DBRS Morningstar Confirms Ratings on BSPRT 2022-FL8 Issuer, Ltd.

DBRS Limited (DBRS Morningstar) confirmed its ratings on all classes of commercial mortgage-backed notes issued by BSPRT 2022-FL8 Issuer, Ltd. 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 (high) (sf)
-- Class G at BB (low) (sf)
-- Class H 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 all loans are currently secured by multifamily collateral. 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 February 2022 with the initial collateral consisting of 26 floating-rate mortgages secured by mostly 34 transitional multifamily properties with a cut-off date balance totaling approximately $1.03 billion (87.3% of the total fully funded balance). Most of the loans were in a period of transition with plans to stabilize performance and improve the asset value. The transaction included a 180-day ramp-up acquisition period, which allowed the issuer to contribute additional loan collateral up to the maximum principal balance of $1.2 billion.

The transaction includes a 24-month reinvestment period, which is expected to expire with the February 2024 Payment Date. During this period, reinvested principal proceeds are subject to Eligibility Criteria, which includes the stipulation that all new loans will be secured by multifamily collateral. Since the last DBRS Morningstar rating action in November 2022, 17 loans with a current cumulative trust loan balance of $138.0 million have been added to the trust (11.5% of the current pool balance). As of August 2023 reporting, the Principal Collection Account had a balance of $2.8 million available to the collateral manager to purchase additional loan interests into the transaction.

As of the August 2023 reporting, the transaction consists of 42 loans with a cumulative loan balance of $1.20 billion. Since issuance, seven loans with a former cumulative trust balance of $147.7 million have been repaid, including six loans totaling $147.0 million since the previous DBRS Morningstar rating action in November 2022. The transaction is concentrated by property type as all loans are secured by multifamily properties. The loans are primarily secured by properties in suburban markets as 32 loans, representing 67.6% 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 six loans, representing 24.1% of the pool, are secured by properties with a DBRS Morningstar Market Rank of 2, denoting a tertiary market, and three loans, representing 6.2% 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 at closing, 66.2% of the collateral was located in suburban markets, 18.1% of the collateral was located in tertiary markets, and 12.1% of the collateral was located in urban markets.

Leverage across the pool has slightly increased from issuance levels as the current weighted-average (WA) as-is appraised value loan-to-value (LTV) ratio is 75.6%, with a current WA stabilized LTV ratio of 64.4%. In comparison, these figures were 73.0% and 65.5%, respectively, at issuance. DBRS Morningstar recognizes that select loans added to the trust since issuance property may have been subject to the current rising interest rate or widening capitalization rate environments, thus exhibiting higher leverage.

As part of this review, DBRS Morningstar received updates on the business plans for all loans in the pool. Many borrowers are in the early stages of their respective stabilization plans with business plan progression generally in line with expectations since loan contribution to the trust. Through August 2023, the lender had advanced $94.4 million to 32 of the remaining individual borrowers. All of the released funds have been for ongoing capital improvement projects across the individual properties. An additional $61.6 million of loan future funding allocated to 29 individual borrowers remains outstanding to fund ongoing capital improvement projects. The loan with both the largest amount of future funding remaining ($9.7 million) and advances made the borrower ($16.4 million) is the Cedar Grove Multifamily Portfolio loan (3.8% of the pool). The loan is secured by a portfolio of 15 multifamily properties located across North Carolina, South Carolina, and Oklahoma. The borrower has used loan future funding for capital improvements, including unit renovations, property exterior, and common area upgrades and the remediation of deferred maintenance. According to the collateral manager as of Q1 2023, the portfolio was 83.5% occupied with 570 units (33.7%) having been renovated. Of the renovated unit count, 555 units had been leased at an average rental rate of $1,046/unit, in comparison with the in-place average rental rate at closing of $866/unit. As the lender had advanced 62.8% of loan future funding through Q1 2023, it suggests the borrower is successfully implementing its business plan across the portfolio. With loan maturity scheduled in June 2024, there remains sufficient time for the borrower to complete the additional unit renovations and lease-up the vacant units.

According to August 2023 reporting, five loans, representing 10.2% of the current cumulative trust balance, have been modified. Loan modification terms have included reallocations of existing reserves, maturity extensions, and repair extensions, among others. While there are no delinquent loans or loans in special servicing, seven loans, representing 23.9% of the current cumulative trust balance, are on the servicer’s watchlist. These loans are being monitored for low debt service coverage ratios and decreases in occupancy rate due to ongoing renovations, per the servicer commentary. The collateral manager identified 14 loans, representing 31.8% of the current pool balance, with scheduled maturity dates through the end of January 2024. The majority of the borrowers on the loans are expected to exercise the first extension option with the collateral manager noting the borrower on only two loans (5.0% of the current pool balance) are expected to be repay their respective loans prior to maturity.

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 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].