DBRS Morningstar Confirms Ratings on BRSP 2021-FL1, Ltd.

DBRS Limited (DBRS Morningstar) confirmed its ratings on all classes of notes issued by BRSP 2021-FL1, Ltd. 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 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].

The transaction closed in July 2021 with an initial collateral pool of 31 floating-rate mortgage loans secured by 41 mostly transitional properties with a cut-off balance of $800.0 million. Most loans were in a period of transition with plans to stabilize and improve asset value. The transaction is structured with a Reinvestment Period through the July 2023 Payment Date, whereby the Issuer may acquire Funded Companion Participations and introduce new loan collateral into the trust subject to the Reinvestment Criteria as defined at issuance. As of the June 2023 remittance, there were no funds available in the Reinvestment Account.

As of the June 2023 remittance, the pool comprises 28 loans secured by 43 properties with a cumulative trust balance of $800.0 million. Since issuance, 14 loans with a former cumulative trust balance of $453.6 million have been successfully repaid from the pool. Over the same period, 11 loans with a current cumulative trust balance of $330.9 million have been contributed to the trust, including one loan (1.8% of the current trust balance) that has been added since the previous DBRS Morningstar rating action in November 2022.

The transaction is concentrated by property type as 18 loans (totaling 66.6% of the current trust balance) are secured by multifamily properties, followed by nine loans (totaling 29.9% of the current trust balance) secured by office properties, and only one loan (3.5% of the current trust balance) secured by a mixed-use property. In comparison with the transaction closing in July 2021, loans secured by office properties increased by 12.2% and multifamily properties decreased by 5.5% of the trust balance at issuance. In addition, the same mixed-use property loan remains in the pool since issuance, while the only loan secured by a self-storage property (previously totaling 7.9% of the pool) was repaid. While the majority of the outstanding loans secured by office properties are progressing in their business plans, DBRS Morningstar increased the probability of default for two loans, representing 9.4% of the current loan balance, as the individual borrowers have encountered difficulties increasing occupancy and/or rental rates, resulting in lower-than-expected cash flows. DBRS Morningstar also took into account the ongoing challenges for the office sector, which include a decline in desirability for office product across tenants, investors, and lenders alike in select markets, that create greater uncertainty regarding the borrowers’ exit strategies upon loan maturity.

By geographical concentration, the collateral is most heavily concentrated in Texas and California, with loans representing 31.7% and 23.6% of the cumulative loan balance, respectively. Four loans, representing 14.1% of the cumulative trust balance, are in urban markets with DBRS Morningstar Market Ranks of 6, 7, and 8. These markets have historically shown greater liquidity and demand. The remaining 24 loans, representing 85.9% of the cumulative loan balance, are secured by properties in markets with DBRS Morningstar Market Ranks of 3, 4, and 5, which are suburban in nature and have historically had higher probability of default levels when compared with properties in urban markets. In comparison with issuance, properties in urban and suburban markets have increased as a percent of the transaction from 13.0% and 79.1%, respectively.

As part of its review, DBRS Morningstar received updates on the business plans for all loans in the pool and, in general, borrowers are progressing toward completion of their stated business plans. Of the current collateral pool, 25 of the 28 outstanding loans were structured with future funding components and, according to the collateral manager, it had advanced $60.2 million in loan future funding through June 2023 to 25 of the current individual borrowers to aid in property stabilization efforts. The largest advances were made to the borrowers of the Central Park Plaza ($12.6 million) and 360 Wythe ($11.6 million) loans. The Central Park Plaza loan is secured by six office properties in San Jose, California, and the 360 Wythe loan is secured by a mixed-use property in Brooklyn, New York. The borrowers on both loans have used loan future funding for capital improvement projects and to fund leasing costs. Additional future funding is available for the borrower of the 360 Wythe loan for debt service shortfalls and a potential earnout, though the earnout has not been achieved to date. An additional $52.8 million of unadvanced loan future funding allocated to 23 individual borrowers remains outstanding, with the largest portion ($6.4 million) allocated to the borrower of the Mohawk Business Park loan. That loan is secured by a Class B office property in Tualatin, Oregon, with loan future funding available to fund capital improvements and leasing costs.

As of the June 2023 remittance, two loans, representing 7.2% of the current cumulative trust loan balance, have been modified. Both loans were modified in order for the borrowers to qualify for a maturity extension. As of the June 2023 remittance, there are no loans in special servicing and nine loans, representing 30.1% of the current trust balance, are being monitored on the servicer’s watchlist for upcoming loan maturity, low occupancy, and informational issues. Of these loans, The Daphne loan (Prospectus ID#12; 3.5% of the pool), which is secured by a 352-unit multifamily property in Houston, is currently deemed a matured performing balloon following the loan’s maturity in June 2023. According to the servicer’s most recent commentary, the loan maturity date is expected to be extended to June 2024 as the issuer and borrower are working on a modification that will require the borrower to purchase a new interest rate cap agreement and deposit funds into a reserve account. Four additional loans are being monitored for upcoming maturity dates; however, another eight loans (25.3% of the pool) have scheduled maturity dates in 2023. In all cases, the borrowers have extension options available and the collateral manager expects the borrowers to exercise their respective options. For majority of these loans, there are no performance hurdles associated with the loan extensions, though the borrowers are expected to purchase new rate cap agreements and potentially deposit additional equity into the operating and debt service reserves.

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 (July 4, 2023) at https://www.dbrsmorningstar.com/research/416785.

All credit ratings are subject to surveillance, which could result in credit 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 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 credit rating was initiated at the request of the rated entity.

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

This is a solicited credit rating.

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

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

The credit 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 v 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].