DBRS Morningstar Confirms Ratings on LoanCore 2021-CRE5 Issuer Ltd.

DBRS Limited (DBRS Morningstar) confirmed its ratings on the following classes of notes issued by LoanCore 2021-CRE5 Issuer Ltd. (the Issuer):

-- 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 (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 June 2021 with an initial collateral pool of 20 floating-rate mortgage loans secured by 45 mostly transitional properties with a cut-off balance of $909.6 million, excluding approximately $140.9 million of future funding participations and $353.8 million of pari passu debt. At issuance, most loans were in a period of transition with plans to stabilize and improve asset value. The transaction included a 180-day ramp-up period during which the Issuer could use $125.0 million of funds deposited into the unused proceeds account to acquire additional collateral, subject to eligibility criteria as defined at issuance. The ramp-up period effectively concluded in September 2021 when the cumulative loan balance totaled $1.03 billion. As the Reinvestment Period ended in with the July 2023 payment date, loan payoffs were used to pay down the transaction sequentially.

As of the July 2023 remittance, the pool comprised 30 loans secured by 32 properties with a cumulative trust balance of $1.03 billion. Since issuance, 13 loans have repaid from the pool, including the former second- and third-largest loans in the pool, Renaissance Park Portfolio and 999 East Street Northwest, which were repurchased/substituted and paid off in May 2023 and November 2022, respectively. Since the deal closed, 21 loans with a cumulative trust balance of $638.6 million have been contributed to the trust, including 12 loans (34.2% of the current pool balance) that have been added since the previous DBRS Morningstar rating action in November 2022. In general, borrowers are progressing toward completing the stated business plans. Through May 2023, the collateral manager had advanced approximately $59.9 million in loan future funding allocated to 17 individual borrowers to aid in property stabilization efforts. An additional $46.7 million of unadvanced loan future funding allocated to 14 individual borrowers remains outstanding with the largest portion ($10.1 million) allocated to the borrower of the One Whitehall loan (Prospectus ID#9; 4.4% of the pool). The loan is secured by a CBD office property in New York, with loan future funding available for capital improvements, debt service advances, with the goal of seeking to increase office rents to market levels.

The transaction is concentrated by property type as 17 loans (totaling 63.5% of the current trust balance) are secured by multifamily properties, followed by three loans (totaling 10.9% of the current trust balance) secured by mixed-use properties. The transaction benefits from minimal exposure to office assets with only three loans (totaling 4.8% of the current trust balance) secured by office properties. In comparison with the pool’s composition at the time of closing in June 2021, loans secured by office properties decreased by 25.3% and multifamily properties increased by 39.8%. The collateral has a concentration of properties in suburban markets, as defined by DBRS Morningstar with a DBRS Morningstar Market Rank of 3, 4, or 5 with 18 loans, representing 63.3% of the current pool balance, compared with the suburban concentration at issuance of 11 loans, representing 45.9% of the pool balance. As of July 2023, there are 12 loans, totaling 36.7% of the pool balance located in urban markets with a DBRS Morningstar Market Rank of 6, 7 or 8, up from eight loans, representing 31.6% of the pool at closing.

Three loans backed by office/mixed-use properties, representing 6.0% of the current trust balance) were identified by DBRS Morningstar as being susceptible to performance challenges stemming from the Coronavirus Disease (COVID-19) pandemic. As a result of the initial mitigation efforts, which caused a shift in office use and ongoing challenges with leasing of available space, the borrowers for these three loans have generally been unable to stabilize occupancy and rental rates, resulting in underperformance and cash flow declines. As such, DBRS Morningstar's analysis includes an elevated loan-to-value ratio (LTV) and/or probability of default for these loans to increase the expected loss.

Loans contributed during the initial ramp-up and subsequent ongoing reinvestment periods have been characterized with similar leverage as loans in the pool at closing as the current weighted-average appraised as-is LTV and stabilized LTV ratios are 76.4% and 65.8%, respectively. In comparison with issuance, these figures were 70.6% and 65.5%, respectively.

As of July 2023 reporting, ¬eight loans, representing ¬19.5% of the current trust balance, have scheduled maturity dates in 2023. Of these loans, two loans are expected to be paid off in the near term, while four are structured with additional extension options of 12 months, provided the loan meets the required performance-based minimum DSCR, and/or minimum debt yield, among other terms. The remaining two loans are either exploring a potential loan modification or assessing other alternatives. There are no loans in special servicing, while seven loans are on the servicer’s watchlist, representing 12.5% of the pool balance, all of which are being monitored for upcoming loan maturity in 2023. As of July 2023, 11 loans in the pool (40.0% of the current pool balance) have been modified since the CMBS transaction closed in June 2021. For a majority of these loans, modification was executed in order for the borrower to qualify for a maturity extension or to grant the borrowers access to funds held in reserves to fund shortfalls or rent relief for certain tenants.

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/416785 (July 4, 2023).

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 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
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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)

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at https://www.dbrsmorningstar.com/research/417279.

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