Morningstar DBRS Confirms Credit Ratings on LoanCore 2021-CRE5 Issuer Ltd.

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on the following classes of notes issued by LoanCore 2021-CRE5 Issuer Ltd. (the Issuer):

-- Class A Senior Secured Floating Rate Notes at AAA (sf)
-- Class A-S Secured Floating Rate Notes at AAA (sf)
-- Class B Secured Floating Rate Notes at AA (low) (sf)
-- Class C Secured Floating Rate Notes at A (low) (sf)
-- Class D Secured Floating Rate Notes at BBB (sf)
-- Class E Secured Floating Rate Notes at BBB (low) (sf)
-- Class F Floating Rate Notes at BB (low) (sf)
-- Class G Floating Rate Notes at B (sf)

All trends are Stable.

The credit rating confirmations reflect that the majority of outstanding borrowers continue to progress with their stated business plans as well as the increased credit support to the bonds as a result of successful loan repayment. While select loans have exhibited performance concerns, Morningstar DBRS expects the majority of the loans to successfully secure refinancing and/or pay off upon loan maturity, given that the underlying collateral has demonstrated stable to improving operating performance over the last few reporting periods. 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].

At issuance, the initial collateral consisted of 20 floating-rate mortgages or pari passu participation interests in mortgage loans secured by 45 mostly transitional properties with a cut-off balance of $909.6 million. Since the deal closed, 21 loans with a cumulative trust balance of $638.6 million have been contributed to the trust. As of the July 2024 remittance, the pool comprises 22 loans secured by 22 properties with a cumulative trust balance of $849.3 million. Most loans are in a period of transition with plans to stabilize and improve the asset's value. The transaction had a Reinvestment Period that expired with the July 2023 payment date. Since Morningstar DBRS' previous credit rating action in July 2023, eight loans with a former trust balance of $247.3 million have been paid in full. This includes four loans with a former trust balance of $136.9 million, which were purchased out of the trust by the Issuer as credit risk assets. To date, there has been total collateral reduction of 18.3%.

The transaction is concentrated by property type as 14 loans, representing 65.9% of the current trust balance, are secured by multifamily properties; three loans, representing 13.2% of the current trust balance, are secured by mixed-use properties; and two loans, representing 8.6% of the current trust balance, are secured by retail properties. The transaction benefits from minimal exposure to office assets as only one loan, representing 3.8% of the current trust balance, is secured by an office property. In comparison with the June 2023 reporting, office properties represented 4.8% of the collateral while multifamily properties represented 63.5% of the collateral and mixed-use properties represented 10.9% of the collateral.

The pool is primarily secured by properties in suburban markets, with 16 loans, representing 74.8% of the pool, secured by properties in suburban markets, as defined by Morningstar DBRS, with a Morningstar DBRS Market Rank of 3, 4, or 5. Six loans, representing 25.2% of the pool, are secured by properties in urban markets, as defined by Morningstar DBRS, with a Morningstar DBRS Market Rank of 6, 7, or 8. In comparison, as of July 2023, properties in urban markets represented 36.7% of the collateral while suburban markets represented 63.3% of the collateral.

Leverage across the pool has increased from issuance, with a current weighted-average (WA) as-is appraised loan-to-value ratio (LTV) of 79.7%, up from 70.6% at issuance. Similarly, the WA as-stabilized LTV has also increased to 66.6%, from 65.5% 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 environments. In the analysis for this review, Morningstar DBRS applied upward LTV adjustments across 17 loans, representing 83.0% of the current trust balance.

Through June 2024, the lender had advanced cumulative loan future funding of $48.9 million to 12 of the outstanding individual borrowers to aid in property stabilization efforts. The largest future funding advances have been released to the borrowers of The Beacon La Costa (Prospectus ID#29; 6.5% of the current pool) ($9.0 million), Eaton Canyon Tech Center (Prospectus ID#37; 3.8% of the current pool) ($8.2 million), and Crown Court Apartments (Prospectus ID#40; 6.2% of the current pool) ($8.0 million) loans. The Beacon La Costa loan is secured by a mixed-use property in an affluent neighborhood of Carlsbad, California; the Eaton Canyon Tech Center loan is secured by an office property in Pasadena, California; and the Crown Court Apartments loan is secured by a multifamily property in Scottsdale, Arizona. The borrowers of these loans have used loan future funding for capital improvement projects and to fund leasing costs. An additional $16.2 million of loan future funding allocated to eight individual borrowers remains available. The largest portions of the available funds, $4.4 million and $4.0 million, are allocated to the borrowers of the aforementioned loans, The Beacon La Costa and Eaton Canyon Tech Center, respectively.

As of the July 2024 remittance, one loan, representing 1.8% of the current trust balance, is in special servicing. The loan, 1900 West Lawrence Avenue, is secured by a mixed-use property consisting of 59 residential units and 19,000 square feet of retail space in Chicago. The loan initially matured in July 2023 but did not transfer to special servicing until December 2023. According to the Q2 2024 report provided by the collateral manager, a short-term forbearance agreement has been granted to the borrower to provide additional time to pay off the loan. As per the April 2024 rent roll, the consolidated occupancy rate at the subject was 94.9%, with net cash flow of $1.7 million and a debt service coverage ratio of 0.57 times for the trailing 12 months ended February 28, 2024. In its analysis, Morningstar DBRS applied an upward LTV adjustment and increased the loan's probability of default to increase the loan's expected loss to approximately two times the transaction's expected loss.

Six loans, representing 17.9% of the current trust balance, are on the servicer's watchlist and all are flagged for upcoming maturity dates throughout 2024. In total, nine loans, representing 31.6% of the cumulative trust loan balance, have scheduled maturity dates by YE2024. According to the collateral manager, three loans are expected to be paid off in the near term, while the borrowers of the remaining six loans are expected to exercise loan extension options. Another 11 loans, representing 54.5% of the current trust balance, have been modified. The terms of the individual loan modifications vary and have included the waiver of performance-based tests to exercise maturity extensions as well as the purchase of new rate agreements.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

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 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 related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at [email protected].

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 Limited
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Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

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 (June 28, 2024), https://dbrs.morningstar.com/research/435293
-- 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 (April 15, 2024), https://dbrs.morningstar.com/research/431205

A description of how Morningstar DBRS analyzes structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/417279.

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