DBRS Morningstar Confirms Ratings on All Classes of BX Trust 2021-BXMF

DBRS Limited (DBRS Morningstar) confirmed its ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2021-BXMF issued by BX Trust 2021-BXMF:

-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class F at B (low) (sf)

All trends are Stable. The rating confirmations reflect the overall stable performance in the two years since issuance, as the YE2022 net cash flow (NCF) of $60.6 million was 8.5% over the DBRS Morningstar NCF derived at issuance. Occupancy rates remain relatively stable across the portfolio as well, and there have been no property releases to date.

The collateral consists of the borrower’s fee-simple interest in 12 mid-rise Class A multifamily properties and one student housing property totaling 5,449 units across seven states and nine distinct markets. The portfolio is predominantly concentrated in Texas (two properties, 2,062 units, 29.9% of the allocated loan amount (ALA)), Florida (four properties, 1,360 units, 29.1% of the ALA), and Georgia (three properties, 1,183 units, 21.1% of the ALA). Additional markets include Las Vegas; Denver; Los Angeles; and Columbus, Ohio. The portfolio generally comprises newer vintage properties, with a weighted-average (WA) vintage of 2012 and only two properties in the portfolio built before 2004. The loan benefits from experienced sponsorship in an affiliate of Blackstone Group, Inc., a global real estate investment platform, which contributed $347.7 million of additional equity at closing as part of the subject transaction.

Whole loan proceeds of $1.075 billion along with $347.7 million of borrower equity were used to recapitalize existing debt. Individual properties can be released, subject to customary debt yield and loan-to-value ratio (LTV) tests. Prepayment premiums for the release of individual assets is 105.0% of the ALA for the first 30.0% of the original principal balance and 110.0% of the ALA thereafter. The transaction has a partial pro rata structure that allows for pro rata paydowns for the first 30.0% of the original principal balance.

The loan has an initial maturity date in October 2023 with three one-year extension options and is interest only throughout its five-year fully extended loan term. There are no performance triggers, financial covenants, or fees required for the borrower to exercise the three one-year extension options; however, the borrower must purchase an interest rate cap with a strike rate equal to the greater of 3.25% or a rate that results in a debt service coverage ratio (DSCR) of at least 1.10 times (x). The loan is currently being monitored on the servicer’s watchlist because of its upcoming maturity. DBRS Morningstar inquired about the status of the upcoming extension option; however, the borrower has not yet indicated its plans for the loan’s maturity. Based on recent performance trends as described below, DBRS Morningstar believes the loan is well positioned to execute on its first extension option.

The loan continues to perform in line with DBRS Morningstar’s expectations. As of the YE2022 financials, the loan reported an NCF of $60.6 million, surpassing the DBRS Morningstar NCF of $55.9 million. Despite the increase in cash flow, DSCR declined to 1.76x as of YE2022 from 3.05x at issuance because of the loan’s floating-rate coupon and an increase in debt service. The increase in interest rate is partially mitigated by the presence of an interest rate cap, which the borrower is required to purchase in order to exercise the loan’s first extension option. DBRS Morningstar’s ratings are based on a value analysis completed at issuance, resulting in a DBRS Morningstar value of $894.7 million and a whole loan LTV of 120.2%. The DBRS Morningstar value represents a -44.4% haircut to the appraiser’s value of $1.6 billion, providing sufficient cushion and supporting the rating confirmations.

Per the March 2023 rent rolls, the portfolio occupancy was 93.7%, down slightly from the issuance occupancy rate of 95.8%. Individual property occupancies ranged from 90.5% to 99.8%. According to Reis, the Q2 2023 WA market vacancy rate for the portfolio was 5.7%, as compared with 6.2% at issuance. Most of the portfolio is located in high-growth suburban markets, reporting a WA DBRS Morningstar Market Rank of 3.9. In addition, there has been year-over-year rental rate growth, as evidenced by the portfolio’s WA rental rate of $1,811 per unit, compared with $1,588 per unit at issuance. Given the stable occupancy, geographic diversity, and strong sponsorship, DBRS Morningstar believes the portfolio will continue performing in line with issuance expectations.

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

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 (August 23, 2023; https://www.dbrsmorningstar.com/research/419592)

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].