DBRS Morningstar Confirms Ratings on All Classes of Benchmark 2021-B23 Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed its ratings on the following classes of the Commercial Mortgage Pass-Through Certificates, Series 2021-B23 issued by Benchmark 2021-B23 Mortgage Trust:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-4A1 at AAA (sf)
-- Class A-4A2 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-AB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class A-S at AAA (sf)
-- Class 360A at A (low) (sf)
-- Class 360B at BBB (low) (sf)
-- Class 360C at BB (low) (sf)
-- Class 360D at B (low) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since issuance in 2021. At closing, the transaction consisted of 53 fixed-rate loans secured by 65 properties with the pooled certificates totaling $1.53 billion. Per the August 2023 reporting, all 53 loans remain in the pool, with no losses or defeasance to date. There has been minimal amortization, with only 0.8% collateral reduction since issuance. Amortization will be limited through the life of the deal as there are 34 loans, representing 77.9% of the pool, that are interest only (IO) for the full term. An additional 12 loans, representing 12.1% of the pool, have partial IO periods that remain active. As noted at issuance, the pool is expected to pay down by only 3.6% prior to maturity.

The pool is concentrated with loans backed by office properties, which represent 46.2% of the pool, followed by mixed-use and industrial properties, which represent 22.7% and 11.6% of the pool, respectively. In general, the office sector has been challenged, given the low investor appetite for the property type and high vacancy rates in many submarkets as a result of the shift in workplace dynamics. Although the office sector has seen significant challenges in the current economic environment, the majority of office properties secured in this transaction continue to perform as expected, reporting a weighted-average debt service coverage ratio of more than 2.50 times as of the YE2022 financial reporting.

As of the August 2023 remittance, there are no delinquent or specially serviced loans. There are, however, seven loans on the servicer's watchlist, representing 10.6% of the pool, including two loans in the top 15. Four of these loans, representing 5.0% of the pool, are being monitored for credit-related reasons, including First Republic Center (Prospectus ID#13, 2.7% of the pool), which was added to the watchlist in June 2023 following a cash sweep activation triggered by First Republic Bank’s (FRB) insolvency.

The loan is secured by a 70,543-square-foot (sf) office building in Palto Alto, California, with FRB occupying 76.0% of the property’s net rentable area on a lease through October 2037. In May 2023, the U.S. government announced it had taken control of FRB and sold the bank to JPMorgan Chase Bank, N.A. (JPM; rated AA with a Stable trend by DBRS Morningstar, most recently confirmed as of December 7, 2022). DBRS Morningstar has asked the servicer for confirmation of the status of FRB’s lease, which JPM has the right to affirm or reject at the collateral property. Given the uncertainty surrounding the status of the lease and JPM’s obligation for the remaining term, DBRS Morningstar has removed the shadow rating on the loan, as it is no longer clear if the credit features from issuance, namely the long-term credit-tenant treatment (LTCT) analyzed for FRB, remain consistent with investment-grade characteristics.

Loan proceeds of $41.6 million, along with a $38.4 million mezzanine loan, and $26.9 million of sponsor equity was primarily used to facilitate the $105.6 million acquisition of the property and fund upfront reserves. The loan is IO through the 10-year anticipated repayment date (ARD) period but is structured to hyper-amortize sequentially first to the senior loan and second to the mezzanine loan over six years and nine months if the loan is not paid prior to the ARD. The property benefits from its 2016 construction and modern appearance, and institutional sponsorship provided by KKR Real Estate Select Trust Inc., which provided 25.2% of the financing as part of the acquisition and had $510 billion assets under management as of Q1 2023. While the termination of the lease would undoubtedly alter the loans performance, the appraiser’s dark value at issuance of $92.6 million implies there is substantial value in the property without a LTCT, as the loan-to-value ratio (LTV) based on the senior debt and dark appraised value is equal to 44.9%. DBRS Morningstar took a conservative approach and analyzed the loan with a stressed LTV reflective of the dark value for this review, which had very little impact on the overall CMBS Insight Model results.

Three additional loans—360 Spear, MGM Grand & Mandalay Bay, and the Grace Building—were assigned investment-grade shadow ratings at issuance. Combined, these loans represent 15.2% of the pool. As part of this review, DBRS Morningstar concluded that current and expected ongoing performance remains consistent with investment-grade loan characteristics.

Classes 360A, 360B, 360C, and 360D are loan-specific certificates (rake bonds) collateralized by the subordinate companion note for the 360 Spear whole loan. The loan-specific certificates will only be entitled to receive distributions from, and will only incur losses with respect to, the trust subordinate companion loan. The trust subordinate companion loan is included as an asset of the issuing entity but is not part of the mortgage pool backing the pooled certificates. No class of pooled certificates will have any interest in the trust subordinate companion 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 https://www.dbrsmorningstar.com/research/416784 (July 4, 2023).

Class X-A is an IO certificate that references 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 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
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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)

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 (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].