan to date, which largely focused on increasing rental and occupancy rates through the completion of capex projects and funding leasing costs. According to the collateral manager, the borrower exercised the second and final maturity extension option to June 2024 and deposited additional funds into operating and debt service reserves. Given the increased credit risk of the loan since closing, DBRS Morningstar applied an additional probability of default penalty on the loans in addition to elevated loan to value ratios.

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 (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 the 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.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

DBRS, Inc.
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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.

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

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

Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023)
https://www.dbrsmorningstar.com/research/415687

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

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