Morningstar DBRS Finalizes Provisional Credit Ratings on BMP Commercial Mortgage Trust 2024-MF23

DBRS, Inc. (Morningstar DBRS) finalized provisional credit ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2024-MF23 (the Certificates) issued by BMP Commercial Mortgage Trust 2024-MF23 (the Trust):

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

All trends are Stable.

The portfolio consists of 23 garden-style multifamily properties totaling 7,300 units with a weighted-average (WA) year built of 1993 and WA unit size of 923 square feet (sf). Upon acquisition, the sponsor plans to implement its in-house management company and spend approximately $105 million ($14,400 per unit) throughout the loan term on value-add renovations to improve unit interiors and common-area amenities and achieve premiums on rents. The prior owner had previously commenced a renovation program, resulting in 830 already-renovated units in the portfolio to which the sponsor will be adding. The prior renovation cost approximately $93.2 million ($13,170 per unit) and began in 2019. Previously renovated units have demonstrated a WA rent premium of $161 per leased unit per month, evidencing demand for updated units in the collateral markets.

The portfolio has seen significant rent growth in recent years, recently commanding 14.0% re-leasing spreads on leases renewed through December 2023. As of March 31, 2024, the WA in-place rent for the portfolio is $1,663 per unit. Given softness identified in the collateral markets, the sponsor may not be able to achieve the same rent premiums as a result of their upcoming renovations. Portfolio occupancy rate has seen an increase in early 2024, currently at 95.4% as of March 31, 2024, following 90.8% and 90.7% in 2022 and 2023, respectively. About $90,425 in immediate repairs were identified across the 23 properties, indicating moderate deferred maintenance for the 1993 vintage throughout the portfolio and demonstrating the collateral's marketability to prospective tenants as renovations are continued.

The properties are located across 11 metropolitan statistical areas (MSAs). The top three markets account for 51.2% of allocated loan amount (ALA) and include the South Florida, Denver, and Tampa markets.

A further breakout of the portfolio by market ALA can be found below.

South Florida Market (26.0% of ALA)

Properties representing 26.0% of portfolio ALA are in South Florida, in the Palm Beach and Fort Lauderdale areas. In the Palm Beach market, multifamily demand is growing at a steady pace, with apartment absorption growing over 3% annually through Q1 2024, relative to the U.S. multifamily average 1.8% growth rate. Furthermore, demand increased in the second half of 2023, with annual absorption totaling over 1,600 units, a significant increase over the 55 units absorbed in 2022.
The Fort Lauderdale market has a current vacancy rate of 6.6%, lower than the U.S. multifamily average rate of 7.8%.

Denver Market (13.3% of ALA)

Properties representing 13.3% of portfolio ALA are in Denver. Since 2014, Denver's population has grown 11.3% to approximately 3 million, a faster rate than the U.S. average population growth of 5.5% over the same period. Furthermore, heightened construction and labor costs, coupled with local regulatory hurdles set in mid-2022 have posed challenges to launch new construction projects and subsequent higher barriers to entry in the Denver market.

Tampa Market (11.9% of ALA)

Properties representing 11.9% of portfolio ALA are in Tampa, Florida. Since 2014, Tampa's population has grown by over 412,000 people and is projected to continue growing at a rate of 1% annually through YE2028. In the trailing 12-month period ended November 2023, the Tampa region was one of the leaders in the state for job growth, adding 29,500 jobs. Furthermore, nearly every job sector in the Tampa region has experienced year-over-year growth, and the education and health services, professional and business services, and trade, transportation, and utilities sectors have led the market in job growth.

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 Distribution 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.

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 that had a relevant or significant 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 (23 January 2024) https://dbrs.morningstar.com/research/427030/morningstar-dbrs-criteria:-approach-to-environmental,-social,-and-governance-risk-factors-in-credit-ratings

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 Single-Asset/Single-Borrower Ratings Methodology (March 1, 2024) https://dbrs.morningstar.com/research/428799/north-american-single-assetsingle-borrower-ratings-methodology

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.

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 Commercial Mortgage Servicer Rankings (August 23, 2023)
https://dbrs.morningstar.com/research/419592/north-american-commercial-mortgage-servicer-rankings

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 22, 2023)
https://dbrs.morningstar.com/research/420982/dbrs-morningstar-north-american-commercial-real-estate-property-analysis-criteria

Legal Criteria for U.S. Structured Finance (April 15, 2024)
https://dbrs.morningstar.com/research/431205/legal-criteria-for-u.s.-structured-finance

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