Morningstar DBRS Confirms Credit Ratings on All Classes of BX Trust 2021-SDMF

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

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

All trends are Stable.

The credit rating confirmations reflect the transaction's overall stable performance, which remains in line with Morningstar DBRS' expectations, as exhibited by the high collateral occupancy rate, strong rental rate growth, and healthy revenue levels. The underlying loan is secured by the borrower's fee-simple interest in a portfolio of 32 Class B and Class C multifamily properties throughout various submarkets of the greater San Diego area. The properties are predominantly traditional, garden-style apartment communities with the exception of one age-restricted property, which consists of 130 units and accounted for 2.2% of the allocated loan amount (ALA) at issuance. The loan sponsors are Blackstone Real Estate Partners IX L.P. and TruAmerica Multifamily LLC.

The transaction has a partial pro rata structure allowing for pro rata paydowns for the first 30% of the principal balance. Individual property releases are subject to a release price of 105% of the ALA for the first $240 million principal balance, with the release price increasing to 110% thereafter. One property, Vista Lane Apartments, has been released since the last review, resulting in a total pro rata paydown of $32.6 million.

The loan was added to the servicer's watchlist in June 2024 for its upcoming maturity in September 2024 and for a number of minor deferred maintenance items tagged in the most recent site inspections conducted across the portfolio. The $800.0 million two-year, floating-rate, interest-only (IO) loan has three one-year extensions for a fully extended maturity date of September 2026. According to the servicer, the borrower has yet to indicate plans to exercise the second extension. The borrower must purchase an interest rate cap agreement with each extension.

Occupancy and rental rates have improved across the portfolio. According to the March 2024 financials, combined occupancy rose to 97.2% from 94.3% in YE2022, with average rental rates up to $1,828 per unit as of YE2023 from $1,716 per unit at YE2022. The increase in average rental rates is even more significant compared with the YE2021 average rental rate of $1,484. The loan reported a YE2023 debt service coverage ratio (DSCR) of 0.62 times (x), which was below the YE2022 DSCR of 1.16x. The lower coverage is the 95.6% increase in the floating-rate debt service from 2022 to 2023; however, there is an interest rate cap in place. Cash flows are healthy, with the YE2023 net cash flow (NCF) reported at $40.6 million, up just over $1.0 million from the Morningstar DRBRS NCF at issuance.

Morningstar DBRS updated its analysis to account for the property that was released. The resulting Morningstar DBRS NCF of $38.0 million and issuance capitalization rate of 6.0% resulted in an updated Morningstar DBRS Value of $633.0 million and an implied loan-to-value (LTV) ratio of 121.22%. Morningstar DBRS also maintained qualitative adjustments totaling 7.5% to reflect the portfolio's location in a historically strong San Diego multifamily market with limited supply that has historically maintained low vacancy rates. Morningstar DBRS updated the LTV Sizing Benchmarks to reflect the new value, with the results supporting the credit rating confirmations.

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
General 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 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 (July 11, 2024), https://dbrs.morningstar.com/research/436004
-- 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.