DBRS Morningstar Confirms Ratings on LoanCore 2022-CRE7 Issuer Ltd.

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on all classes of notes issued by LoanCore 2022-CRE7 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 as the trust continues to be primarily secured by multifamily collateral with the exception of one manufactured-housing property. 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 initial collateral consisted of 29 floating-rate mortgages secured by 29 transitional properties with a cut-off balance of $1.25 billion, excluding approximately $65.4 million of future funding participations and $194.7 million of funded companion participations. The transaction is managed with a two-year reinvestment period ending with the March 2024 Payment Date during which the Issuer may use principal proceeds to acquire additional eligible loans, subject to the eligibility criteria. All subsequent new loan collateral during the reinvestment period is required to be multifamily properties.

As of the July 2023 remittance, the pool comprises 30 loans secured by 30 properties with a cumulative trust balance of $1.5 billion. The cash balance of the Reinvestment Account is $7.9 million. Since the previous DBRS Morningstar rating action in November 2022, three loans with a former cumulative trust balance of $84.9 million have been successfully repaid from the pool while no new loans have been added to the trust.

The transaction is concentrated by property type, as 29 loans, representing 97.8% of the pool, are secured by multifamily properties with one loan secured by a manufactured-housing property, representing 2.2% of the pool. The loans are primarily secured by properties in suburban markets as 26 loans, representing 86.4% of the pool, are secured by properties in suburban markets, as defined by DBRS Morningstar, with a DBRS Morningstar Market Rank of 3, 4, or 5. An additional three loans, representing 10.2% of the pool, are secured by properties with a DBRS Morningstar Market Rank of 2, denoting a tertiary market, while one loan, representing 3.4% of the pool, is secured by property with a DBRS Morningstar Market Rank of 6, denoting an urban market. In comparison, at issuance, properties in suburban markets represented 84.1% of the collateral, properties in tertiary and rural markets represented 12.1% of the collateral, and properties in urban markets represented 3.9% of the collateral.

Leverage across the pool has marginally increased since issuance as the current weighted-average (WA) as-is appraised value loan-to-value (LTV) ratio is 77.1%, with a current WA stabilized LTV ratio of 67.9%. In comparison, these figures were 76.2% and 67.4%, respectively, since issuance. DBRS Morningstar recognizes that select property values may be inflated as the majority of the individual property appraisals were completed in 2022 and may not reflect the current rising interest rate or widening capitalization rate environments.

Through June 2023, the lender had advanced cumulative loan future funding of $41.8 million to 16 of the 20 outstanding individual borrowers to aid in property stabilization efforts. The largest advance has been made to the borrower of the GVA Sunrise Portfolio Pool C loan ($7.0 million), which is secured by a portfolio of five cross-collateralized, garden-style multifamily properties, totaling 1,670 units. The borrower’s business plan is to complete unit-renovations and property upgrades across all five individual properties. While the Q1 2023 collateral manager report did not provide specific details regarding completed capital expenditure projects or the number of upgraded unit interiors at the individual properties, the collateral manager’s commentary noted the borrower was generally achieving its business plan to renovate units and increase rents. As of Q1 2023, individual property occupancy rates ranged from 84.3% to 96.3% with a portfolio-wide occupancy rate of 89.2%. An additional $46.0 million of loan future funding allocated to 19 of the outstanding individual borrowers remains available. The largest portion of available funds, $9.1 million, is allocated to the borrower of the aforementioned GVA Sunrise Portfolio Pool C loan.

As of the July 2023 remittance, there are no delinquent loans or loans in special servicing, and there are no loans on the servicer’s watchlist. According to the collateral manager, six loans, representing 18.7% of the current cumulative trust loan balance, have been modified. The modified loans include Elan Heights, 1000 West Apartments, Elan Crockett Row, Parcland Crossing, Skyline MHP, and Pillar at Westgate. In general, the modifications resulted in the waivers of interest rate cap requirements, prepayment penalties, and increasing renovation budgets. In exchange, borrowers have been required to make principal curtailment payments on loans or deposit additional dollars into existing reserves.

Seven loans have upcoming loan maturities by year-end 2023; however, all seven loans include three 12-month extension options pursuant to certain requirements. The largest loan with an upcoming maturity is the pool’s second-largest loan, Seagrass Apartments, which is secured by a 396-unit garden-style apartment complex in Jacksonville, Florida. According to the February 2023 rent roll, the property was 95.1% occupied, unchanged since issuance, with an average rental rate of $1,646/unit. The rental rate represents a $215/unit premium over in place rents at loan closing. The loan matures in November 2023.

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/416784 (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 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 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, Inc.
22 West Washington Street
Chicago, IL 60602 USA
Tel. +1 312 332-3429

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 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/dbrs-morningstar-north-american-commercial-real-estate-property-analysis-criteria

-- North American Commercial Mortgage Servicer Rankings (September 8, 2022),
https://www.dbrsmorningstar.com/research/402499/north-american-commercial-mortgage-servicer-rankings

-- 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/legal-criteria-for-us-structured-finance

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