Morningstar DBRS Confirms All Credit Ratings on BSPRT 2021-FL6 Issuer, Ltd.

DBRS, Inc. (Morningstar DBRS) confirmed all credit ratings on the classes of notes issued by BSPRT 2021-FL6 Issuer, Ltd. (the Issuer) as follows:

-- Class A Notes at AAA (sf)
-- Class A-S Notes at AAA (sf)
-- Class B Notes at AA (low) (sf)
-- Class C Notes at A (low) (sf)
-- Class D Notes at BBB (sf)
-- Class E Notes at BBB (low) (sf)
-- Class F Notes at BB (high) (sf)
-- Class G Notes at BB (low) (sf)
-- Class H Notes at B (low) (sf)

All trends are Stable.

The credit rating confirmations reflect the overall stable performance of the transaction, which has remained in line with Morningstar DBRS’ expectations, as the trust continues to be primarily secured by multifamily collateral. While the borrowers of the majority of the remaining loans are generally progressing with their respective business plans, two loans, representing 15.1% of the pool balance, are 90 days delinquent and are expected to transfer to special servicing next month. In conjunction with this press release, Morningstar DBRS has published a Surveillance Performance Update report with in-depth analysis and credit metrics for the transaction as well as business plan updates on select loans. For access to this report, please click on the link under Related Documents below or contact us at [email protected].

The pool’s collateral initially consisted of 21 floating-rate loans secured by 25 properties with a cut-off pool balance of $446.7 million and a potential maximum pool balance of $700.0 million. The trust featured a 30-month reinvestment period that expired with the September 2023 payment date with a subsequent Replenishment Period commencing thereafter. The Replenishment Period is expected to end after the Issuer has acquired $70.0 million of cumulative funded companion loan participation interests into the trust. As of the February 2024 remittance, the pool comprised 51 loans secured by 81 properties with a cumulative trust balance of $672.6 million and an outstanding bond balance of $675.0 million, representing collateral reduction of 3.6% since issuance. Since Morningstar DBRS’ previous credit rating action in May 2023, 16 loans with a prior cumulative trust balance of $189.1 million have been successfully repaid in full from the pool. In addition, nine loans, totaling $54.1 million, have been added to the pool.

The transaction is concentrated by property type as 39 loans, representing 63.6% of the current trust balance, are secured by multifamily properties; seven loans, representing 20.0% of the current trust balance, are secured by hospitality properties; and five loans, representing 16.4% of the current trust balance, are secured by office properties. The pool is primarily secured by properties in suburban markets, with 40 loans, representing 72.3% of the pool, with a Morningstar DBRS Market Rank of 3, 4, or 5. An additional four loans, representing 15.3% of the pool, are secured by properties in urban markets, with a Morningstar DBRS Market Rank of 6 or 7. The remaining seven loans, representing 12.5% of the pool, are secured by properties in tertiary markets, with a Morningstar DBRS Market Rank of 2. In comparison with the pool composition in May 2023, loans comprising 74.7% of the pool were in suburban markets, 19.6% were in urban markets, and 5.7% were in tertiary markets.

Leverage across the pool was generally stable as of the February 2024 reporting when compared with issuance metrics. The current weighted-average (WA) as-is appraised loan-to-value ratio (LTV) is 65.1%, with a current WA stabilized LTV of 58.4%. In comparison, these figures were 66.3% and 60.6%, respectively, at issuance. Morningstar DBRS recognizes that select property values may be inflated as the majority of the individual property appraisals were completed in 2021 and 2022 and may not reflect the current rising interest rate or widening capitalization rate (cap rate) environment. In the analysis for this review, Morningstar DBRS applied upward LTV adjustments across 15 loans, representing 61.3% of the current trust balance.

Through December 2023, the collateral manager had advanced cumulative loan future funding of $225.4 million to 42 of the outstanding individual borrowers. The largest loan with future funding advances to date is the Grand Cypress & Palacio loan ($126.0 million). The loan, which represents the largest in the pool, is secured by 844 multifamily units across two Class A multifamily properties in St. Johns, Florida. The borrower used the future funding advances to fund hard and soft costs following the construction of the property as well as to fund interest payments on the mezzanine loan.

An additional $47.8 million of future loan funding allocated to 29 of the outstanding individual borrowers remains available. The largest portion of available funds ($5.4 million) is allocated to the borrower of the Cedar Grove Portfolio loan, which is sponsored by GVA Real Estate Group (GVA). The loan is secured by a portfolio consisting of 15 multifamily properties spread across North Carolina, South Carolina, and Oklahoma. According to the Q4 2023 collateral manager report, the loan is 90 days delinquent and is expected to transfer to special servicing, as the lender is pursuing foreclosure. As of YE2023, the portfolio was 84.0% occupied with a debt service coverage ratio (DSCR) of 0.87 times (x). The loan has an initial maturity date of June 2024 followed by up to three 12-month extension options. In its analysis, Morningstar DBRS applied a current market cap rate to the in-place net cash flow (NCF), which resulted in an elevated LTV nearing 100.0%, suggesting a replacement loan will require a significant cash equity contribution from the sponsor if it remains committed to the loan.

As of February 2024, there were no specially serviced loans; however, eight loans, representing 26.0% of the current pool balance, were on the servicer’s watchlist. The loans have primarily been flagged for upcoming loan maturity and low occupancy rates. The largest loan on the servicer’s watchlist, 150 West & 86 North, is secured by two garden-style multifamily properties totaling 345 units in Mooresville and Chapel Hill, North Carolina. The loan is also sponsored by GVA and is being monitored on the servicer’s watchlist for delinquency concerns after the loan was reported 90 days delinquent. According to the Q4 2023 collateral manager report, the loan is also expected to transfer to special servicing, as the lender has initiated foreclosure proceedings. As per the Q4 2023 update from the collateral manager, the portfolio had a combined occupancy rate of 78.8% as of the December 2023 rent roll with an average rental rate of $1,270 per unit. The two-year term loan has an initial maturity of June 2024 followed by up to three 12-month extension options. According to the YE2023 financials provided by the collateral manager, the property generated NCF of $2.4 million, equating to a debt yield of 4.1% and a DSCR of 0.58x. In its current analysis, Morningstar DBRS applied a current market cap rate to the in-place NCF as well an increased probability of default on the loan, which resulted in a loan expected loss approximately two times the expected loss of the overall pool.

The second-largest loan on the servicer’s watchlist, Waterford Grove Apartments, is secured by 552-unit, garden-style multifamily property in Houston. The loan is being monitored on the servicer’s watchlist for occupancy concerns after occupancy decreased to 68.3% as of the December 2023 rent roll. The loan matures in May 2024 and includes two additional 12-month extension options. In its analysis, Morningstar DBRS applied a current market cap rate to the in-place NCF, which resulted in an elevated LTV nearing 100.0%, suggesting a replacement loan will require a significant cash equity contribution from the sponsor.

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 at https://dbrs.morningstar.com/research/427030 (January 23, 2024).

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 North American CMBS Surveillance Methodology (March 1, 2024), https://dbrs.morningstar.com/research/428798.

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

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.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

DBRS, Inc.
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The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies

-- North American CMBS Multi-Borrower Rating Methodology (March 1, 2024)/North American CMBS Insight Model version 1.2.0.0, https://dbrs.morningstar.com/research/428797
-- 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
-- Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024), https://dbrs.morningstar.com/research/428623
-- 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].