DBRS Morningstar Confirms Ratings of All Classes of BX 2021-21M Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed the following classes of BX 2021-21M Mortgage Trust Commercial Mortgage Pass-Through Certificates as follows:

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

All trends are stable.

The transaction’s performance remains in line with issuance expectations as evidenced by recent reporting indicating stable occupancy and cash flow. Since issuance, there has been a significant amount of collateral reduction due to property releases. While performance metrics remain steady, given the significant changes to the overall makeup of the portfolio, DBRS Morningstar revised the loan-to-value ratio (LTV) sizing in its analysis for this review and derived an updated DBRS Morningstar value of $688.9 million. DBRS Morningstar’s updated value is reflective of an LTV of 140.6% on the current debt, compared with DBRS Morningstar’s Issuance LTV of 137.3%.

At issuance, the transaction was collateralized by the borrower’s fee-simple interest in a portfolio of 21 Class A and Class B multifamily properties totalling 6,671 units in seven different states. As of August 2023 remittance, eight of the properties representing 25.4% of the allocated loan amount (ALA) have been released, contributing to $331.5 million in collateral reduction since issuance. The current loan balance has been paid down to $968.5 million from $1.3 billion at issuance. The released properties were all in Texas (formerly the state with the largest concentration of ALA) within the Dallas-Fort Worth submarket. For the first 30% of the unpaid principal balance, the sponsor must pay a release premium of 105% and 110% thereafter. The sponsor for the loan is the real estate fund commonly known as Blackstone Real Estate Partners (BREP) IX. BREP IX is the firm’s $20.5 billion flagship global real estate opportunity fund that closed in August 2019.

The floating-rate loan is structured with a two-year initial term and three one-year extension options for a fully extended maturity date of October 2026. The loan is currently on the servicer’s watchlist for its upcoming maturity in October 2023. As per the servicer, the borrower has indicated they will be exercising the first of their three extension options. Aside from the condition that there are no events of default and a requirement that the borrower purchase a cap rate agreement, there are no performance triggers, financial covenants, or fees required for the borrower to exercise any of its extension options. The replacement cap rate agreement must result in a debt service coverage ratio (DSCR) of greater than 1.10 times (x) for each extension term.

There are 14 properties remaining in the portfolio following the recent releases. Although YE2022 financial reporting has not yet been made available, the remaining portfolio reported a net cash flow and DSCR of $50.1 million and 0.92x, respectively, for the trailing 12-month period (T-12) ending March 31, 2023. The reported weighted average occupancy for the remaining properties as of March 2023 was 92.5% compared with 95.9% for the same properties at issuance. Although property-level performance metrics remain in line with issuance expectations, the DSCR has declined due to the floating-rate nature of the loan. The loan remains current on its payments and there have been no events of default to date.

DBRS Morningstar updated the LTV sizing in its analysis for this review to reflect the impact of property releases and the subsequent paydown of the transaction. The updated DBRS Morningstar Net Cash Flow (NCF) adjusted for the property releases was $44.8 million. The analysis used a capitalization rate of 6.5%, which is on the low end/middle range for this property type and reflective of the portfolio’s geographic diversity and above-average property quality. DBRS Morningstar maintained positive qualitative adjustments totalling 6.75% to account for the historically strong performance, property quality, and market fundamentals. The resulting DBRS Morningstar value of $688.9 million implies an LTV of 140.6%, which is largely in line with DBRS Morningstar’s LTV of 137.3% at issuance.

Overall, the borrower's plans to exercise the extension option extending the loan to October 2024, coupled with the continued healthy performance of the underlying assets supports the rating actions. Each of the remaining properties have maintained strong occupancy rates of over 90% and on a consolidated basis posted T-12 March 31, 2023, NCF figures that remain in line with the DBRS Morningstar NCF derived at issuance. The transaction fully comprises multifamily properties, which generally provide cash flow stability. The portfolio remains well diversified geographically, and the loan also benefits from an experienced sponsor in Blackstone Real Estate Partners.

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 (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 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].