Morningstar DBRS Confirms All Credit Ratings on BX Trust 2021-VIEW

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

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

All trends are Stable.

The credit rating confirmations reflect the overall stable performance of the transaction, which, despite a recently reported decline in the collateral retail property's occupancy rate and cash flow, has remained generally in line with Morningstar DBRS' expectations since issuance.

The underlying loan for the transaction is a first mortgage secured by the fee-simple interest in a 509,500-square-foot (sf) portion of The Shops at Skyview, a retail complex in downtown Flushing, Queens. The property, constructed in 2010, consists of two retail buildings, known as the West Retail building and the East Retail building, and a parking garage. The West Retail building is anchored by BJ's Wholesale Club (BJ's), and the East Retail building is anchored by a noncollateral tenant, Target. Approximately 23.5% of the subject's NRA is occupied by investment-grade tenants, including Best Buy, Marshalls, Nike, JPMorgan Chase Bank, OshKosh, and Starbucks. Prior to issuance, the sponsor exercised the early termination option for Nordstrom Rack in February 2020 to begin construction and plans for an upscale food hall that was slated to be delivered in 2022, converting approximately 33,000 sf of vacant retail space to fast casual dining options on two levels of the mall; however, the servicer has confirmed that the food hall project is no longer underway, and the space is being actively marketed for lease on the property's website.

The loan has a two-year initial term, with three 12-month extension options, and pays interest only (IO) through the fully extended maturity date of June 2026. The loan documents also stipulate the borrower maintain an interest rate protection agreement with a strike price of 2.50%, and as of the commencement date of any extension, equal to the greater of 2.50% and the yearly rate of interest that yields a debt service coverage ratio (DSCR) of no less than 1.10 times (x). The borrower used whole loan proceeds to refinance existing debt of $306.0 million and contributed approximately $44.8 million of cash equity at closing, demonstrating a strong commitment to the property. According to the servicer, the borrower has not yet provided notice to extend the loan beyond the upcoming June 2024 maturity. The loan sponsors are two affiliates of The Blackstone Group, Inc. (Blackstone), a real estate investment group with approximately $196.3 billion in assets under management. Since 2018, the sponsors have invested more than $5.9 million of capital into the property for leasing allowances and landlord work.

The property's largest collateral tenant BJ's Wholesale Club (23.7% of the net rentable area (NRA)) has a lease expiration date in January 2030, several years beyond the loan's fully extended maturity date. The property was 88.4% leased and 87.4% physically occupied, as of YE2022, up from an occupancy rate of 79.9% at issuance. Since issuance, major tenant, Burlington (6.4% of NRA) has taken occupancy as a new tenant. The borrower recently executed a short-term extension for the second-largest tenant, Best Buy (8.8% of the NRA), to September 2024 from January 2024. A December 2023 rent roll provided to Morningstar DBRS showed the property was 81.1% occupied and 88.6% leased with three tenants accounting for 6.8% of NRA scheduled to take occupancy between March 2024 and July 2024. Five tenants, representing 5.4% of NRA, with lease expiration dates in 2024 at issuance, recently renewed their leases for three to five years. According to the servicer, the borrower is currently in negotiations with prospective tenants slated to backfill approximately 15.0% of NRA.

As of YE2022, the servicer reported net cash flow (NCF) of $20.2 million, which was an increase from the prior year but a -16.2% variance from the Issuer's NCF of $24.2 million and a -9.6% variance from the Morningstar DBRS NCF of $22.3 million at issuance, primarily due to an increase in expenses. The servicer also recently reported a YE2023 NCF of $15.6 million, with the decline primarily the result of a significant decline in expense reimbursements from 2022 of approximately $6.0 million. However, based on the YE2023 financial statement provided to Morningstar DBRS, it appears the property income is artificially depressed in the servicer's YE2023 analysis; the servicer was contacted, and a response provided indicated a corrected analysis to show income stable to improving over YE2022 would be made available in the near term.

Although the occupancy rate and overall performance remain in line with our expectations at issuance, given the increase in expenses of nearly 30% since issuance and the upcoming maturity, Morningstar DBRS stress-tested the value with a NCF of $19.7 million, to reflect the higher operating expense ratio, and cap rate of 7.0%, resulting in a Morningstar DBRS value of $282.1 million and a Morningstar DBRS loan-to-value ratio (LTV) of 101.0%. The Morningstar DBRS ratings assigned to classes E through G are higher than the results implied by the loan-to-value ratio sizing benchmarks. These variances are warranted given property occupancy, and revenues have continued to exhibit stable to improving performance. Morningstar DBRS will continue to monitor expenses and gather additional information related to the increases.

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

Class X-NCP is an IO certificate that references a single rated tranche or multiple rated tranche. 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 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.
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.

-- North American Single-Asset/Single-Borrower Ratings Methodology (March 1, 2024), https://dbrs.morningstar.com/research/428799
-- Rating North American CMBS Interest-Only Certificates (December 13, 2023), https://dbrs.morningstar.com/research/425261
-- Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024), https://dbrs.morningstar.com/research/428623
-- 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].