Morningstar DBRS Confirms Credit Ratings on All Classes of BX Commercial Mortgage Trust 2020-VKNG

DBRS, Inc. (Morningstar DBRS) confirmed its credit ratings on the Commercial Mortgage Pass-Through Certificates, Series 2020-VKNG issued by BX Commercial Mortgage Trust 2020-VKNG (the Trust) as follows:

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

All trends are Stable.

The credit rating confirmations reflect the overall stable performance for the underlying warehouse and logistics portfolio, which benefits from tenant granularity and largely urban in-fill property locations, both of which contribute to strong occupancy rates and cash flow stability.

At issuance, the portfolio consisted of 67 industrial and logistics properties totaling 8.2 million square feet across six states: Minnesota, Colorado, California, New Jersey, Georgia, and New York. The interest-only (IO) floating-rate loan had an initial two-year term with three one-year extension options. To exercise an extension, the borrower must purchase an interest rate cap agreement that must be the greater of 3.5% or at a price that will ensure a minimum debt service coverage ratio (DSCR) of 1.10 times (x) during the extension periods. The borrower exercised its second extension option in October 2023, extending the current maturity to October 2024. The loan has a full extended maturity date in October 2025.

The loan has a partial pro rata/sequential-pay structure, which allows for pro rata paydowns for the initial 30.0% of the unpaid principal balance and then converts to sequential-pay structure. The loan has release provisions whereby the prepayment premium to release individual assets is 105.0% of the allocated loan balance until the outstanding principal balance has been reduced to $420.0 million, at which point the release premium will increase to 110.0%. The sponsors, Blackstone Real Estate Partners IX and certain co-investment and managed vehicles under common control, purchased the portfolio through several transactions from October 2019 to March 2020. Since issuance, 34 of the original 67 properties have been released, reducing the transaction balance by 36.1% to $383.6 million as of the June 2024 reporting. One of these loans has been released since the last credit rating action.

The portfolio reported a YE2023 occupancy rate of 95%, in line with historical reporting. The aggregated YE2023 net cash flow (NCF) was reported to be $39.3 million, compared with $35.2 million the year prior. Although NCF has improved, the DSCR has declined as a result of the floating-rate nature of the loan and increased debt service. The most recent NCF is stable to improved from Morningstar DBRS' expectations when accounting for property releases.

In the analysis for this review, Morningstar DBRS derived an updated NCF of $28.7 million based on the assets remaining in the pool. Using a 7.25% capitalization rate, Morningstar DBRS concluded a value of $396.3 million. The Morningstar DBRS value implies a loan-to-value ratio (LTV) of 96.8% based on the trust balance, compared with the original portfolio's LTV of 93.9% at issuance. The vast majority of the remaining properties are located in the Minneapolis-St. Paul metropolitan area, which has historically exhibited strong absorption and favorable market fundamentals for this property type. The average year built for the remaining portfolio is 1992, which is the same average year built for the original portfolio at issuance. Morningstar DBRS maintained positive adjustments to the LTV sizing benchmarks to give credit to the cash flow stability, property quality and favorable market conditions, totaling 5.25%.

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 (January 23, 2024; 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 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)

Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024; https://dbrs.morningstar.com/research/428623)

Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (June 28, 2024; https://dbrs.morningstar.com/research/435293)

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

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

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.