DBRS Morningstar Confirms Ratings on All Classes of BPR Trust 2021-TY

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2021-TY issued by BPR Trust 2021-TY as follows:

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

All trends are Stable.

The rating confirmations reflect the continued stable performance of the transaction, as exhibited by the strong in-line tenant sales and healthy net cash flow (NCF) figures, as further described below.

The $425.0 million loan is secured by the borrower’s fee-simple and leasehold interest in the in-line space of Tysons Galleria, a 740,244-square-foot (sf) (488,244 collateral sf) Class A super-regional mall located 15.0 miles west of downtown Washington, in Mclean, Virginia. The noncollateral anchors are Neiman Marcus and Saks Fifth Avenue. A third anchor space formerly occupied by Macy’s was redeveloped between 2019 and 2021, with the space converted into a 200,000-sf, three-story, multitenant wing that accommodates entertainment, restaurant, and retail users. The transaction benefits from experienced sponsorship by Brookfield Real Estate Income Trust, which is owned by affiliates of Brookfield Asset Management Inc., and ranks among the largest retail real estate companies in the United States, with a portfolio of retail properties that includes more than 200 retail centers totaling more than 155.0 million sf of space.

The floating-rate, interest-only (IO) loan was structured with an initial two-year term and included three one-year extension options. The loan’s initial maturity date is in September 2023. To hedge exposure to Libor at issuance, the borrower entered into an interest rate cap agreement with a strike rate of 2.5% through the initial maturity period and a strike rate of 3.0% for each extension period. The servicer has confirmed the borrower is expected to enter into a new rate cap agreement that has a rate conversion from Libor to Secured Overnight Financing Rate.

As of the March 2023 reporting, the property (including the noncollateral tenants) was 93.4% occupied, which is slightly higher than 92.8% at YE2022, but slightly lower than 95.1% occupancy at issuance. The subject benefits from a relatively granular tenant roster and there is minimal rollover risk within the next 12 months. Additionally, two new tenants, Alo Yoga and Dolce & Gabbana, have signed leases at the subject and are scheduled to open in August 2023 and September 2023, respectively. At issuance, there was an upfront reserve of $24.5 million for existing obligations associated with the redevelopment of the former Macy’s anchor box space. As of the June 2023 remittance, the servicer reported $5.6 million in tenant reserves, suggesting the majority of the work to be completed has been finished and spaces have been delivered.

According to the YE2022 tenant sales report, in-line tenants occupying less than 10,000 sf reported sales of $1,683 per sf (psf), compared with YE2021 sales of $1,679 psf; and in-line tenants occupying more than 10,000 sf reported YE2022 sales of $519 psf, compared with YE2021 sales of $525 psf. The servicer reported the competitive set’s tenant sales at $1,860 psf and $565 psf for in-line tenants occupying less than and more than 10,000 sf, respectively. Per the YE2022 financials, the property generated a NCF of $35.4 million (a debt service coverage ratio (DSCR) of 2.04 times (x)). This compares favorably to the DBRS Morningstar derived NCF of $34.4 million, while lower than the issuer’s NCF of $37.4 million (DSCR of 3.22x).

The subject benefits from its prime location and luxury retail tenants, which draws demand from both the affluent local population and travelers. In addition to the relatively stable occupancy and strong in-line tenant sales, the transaction also benefits from a moderate loan-to-value (LTV) ratio of 65.4%, based on the as-is appraised value of $650.0 million. The LTV ratio will further decline to 60.7% based on the stabilized appraised value of $700.0 million. However, the DBRS Morningstar derived LTV ratio of 80.4% is significantly above the LTV ratios based on the as-is and stabilized appraised values. The high leverage and lack of scheduled amortization pose potentially elevated refinance risks at loan maturity, particularly in light of the interest rate increases and general volatility over the last year.

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 (July 4, 2023) at https://www.dbrsmorningstar.com/research/416784.

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 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 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 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 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 Single-Asset/Single-Borrower Ratings Methodology (February 23, 2023; https://www.dbrsmorningstar.com/research/410191)

-- Rating North American CMBS Interest-Only Certificates (December 19, 2022; https://www.dbrsmorningstar.com/research/407577)

-- 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].