DBRS Morningstar Confirms Credit Ratings on All Classes of CSMC 2021-BHAR

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

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

All trends are Stable.

The rating confirmations reflect the collateral’s overall healthy performance of the transaction in the two years since issuance, as revenue per available room (RevPAR) continues to surpass pre-pandemic levels as expected. The loan continues to benefit from strong sponsorship and the collateral’s prime location, with the servicer reported financials for the trailing twelve (T-12) month period ended June 30, 2023, reflecting a net cash flow (NCF) of $20.0 million, exceeding the DBRS Morningstar NCF of $15.0 million.

The transaction is collateralized by the fee-simple interest in the St. Regis Bal Harbour Resort, a 216-key luxury full-service hotel in Miami Beach, Florida. The 216 keys includes 192 hotel rooms and 24 third-party-owned condominium units that participate in a rental management program. The resort was built in 2011 and is part of a larger mixed-use development, totaling three towers on 21 acres. The collateral is located within the Center Tower, which uniquely has all oceanfront rooms. The property features four upscale restaurants, multiple swimming pools, approximately 14,000 square feet (sf) of amenities, and more than 33,000 sf of indoor/outdoor event space. The property is operated and managed by Sheraton, a Marriott owned brand, with sponsorship provided by the Qatar-based Al Faisal Holding, a real estate investment company that, at issuance, owned 37 properties across the world, including five luxury hotels in the United States. At close, the sponsor had invested $37.6 million ($174,000 per key) in capital improvements to the collateral since 2016.

The whole loan proceeds of $188.0 million were used to refinance existing debt, return $44.5 million of equity to the sponsor, and fund upfront reserves. The floating rate loan is interest-only (IO) and has a two-year initial term, with three one-year extension options and a fully extended maturity date in November 2026. According to servicer commentary, the borrower has expressed its intention to exercise the first extension option in November 2023 and the request is currently under review. As a condition to exercising its extension options, the borrower is required to enter into an interest rate-cap agreement with a strike rate that results in a debt service coverage ratio (DSCR) of at least 1.15 times (x). Given the current interest rate environment, the costs of new interest rate-cap agreements have increased significantly in the last year.

According to the STR report for the T-12 ended June 30, 2023, the hotel’s occupancy, average daily rate (ADR), and RevPAR were 69.8%, $1,131, and $790, respectively, an improvement over the issuance RevPAR of $695 and the DBRS Morningstar RevPAR of $613. The most recent metrics have surpassed pre-pandemic levels, although occupancy, ADR, and RevPAR declined 3.2%, 5.7%, and 8.7%, respectively, from the T-12 ended June 30, 2022, levels. Despite the year-over-year declines, the subject continues to outperform its competitive set, reporting a 126.0% RevPAR penetration rate for the T-12 ended June 30, 2023, period.

The loan continues to perform in line with DBRS Morningstar’s expectations. According to the T-12 ended June 30, 2023, financials, the loan reported a NCF of $20.0 million (representing a DSCR of 1.68x), surpassing the DBRS Morningstar NCF of $15.0 million but declining from the year-end (YE) 2022 NCF of $31.2 million (representing a DSCR of 3.99x). The drop in NCF from YE2022 was mainly driven by a 7.7% ($5.2 million) decline in room revenue and a 207.1% ($4.2 million) increase in property insurance.

DBRS Morningstar’s ratings are based on a value analysis completed at issuance, which considered a capitalization rate of 7.75%, resulting in a DBRS Morningstar value of $193.4 million and a whole-loan LTV of 97.2%. The DBRS Morningstar value represents a -47.2% haircut to the appraiser’s value of $366.0 million. In order to account for the high leverage, DBRS Morningstar programmatically reduced its LTV benchmark targets for the transaction by 1.50% across the capital structure. Additionally, DBRS Morningstar applied positive qualitative adjustments to its sizing, totaling 6.0%, to reflect the property’s quality, cash flow volatility, and market fundamentals. Despite the decline in NCF, DBRS Morningstar’s credit view remains unchanged from issuance given the subject’s prime location, luxury brand, and experienced institutional sponsorship.

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 (July 4, 2023; https://www.dbrsmorningstar.com/research/416784).

Class X-NCP is an interest-only (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
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 (October 19, 2023),
https://www.dbrsmorningstar.com/research/422174

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

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].