Morningstar DBRS Assigns Provisional Credit Ratings to BX Commercial Mortgage Trust 2024-MF

DBRS, Inc. (Morningstar DBRS) assigned provisional credit ratings to the following classes of Commercial Mortgage Pass-Through Certificates, Series 2024-MF (the Certificates) to be issued by BX Commercial Mortgage Trust 2024-MF (the Trust):

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

All trends are Stable.

The collateral for the Trust includes the borrower’s fee-simple interest in 10 Class A multifamily properties totaling 3,406 market-rate units located throughout Texas, North Carolina, South Carolina, and Florida. Transaction proceeds of $550.0 million along with the sponsor’s cash equity of $82.8 million will be used to refinance $617.7 million of debt across the portfolio and cover closing costs. The sponsor acquired the portfolio from Davis Development in several transactions between 2021 and 2022 for a total cost of $833.2 million. All 10 properties are highly amenitized and of recent vintage with no property in the portfolio having been built before 2020. The primary business plan for each property is to achieve stabilized occupancy if it has not already done so and burn off concessions that were granted during lease-up prior to the acquisition by the sponsor. As of the December 2023 rent roll, the portfolio has leased up to an occupancy rate of 94.7% compared with its November 2021 occupancy rate of approximately 59.0%.

All 10 properties that constitute the portfolio are in Issuer-described micro-markets that, with a one-mile radius, have seen strong median household incomes and growth in population, jobs, and wages. Furthermore, only three properties in the portfolio report new multifamily construction starts within a three-mile radius, per the Issuer. While there are new competitive properties adjacent to several assets in the Trust that have recently begun leasing, the suburban infill location of each asset means there are few sites where new multifamily construction would be deemed feasible. Please see the Morningstar DBRS site inspection summaries for more details about the assets that are currently leasing up in areas with other new supply. Lastly, the portfolio’s weighted-average (WA) submarket vacancy rate of 6.4% as of Q3 2023 compares favorably with the Reis-reported pre-pandemic WA submarket vacancy rate of 7.5% as of YE2019.

With WA stabilized occupancy achieved, the sponsor’s primary business plan is to burn off concessions offered to first-generation leases during lease-up while also driving rent growth across the portfolio. During the course of several property tours, Morningstar DBRS learned that the concessions of up to one month free rent currently being offered to new residents are expected to be temporary. These concessions serve as a means to preserve the occupancy rate as the new supply recently delivered in several of the collateral assets’ immediate areas also reaches stable occupancy and burns off new concessions.

Morningstar DBRS’ 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 the related Principal Amounts and Interest Distribution Amounts for the rated classes.

Morningstar DBRS’ credit rating does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations. For example, Yield Maintenance Premium.

Morningstar DBRS’ long-term credit ratings provide opinions on risk of default. Morningstar DBRS 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 Morningstar DBRS 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, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024) at https://dbrs.morningstar.com/research/427030.

All credit ratings are subject to surveillance, which could result in credit ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by Morningstar DBRS.

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

The principal methodology is the North American Single-Asset/Single-Borrower Ratings Methodology (October 19, 2023), https://dbrs.morningstar.com/research/422174.

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

With regard to due diligence services, Morningstar DBRS 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 Morningstar DBRS’ methodology, Morningstar DBRS used the data file outlined in the independent accountant’s report in its analysis to determine the credit ratings referenced herein.

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.

Morningstar DBRS 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.

A provisional credit rating is not a final credit rating with respect to the above-mentioned securities and may change or be different than the final credit rating assigned or may be discontinued. The assignment of final credit ratings on the above-mentioned securities is subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalize the credit ratings.

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://dbrs.morningstar.com/about/methodologies.

-- DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 22, 2023), https://dbrs.morningstar.com/research/420982

-- North American Commercial Mortgage Servicer Rankings (August 23, 2023), https://dbrs.morningstar.com/research/419592

-- Legal Criteria for U.S. Structured Finance (December 7, 2023), https://dbrs.morningstar.com/research/425081

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