DBRS Morningstar Confirms Credit Ratings on All Classes of BX Commercial Mortgage Trust 2021-CIP

DBRS, Inc. (DBRS Morningstar) confirmed its credit ratings on the Commercial Mortgage Pass-Through Certificates, Series 2021-CIP issued by BX Commercial Mortgage Trust 2021-CIP as follows:

-- Class A at AAA (sf)
-- Class A-1 at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)

All trends are Stable.

The credit rating confirmations reflect the stable performance of the transaction, which has remained in line with DBRS Morningstar’s expectations at issuance, illustrated by the net cash flow (NCF) of $77.9 million for the trailing 12-month period (T-12) ended June 30, 2023, which is up 2.8% from the YE2022 NCF and up 4.3% from the DBRS Morningstar NCF derived at issuance.

The transaction is secured by the borrower’s fee-simple and leasehold interests in a portfolio of 101 industrial properties totaling more than 15.2 million square feet across 23 markets and 15 states, benefiting from geographic diversity with locations in some of the nation’s core, strong-performing coastal gateway and midwestern industrial markets. The $1.7 billion trust loan, along with $683.3 million of sponsor equity, funded the collateral acquisition. The loan benefits from institutional sponsorship by BREIT Operating Partnership L.P., which is an affiliate of The Blackstone Group, Inc. The floating-rate, interest-only loan has an initial scheduled maturity of December 2023, and three one-year extension options available for a fully extended maturity date of December 2026. The loan is structured to allow for pro rata paydowns associated with property releases for the first 30.0% of the unpaid principal balance. According to the servicer, as of the November 2023 remittance, there have been no property releases to date and the borrower had not yet requested to exercise its first extension option to December 2024.

The collateral portfolio has weighted-average (WA) clear heights of approximately 29.8 feet and a portfolio WA year built of 2007. The portfolio benefits from granular tenancy, with no single tenant comprising more than 4.1% of the DBRS Morningstar concluded in-place base rent. Investment-grade-rated tenants account for approximately 25% of the DBRS Morningstar concluded in-place base rent, including 10 tenants who qualified for long-term credit tenant treatment in the DBRS Morningstar NCF based on long-dated lease maturity, providing further cash flow stability. In addition, DBRS Morningstar maintains a favorable view on the long-term growth and stability of the warehouse and logistics sector in which the collateral portfolio operates.

According to servicer reporting for the T-12 ended June 30, 2023, the portfolio occupancy rate remained stable at 100.0% year-over-year, an uptick from 96.7% at issuance. The servicer calculated a debt service coverage ratio (DSCR) for the same reporting period of 0.75 times (x), a decline from 1.13x at YE2022 and the DBRS Morningstar DSCR of 1.77x at issuance, primarily because of increases in interest rates for the floating-rate debt. The borrowers have entered into a rate cap agreement with a Libor strike rate of 2.50% yielding a DBRS Morningstar DSCR of 0.89x.

The DBRS Morningstar value of $1.1 billion was derived using an NCF of $74.7 million and a capitalization rate of 6.75%. In its analysis, DBRS Morningstar applied an aggregate 7.5% qualitative adjustment in the sizing for cash flow volatility, property quality, and market fundamentals to account for positioning in strong coastal gateway and midwestern industrial markets, tenant granularity, diversity across industries, and elevated cash flow stability attributable to multiple property pooling. While the resulting DBRS Morningstar loan-to-value ratio (LTV) is high at 153.8% on the trust debt which, combined with the lack of amortization, could potentially result in elevated refinance risk and/or loss severities in an event of default, DBRS Morningstar notes that the LTV for the rated-debt is considerably lower at 78.9%. This is compared with the LTV of 72.0% on the trust debt and 37.0% on the rated-debt based on the appraiser’s portfolio value of $2.36 billion at issuance.

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 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 Single-Asset/Single-Borrower Ratings Methodology (October 19, 2023; https://www.dbrsmorningstar.com/research/422174)

-- 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].