DBRS Morningstar Assigns Provisional Credit Ratings to FS Commercial Mortgage Trust 2023-4SZN

DBRS, Inc. (DBRS Morningstar) assigned provisional credit ratings to the following classes of Commercial Mortgage Pass-Through Certificates, Series 2023-4SZN to be issued by FS Commercial Mortgage Trust 2023-4SZN (FS 2023-4SZN):

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

All trends are Stable.

The FS 2023-4SZN transaction is secured by the borrower’s fee-simple interests in The Four Seasons Palm Beach and The Four Seasons Surf Club properties, encompassing 309 keys. The two luxury hotel and resort properties are well located on the eastern seaboard of South Florida and offer direct frontage on the Atlantic Ocean. The hotels are the epitome of luxury and considered to be among the top hotels in Florida as well as the country. DBRS Morningstar has a positive view of the portfolio considering the excellent quality of the collateral, prime beachfront location of the portfolio, and the commitment and experience of the Sponsor within the Southern Florida market.

The 207-key Four Seasons Palm Beach offers 500 feet of direct ocean frontage, presenting sweeping views of the Atlantic Ocean. The hotel offers exceptional accommodations as well as luxurious amenities, such as two outdoor resort-style swimming pools, beachfront cabanas on Palm Beach, a full-service spa and salon with 11 treatment rooms, and a fitness center. Mauro Colagreco, world-renowned chef, operates Florie’s, one of the F&B outlets at the property. In 2019, the Sponsor completed an intensive $74 million capital improvement project that included the renovation of all 207 rooms and suites, new landscape architecture, the re-conception of the F&B outlets, and renovation of the pool deck. As of 2023, the Sponsor completed an additional $6.3 million capital improvement plan to refresh the ballrooms and meeting spaces. Given the exceptional caliber of the asset, the Four Seasons Palm Beach has been acknowledged as a AAA Five Diamond Hotel since 2009 and a Forbes Travel Guide Five Star award winner for more than 40 consecutive years. DBRS Morningstar contends that the significant capital invested in the property with continued near-term investment will maintain the asset’s position as a luxury destination and its status as a competitive leader within the Palm Beach market.

The Four Seasons Surf Club is an iconic luxury hotel and resort that provides 815 feet of direct ocean frontage. The luxury resort features 102 keys—77 guestrooms and 25 condominiums owned by third parties. The 25 condominium keys are managed by the Sponsor with a revenue-sharing program. The original Surf Club was established as a private social club for celebrities and socialites in the early 1930s, and the Sponsor developed the adjacent property as the Four Seasons Surf Club in 2017. The property presents guests with luxurious accommodations as all 102 keys offer impressive ocean views. Amenities include three outdoor resort-style swimming pools, beachfront cabanas, beachfront lawns and gardens, a full-service spa with six treatment rooms, and a fitness center. F&B outlets at the property include Lido Restaurant and Terrace, Winston’s on the Beach, the Champagne Bar, and the Surf Club Restaurant, which is led by world-renowned Michelin star chef, Thomas Keller. F&B revenue accounts for 32.9% of DBRS Morningstar’s revenue assumption of the collateral, highlighting the resort’s popularity with non-guests to dine and visit. Ranked as the top hotel in the world and the number one hotel in Florida by Condé Nast Traveler, the collateral is also an AAA Five Diamond Hotel and a Forbes Travel Guide Five Star award winner. DBRS Morningstar has a favorable outlook on the asset considering its recent build, historical reputation, and excellent property quality.

The portfolio’s local markets benefit from its strong base in tourism, proximity to the Atlantic Ocean, and access to Miami. The collateral attracts visitors from around the world as a result of the excellent amenities and accommodation, and reputation as two of the most luxurious hotels and resorts in the U.S. Local demographics are generally favorable and show an affluent community. There is limited competition and currently no new construction or development of similar products in the area. DBRS Morningstar believes that the portfolio will remain a leader in the luxury hotel and resort market within Miami and the U.S.

DBRS Morningstar’s credit rating on the certificates addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are listed at the end of this press release.

DBRS Morningstar’s credit rating does not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations (for example, Yield Maintenance Premiums or Default Interest).

DBRS Morningstar’s long-term credit ratings provide opinions on risk of default. DBRS Morningstar considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The DBRS Morningstar short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) 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 is an interest-only (IO) certificate that references the Class A certificate. The IO rating mirrors the reference obligation tranche..

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 Single-Asset/Single-Borrower Ratings Methodology (February 23, 2023; https://www.dbrsmorningstar.com/research/410191).

Other methodologies referenced in this transaction are listed at the end of this press release.

With regard to due diligence services, DBRS Morningstar was provided with the Form ABS Due Diligence-15E (Form-15E), which contains a description of the information that a third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While due diligence services outlined in Form-15E do not constitute part of DBRS Morningstar’s methodology, DBRS Morningstar used the data file outlined in the independent accountant’s report in its analysis to determine the credit ratings referenced herein.

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.

Legal Criteria for U.S. Structured Finance (December 7, 2022; https://www.dbrsmorningstar.com/research/407008)

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

North American Commercial Mortgage Servicer Rankings (August 23, 2023; https://www.dbrsmorningstar.com/research/419592)

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

Financial Obligations of the Issuer are listed as follows:
-- Class A Principal Amount
-- Class A Interest Distribution Amount
-- Class X Interest Distribution Amount
-- Class B Principal Amount
-- Class B Interest Distribution Amount
-- Class C Principal Amount
-- Class C Interest Distribution Amount
-- Class D Principal Amount
-- Class D Interest Distribution Amount
-- Class E Principal Amount
-- Class E Interest Distribution Amount
-- Class F Principal Amount
-- Class F Interest Distribution Amoun
-- Class HRR Principal Amount
-- Class HRR Interest Distribution Amount