DBRS Morningstar Confirms Credit Ratings on All Classes of COMM 2021-2400

DBRS Limited (DBRS Morningstar) confirmed its credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2021- 2400, issued by COMM 2021-2400, as follows:

-- Class A at AAA (sf)
-- Class X-EXT 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 classes have Stable trends.

The credit rating confirmations reflect the stable performance of the transaction, which remains in line with DBRS Morningstar’s expectations in the two years since issuance. The loan is on the servicer’s watchlist for an upcoming maturity in December 2023; however, the servicer has confirmed that the borrower intends to exercise the first extension option through December 2024.

The collateral consists of a 592,476-square-foot (sf) Class A office and retail building in Philadelphia, Pennsylvania. In 2019, the sponsors converted the property from warehouse use at a cost of $235.0 million and secured a lease with Aramark Corporation (Aramark) to relocate its headquarters to the property. The property consists of 502,486 sf of office space, 80,392 sf of retail space, and 9,598 sf of storage space. The two-year floating-rate loan pays interest only and has three one-year extension options, with a fully extended maturity date in December 2026. The extension options are exercisable subject to the borrower’s extension of the interest rate cap agreement and a minimum debt yield of 7.25%.

The loan continues to benefit from stable tenancy, with the June 30, 2023, rent roll showing the property was 99.0% occupied, which remains consistent with the YE2022 and YE2021 occupancy figures of 98.7% and 100%, respectively. The top three tenants occupy 75.1% of the property's net rentable area (NRA) and all are in place on long-term leases, with the earliest termination option available in 2031. The property’s largest tenant is Aramark, which occupies 50.1% of the NRA and has a lease expiry in October 2034. The second- and third-largest tenants are Fitler Club, LLC and Audacy Pennsylvania, LLC, which occupy 13.6% and 11.3% of the NRA, respectively. Tenancy is expected to remain consistent over the next year as scheduled tenant rollover is minimal with only two tenants representing 0.4% of the NRA set to expire in January 2024 and only 4.1% of the NRA scheduled to roll prior to the loan’s final maturity in 2026. As expected with stable occupancy, property cash flows continue to report in lien with the issuance expectations. The servicer’s analysis of the trailing six months ended June 30, 2023, financials resulted in a debt service coverage ratio (DSCR) and annualized net cash flow (NCF) of 1.57 times (x) and $14.6 million, respectively, which remains in line with the respective DBRS Morningstar figures from issuance of 1.62x and $12.5 million.

Although scheduled rollover is generally minimal through the fully extended loan term, DBRS Morningstar notes the surrounding submarket metrics remain relatively healthy. Per Reis, the Center City submarket had a Q2 2023 vacancy rate of 12.4%, which is an increase from 10.5% as of Q2 2022; however, vacancy is projected to fall to 10.8% in 2028. The submarket is near the University City submarket, one of the fastest-growing life-sciences markets in the United States. Additionally, the sponsor, an affiliate of Lubert-Adler Partners LP, has extensive experience, with $20 billion invested in real estate, much of which is in Philadelphia. Given the property’s favorable quality, limited rollover exposure through the near to moderate term, and strong location, the DBRS Morningstar credit view remains unchanged from issuance when a DBRS Morningstar value of $184.7 million was derived, based on the DBRS Morningstar NCF of $12.5 million and a cap rate of 6.75%. The DBRS Morningstar value is a variance of -41.8% from the issuance appraisal of $317.3 million and implies a loan-to-value ratio of 119.1%.

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

Class X-EXT 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.

On November 13 2023, DBRS Morningstar amended the above press release to update the version of the North American Single-Asset/Single-Borrower Ratings Methodology.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology 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/420984)
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].