DBRS Morningstar Confirms Ratings on BDS 2022-FL11 LLC

DBRS Limited (DBRS Morningstar) confirmed its ratings on the following classes of notes issued by BDS 2022-FL11 LLC (the Issuer) as follows:

-- Class A-TS at AAA (sf)
-- Class A-CS at AAA (sf)
-- Class B at AA (low) (sf)
-- Class B-E at AA (low) (sf)
-- Class B-X at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class C-E at A (low) (sf)
-- Class C-X at A (low) (sf)
-- Class D at BBB (sf)
-- Class D-E at BBB (sf)
-- Class D-X at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class E-E at BBB (low) (sf)
-- Class E-X 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 performance of the transaction, which remains in line with DBRS Morningstar expectations as individual borrowers are generally progressing through their stated business plans. The pool composition remains relatively similar to issuance with multifamily representing the majority of the pool. 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].

As of the August 2023 remittance, the trust reported an outstanding balance of $865.5 million with 31 floating-rate loans remaining in the trust. The transaction is a managed vehicle, with no delayed-close assets and no replenishment period but is structured with a 24-month reinvestment period ending in April 2024. All future loan repayments will pay down the notes sequentially. Since the previous DBRS Morningstar rating action in November 2022, three loans successfully repaid from the trust. The remaining loans in the transaction are heavily concentrated with 27 loans backed by multifamily properties (87.2% of the current trust balance) with only two loans (7.7% of the current trust balance) secured by lodging properties and two loans (5.1% of the current trust balance) secured by industrial properties.

As of the August 2023 reporting, no loans are in special servicing, but one loan, The Tailor Lofts (Prospectus ID#17; 3.1% of the pool), is delinquent and was last paid through in June 2023. A forbearance is currently being negotiated. Additional loan details are discussed in the Surveillance Performance Update report. Fifteen loans, representing 48.0% of the current trust balance, are on the servicer’s watchlist. Eleven of these loans were flagged for performance issues with low occupancy rates and/or debt service coverage ratios (DSCRs); however, this was anticipated as borrowers continue to progress through their business plans to stabilize the assets, and the floating rate nature of all of the loans in the pool have increased debt service payments. The largest watchlisted loan is the Sahara Palms & Playa Palms Apartments (Prospectus ID#2; 4.6% of the pool), which was added in May 2023 because of a drop in occupancy to 77.0% at YE2022. The Pencil Factory loan (Prospectus ID#4; 4.7% of the pool) has an upcoming maturity date in December 2023, but the loan has extension options available.

The loans in the pool are secured primarily by properties in suburban markets. Twenty-five loans, representing 85.5% 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. Four loans, representing 7.5% of the pool, are secured by properties with a DBRS Morningstar Market Rank of 6, 7, or 8, denoting an urban market. In comparison with the pool composition at issuance, properties in suburban markets represented 81.4% of the collateral, and properties in urban markets represented 7.5% of the collateral.

Leverage across the pool has remained relatively unchanged since issuance as the current weighted-average (WA) as-is appraised value loan-to-value ratio (LTV) is 72.5% with a current WA stabilized LTV of 63.4%. In comparison, these figures were 73.2% and 64.5%, respectively, at issuance. DBRS Morningstar recognizes these values may be inflated as the individual property appraisals were completed in 2022 and do not reflect the current rising interest rate or widening capitalization rate environments.

Through June 2023, the lender had advanced $57.5 million in loan future funding to 23 of the individual borrowers to aid in property stabilization efforts. The largest loan advances included $9.7 million toward The American Steel Collection and $9.4 million towards the Sahara Palms & Playa Palms Apartments. The future funding for The American Steel Collection will be used toward capital improvements and leasing costs, while future funds for Sahara Palms & Playa Palms Apartments will be used strictly for capital improvements. An additional $52.1 million of loan future funding allocated to 22 individual borrowers remains available. The largest individual allocation, $25.5 million, is again allocated to the borrower of The American Steel Collection loan.

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

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 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 (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].