DBRS Morningstar Confirms Ratings on BX Trust 2022-CLS

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2022-CLS issued by BX Trust 2022-CLS:

-- Class A at AAA (sf)
-- Class X-CP at AA (low) (sf)
-- Class X-NCP at AA (low) (sf)
-- Class B at AA (low) (sf)
-- Class C at A (high) (sf)

All trends are Stable.

The rating confirmations reflect the stable performance of the transaction, as reflected by the servicer-reported year-end (YE) 2022 net cash flow (NCF) figure of $60.3 million, which remains in line with the DBRS Morningstar NCF of $58.5 million derived at issuance. While there has been limited seasoning and the deal is early in its life cycle, the loan continues to exhibit healthy credit metrics sustained by long-term, investment-grade tenants leasing more than 95% of the net rentable area (NRA) beyond the loan’s maturity in 2027. The March 2023 rent roll reported an occupancy rate of 100.0%, unchanged from issuance.

The loan is secured by the borrower’s fee-simple interest in the Center for Life Science (CLS), a Class A LEED Gold, 21-story life sciences and medical office building totaling 704,160 square feet (sf) in the heart of Boston’s Longwood Medical Area (LMA). The LMA is one of the largest clusters of medical research facilities in the U.S. and is home to at least 22 medical institutions, including Harvard Medical School, Harvard School of Public Health, Boston Children’s Hospital, Beth Israel Deaconess Medical Center, Dana-Farber Cancer Institute, Brigham and Women’s Hospital, and Joslin Diabetes Center, leaving a very limited supply of developable land remaining in the submarket.

With its location in the LMA, the CLS serves as a mission-critical space for many of its tenants, which are concentrated in the life sciences and biomedical research fields. The tenants, Beth Israel Deaconess Medical Center (51.5% of NRA), Boston Children’s Hospital (31.9% of NRA), and Dana-Farber Cancer Institute (7.2% of NRA), are all teaching hospitals and institutions affiliated with nearby Harvard University, which is critical for students, faculty, and researchers to collaborate.

The sponsor is BRE Edison L.P., a joint venture of BioMed Partners and Blackstone Real Estate Partners. At issuance, Blackstone and BioMed Realty had 14.9 million sf of owned life sciences real estate and roughly 320 tenants nationwide, including 6.0 million sf of life sciences assets owned and operated in Greater Boston.

The $750 million five-year, fixed-rate, interest-only (IO) whole loan is part of a split loan structure comprised of the following six promissory notes: (1) two promissory A notes with a cut-off date principal balance of $610 million; (2) two subordinate promissory B notes with an aggregate cut-off date principal balance of $100 million; and (3) two promissory C notes with a cut-off date principal balance of $40 million. The trust assets will consist primarily of the mortgage loan, which is secured by a first-priority lien on the property. The promissory notes comprising Note B and Note C are not assets of the trust. The sponsor is partially using loan proceeds to repatriate approximately $33.5 million of equity.

The mortgage loan represents a 50.0% loan-to value ratio (LTV) based on the issuance appraised value of $1.5 billion and benefits from the appraiser’s substantial floor value based on the land value of $533.5 million given its desirable location in the LMA. At issuance, DBRS Morningstar derived a value of $935.3 million based on a capitalization rate of 6.25% and the DBRS Morningstar NCF of $58.5 million, resulting in a DBRS Morningstar LTV of 80.2%. The property benefits from its prime location within close proximity to major medical centers, high-quality tenancy, and low historic vacancy rate combined with supply constraints within the submarket. DBRS Morningstar made positive qualitative adjustments to the final LTV sizing benchmarks, totaling 10.0% to account for the cash flow volatility, property quality, and market fundamentals.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) 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).

Classes X-CP and X-NCP are IO certificates that reference 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 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.

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 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)

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].