DBRS Morningstar Confirms Credit Ratings on TRTX 2022-FL5 Issuer, Ltd.

DBRS, Inc. (DBRS Morningstar) confirmed its credit ratings on all classes of notes issued by TRTX 2022-FL5 Issuer, Ltd. (the Issuer) 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 (low) (sf)
-- Class G at B (low) (sf)

All trends are Stable.

The credit rating confirmations reflect the overall stable performance of the transaction, which has remained in line with DBRS Morningstar’s expectations since issuance as evidenced by recently reported credit and leverage metrics. Additionally, 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 20 floating-rate mortgages secured by 116 mostly transitional properties with a cut-off date balance totaling $1.08 billion. Most loans were in a period of transition with plans to stabilize performance and improve values of the underlying assets. As of the September 2023 remittance, the pool comprised 15 loans secured by 108 properties with a cumulative trust balance of $837.5 million. Since issuance, nine loans with a prior cumulative trust balance of $404.8 million have been successfully repaid in full from the pool or been purchased out of the trust at par by the collateral manager. This includes five loans totaling $186.6 million since the previous DBRS Morningstar rating action in November 2022. The Lawford – Lakeside and Lawford – Enclave loans, which were secured by multifamily properties and had a former cumulative trust balance of $72.3 million, were purchased out of the trust in March 2023.

The transaction is managed with a two-year Reinvestment Period, whereby the Issuer can purchase new loans and funded loan participations into the trust. The Reinvestment Period is scheduled to end with the February 2024 Payment Date. As of September 2023, the Reinvestment Account had a balance of $237.5 million. In its current analysis, DBRS Morningstar funded the trust to the maximum transaction balance of $1.08 billion by increasing individual loan balances with outstanding pari passu amounts not securitized in other commercial mortgage-backed securities (CMBS) transactions, accounting for outstanding potential loan future funding currently available to individual borrowers based on the loan eligibility criteria as stated in the transaction’s issuance documents. The result was a more aggressive transaction composition; however, given the structure of the transaction and overall stable performance of the collateral, DBRS Morningstar determined the current credit ratings are appropriate.

The transaction is concentrated by property type as nine loans, representing 69.6% of the current trust balance, are secured by multifamily properties, with three loans (23.2% of the current trust balance) secured by office properties and two loans (3.9% of the current trust balance) secured by hotel properties. In comparison with the pool at closing, multifamily properties represented 55.0% of the collateral, office properties represented 27.9% of the collateral, and mixed-use properties represented 11.9% of the collateral.

The pool is primarily secured by properties in suburban markets, as defined by DBRS Morningstar, with 11 loans, representing 68.7% of the pool, assigned a DBRS Morningstar Market Rank of 3, 4, or 5. An additional four loans, representing 31.3% of the pool, are secured by properties with a DBRS Morningstar Market Rank of 6, 7, or 8, denoting urban markets. There are no properties currently in tertiary or rural markets. In comparison, at closing, properties in suburban markets represented 42.8% of the collateral, properties in urban markets represented 50.1% of the collateral, and properties in tertiary markets represented 7.1% of the collateral.

Leverage across the pool was generally stable to slightly elevated as of September 2023 reporting when compared with issuance metrics. The current weighted-average (WA) as-is appraised value loan-to-value ratio (LTV) is 68.1%, with a current WA stabilized LTV of 61.8%. In comparison, these figures were 66.3% and 60.0%, respectively, at issuance. DBRS Morningstar recognizes that select property values may be inflated as the majority of the individual property appraisals were completed in 2021 or 2022 and may not reflect the current rising interest rate or widening capitalization rate environments. In its analysis, DBRS Morningstar applied upward LTV adjustments across 11 loans, representing 74.8% of the current trust balance.

Through June 2023, the lender had advanced cumulative loan future funding of $76.1 million to ten of the 15 outstanding individual borrowers to aid in property stabilization efforts. The largest advances have been made to the borrowers of the Del Amo 2 ($22.2 million) and 575 Fifth Avenue ($20.0 million) loans. The Del Amo 2 loan is secured by a mixed-use property in Torrance, California. The advanced funds have been used to fund the borrower’s planned capital expenditure (capex) and leasing plan with a portion of funds also used for interest costs. An additional $3.7 million of future funding remains available to the borrower. The 575 Fifth Avenue loan is secured by an office property in Midtown Manhattan. The advanced funds have been used to fund leasing costs as well as to fund interest shortfalls. An additional $1.7 million of future funding remains available to the borrower.

An additional $67.6 million of loan future funding allocated to 11 of the outstanding individual borrowers remains available. The largest portion, $28.0 million, is allocated to the borrower of the Mount Eden loan, which is secured by an office property in Hayward, California. The available funds are for the borrower’s capex and leasing plan at the property. While the lender has not advanced any future funding dollars to the borrower since loan closing, it appears the borrower is successfully implementing its business plan to convert a portion of the 369,986-square-foot property for life science use and to lease up the entire property to stabilization. As of June 2023, the property was 88.2% leased.

As of the September 2023 remittance, there were no delinquent loans or loans in special servicing, and there were two loans on the servicer’s watchlist, representing 12.9% of the current trust balance. Both loans, 575 Fifth Avenue (Prospectus ID#3; 8.1% of the current trust balance) and 677 Ala Moana (Prospectus ID#14; 4.8% of the current trust balance), have been flagged for respective upcoming loan maturity. According to the servicer, the borrower and lender are expected to close a loan extension in the immediate future to address the September 2023 maturity. The borrower had previously received a short-term extension and, as of March 2023, the property was 86.6% occupied. The 677 Ala Moana loan is secured by an office property in Honolulu, Hawaii. The loan matures in November 2023 after the lender provided the borrower a three-month extension to allow the borrower time to complete its exit strategy. The final maturity date on the loan is August 2024. As of June 2023, the property was 82.6% occupied with net cash flow of $4.1 million based on rental revenue as of the June 2023 rent roll and T-12 ended June 30, 2023, operating expenses. Only one other loan, Hilton Lexington (Prospectus ID#22; 0.4% of the current trust balance), has a maturity date in the next six months.

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 22, 2023), https://www.dbrsmorningstar.com/research/420982

-- 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

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