DBRS Morningstar Confirms Ratings on BSPDF 2021-FL1 Issuer, Ltd.

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on all classes of notes issued by BSPDF 2021-FL1 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 the trust continues to be primarily secured by the 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 initial collateral consisted of 21 floating-rate mortgages secured by 49 mostly transitional properties with a cut-off date balance totaling $628.1 million. Most loans were in a period of transition with plans to stabilize performance and improve the asset value. The trust reached its maximum funded balance of $775.0 million in January 2022. The transaction is a managed vehicle with a 24-month reinvestment period scheduled to expire with the October 2023 Payment Date.

As of the August 2023 remittance, the pool comprises 27 loans secured by 30 properties with a cumulative trust balance of $757.4 million. The cash balance of the Reinvestment Account is $17.6 million. Currently, 15 of the original loans in the transaction at closing, representing 68.2% of the current trust balance, remain in the trust. Since issuance, six loans with a former cumulative trust balance of $126.0 million have been successfully repaid from the pool, including five loans totaling $86.5 million since the previous DBRS Morningstar rating action in November 2022. An additional three loans, totaling $53.1 million, have been added to the trust since the previous DBRS Morningstar rating action.

The transaction is concentrated by property type as 19 loans, representing 67.5% of the current trust balance, are secured by multifamily properties; three loans, representing 21.1% of the current trust balance, are secured by office properties; and three loans, representing 7.4% of the current trust balance, are secured by hotel properties. In comparison, when the previous DBRS Morningstar Surveillance Performance Update for the transaction was published in July 2022, multifamily properties represented 67.4% of the collateral, office properties represented 20.6% of the collateral, and hotel properties represented 3.1% of the collateral.

The loans are primarily secured by properties in suburban markets as 20 loans, representing 62.3% 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 four loans, representing 28.8% of the pool, are secured by properties with a DBRS Morningstar Market Rank of 6 and 8, denoting urban markets, while three loans, representing 8.8% of the pool, are secured by properties with a DBRS Morningstar Market Rank of 1 and 2, denoting rural and tertiary markets. In comparison, at July 2022, properties in suburban markets represented 62.9% of the collateral, properties in urban markets represented 25.0% the collateral, and properties in rural and tertiary markets represented 12.1% of the collateral.

Leverage across the pool has remained consistent as of August 2023 reporting when compared with issuance and July 2022 metrics as the current weighted-average (WA) as-is appraised value loan-to-value ratio (LTV) is 70.9%, with a current WA stabilized LTV of 62.8%. In comparison, these figures were 71.4% and 62.9%, respectively, at issuance and 71.4% and 63.2%, respectively, as of July 2022. DBRS Morningstar recognizes that select property values may be inflated as the majority of the individual property appraisals were completed in 2021 and 2022 and may not reflect the current rising interest rate or widening capitalization rate environments.

Through August 2023, the lender had advanced cumulative loan future funding of $42.1 million to 20 of the 27 outstanding individual borrowers to aid in property stabilization efforts. The largest advance, $9.9 million, has been made to the borrower of the Boardwalk at Morris Bridge loan. The loan is secured by a 290-unit multifamily property in Temple Terrace, Florida. The advanced funds have been used to fund the borrower’s extensive $13.3 million planned capital expenditure (capex) plan at the property, which includes transitioning the property to market rate units from a student housing property. The Q2 2023 collateral manager report noted the borrower is behind in its business plans as the borrower did not meet the July 1, 2023, completion milestone, stipulating 145 units (50.0% of total) were to be renovated and lease ready. As a result, the floating interest rate spread increased to 5.75% from 4.75% and will remain elevated until the work is completed. According to the loan agreement, the other 145 units must be completed by YE2023. The loan matures in September 2024 with two one-year extension options. Currently, $3.3 million of future funding remains available to the borrower.

An additional $42.7 million of loan future funding allocated to 16 of the outstanding individual borrowers remains available. The largest portion of available funds, $16.8 million, is allocated to the borrower of the 5 Post Oak Park loan. The loan is secured by a 28-story, high-rise office property in Houston, east of the Galleria and Uptown neighborhoods. The borrower’s business plan is to complete an $8.0 million capex plan and $11.4 million leasing plan to increase occupancy and rental rates. According to the Q2 2023 update from the collateral manager, the property was 73.5% lease and 62.5% occupied. The loan remains in a cash sweep period as the T-12 ended May 31, 2023, debt service coverage ratio (DSCR) was low at 0.69 times. The update did not specify completed or ongoing capex projects beyond the chiller replacement, which was noted to be 50.0% complete. Through August 2023, future funding of $1.7 million had been advanced to the borrower primarily for leasing costs associated with new tenant Thompson Coe, which signed a 13-year lease for 10.9% of the net rentable area with a commencement date in February 2024.

As of the August 2023 remittance, there are no delinquent loans in special servicing and there are six loans on the servicer’s watchlist, representing 22.0% of the maximum transaction balance. All loans are secured by multifamily properties and have been flagged for below breakeven DSCRs. The loans remain current with the decline in performance expected to be temporary as units are being taken offline by the respective borrowers to complete interior renovations. According to the collateral manager, two loans, representing 5.1% of the maximum transaction balance, have been modified. The modifications allowed one borrower to exercise a loan extension option by amending loan terms and allowed a temporary reduction in the floating interest rate spread for the other borrower.

Seven loans, representing 28.4% of the current cumulative trust balance, have a loan maturity date before YE2023. The largest of these loans, 5 Post Oak Park, matured in August 2023; however, according to the update provided by the collateral manager, the borrower exercised the first of three potential one-year extension options and now the loan matures in August 2024. There were no performance tests associated with the first extension option. The remaining three loans maturing by year-end also have extension options available to the respective borrowers.

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

-- 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

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