Morningstar DBRS Assigns Provisional Credit Ratings to BANK5 2024-5YR8

DBRS, Inc. (Morningstar DBRS) assigned provisional credit ratings to the following classes of Commercial Mortgage Pass-Through Certificates Series, 2024-5YR8 (the Certificates) to be issued by BANK5 2024-5YR8 (the Trust):

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-2-1 at AAA (sf)
-- Class A-2-2 at AAA (sf)
-- Class A-2-X1 at AAA (sf)
-- Class A-2-X2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-3-1 at AAA (sf)
-- Class A-3-2 at AAA (sf)
-- Class A-3-X1 at AAA (sf)
-- Class A-3-X2 at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AA (sf)
-- Class A-S at AAA (sf)
-- Class A-S-1 at AAA (sf)
-- Class A-S-2 at AAA (sf)
-- Class A-S-X1 at AAA (sf)
-- Class A-S-X2 at AAA (sf)
-- Class B at AAA (sf)
-- Class B-1 at AAA (sf)
-- Class B-2 at AAA (sf)
-- Class B-X1 at AAA (sf)
-- Class B-X2 at AAA (sf)
-- Class C at AA (low) (sf)
-- Class C-1 at AA (low) (sf)
-- Class C-2 at AA (low) (sf)
-- Class C-X1 at AA (low) (sf)
-- Class C-X2 at AA (low) (sf)
-- Class X-D at A (low) (sf)
-- Class D at A (sf)
-- Class E at BBB (high) (sf)
-- Class F-RR at BBB (low) (sf)
-- Class G-RR at BB (high) (sf)

All trends are Stable.

Classes X-D, D, E, F-RR, G-RR, and J-RR will be privately placed.

The Class A-2-1, A-2-2, A-2-X1, A-2-X2, A-3-1, A-3-2,A-3-X1, A-3-X2, A-S-1, A-S-2, A-S-X1, A-S-X2, B-1, B-2, B-X1, B-X2, C-1, C-2, C-X1, and C-X2 certificates are also offered certificates. Such classes of certificates, together with the Class A-2, A-3, A-S, B, and C certificates, constitute the Exchangeable Certificates. The Class A-1, D, E, F-RR, G-RR, and J-RR certificates, together with the Exchangeable Certificates with a certificate balance, are referred to as the principal balance certificates.

The collateral of the BANK5 2024-5YR8 transaction consists of 32 fixed-rate loans secured by 33 commercial and multifamily properties with an aggregate cut-off date balance of $690.48 million. Two loans (640 5th Avenue and Stonebriar Centre), representing 19.4% of the pool, are shadow-rated investment grade by Morningstar DBRS. The conduit pool was analyzed to determine the provisional ratings, reflecting the long-term probability of loan default within the term and its liquidity at maturity. The transaction has a sequential-pay pass-through structure.

640 5th Avenue and Stonebriar Centre, together representing 19.4% of the pool, exhibited credit characteristics consistent with investment-grade shadow ratings. The credit characteristics of 640 5th Avenue were consistent with an AA (high) shadow rating and Stonebriar Centre was consistent with an AA shadow rating.

Seven loans, representing 21.8% of the pool, are in areas with Morningstar DBRS Market Ranks of 7 or 8, which are indicative of dense urban areas that benefit from increased liquidity driven by consistently strong investor demand, even during times of economic stress. Markets with these rankings benefit from lower default frequencies than less dense suburban, tertiary, and rural markets. Urban markets represented in the deal include Boston, Los Angeles, and New York. Additionally, 13 loans, representing 30.4% of the pool, are in Morningstar DBRS MSA Group 3, which is the best-performing group in terms of historical commercial mortgage-backed securities (CMBS) default rates among the top 25 metropolitan statistical areas (MSAs).

Sixteen loans, representing 60.0% of the pool, have issuance loan-to-value ratios (LTVs) below 59.3%, a threshold historically indicative of relatively low-leverage financing and generally associated with below-average default frequency. Even with the exclusion of the shadow-rated loans, which represent 19.4% of the pool, the transaction exhibits a weighted-average (WA) Morningstar DBRS Issuance LTV of 60.4%. There are only three loans in the pool (2568-2574 Broadway, Hamish Business Park, and CVS Waterford MI) with LTVs above 70.0%.

Five loans, representing 45.8% of the sample and 37.8% of the pool, received a property quality assessment of Average +. The remaining loans in the pool received a property quality assessment of Average. Higher-quality properties are more likely to retain existing tenants/guests and more easily attract new tenants/guests, resulting in a more stable performance.
The pool contains 32 loans and is concentrated with a lower Herfindahl score of 16.7, with the top 10 loans representing 69.8% of the pool. These metrics are lower than those in the Morningstar DBRS-rated BANK5 2024-5YR7 transaction, which had a Herfindahl score of 21.2. The pool's low diversity is accounted for in the Morningstar DBRS model, raising the transaction's credit enhancement levels to account for the more concentrated pool.

The pool has a relatively high concentration of loans secured by office and retail properties at 10 loans, representing 51.5% of the pool balance. These property types were some of those most affected by the coronavirus pandemic. Future demand for office space is uncertain due to the post-pandemic growth of work from home or hybrid work, resulting in less office use and, in some cases, companies downsizing their office footprints. Retail will continue to be affected by decreasing consumer sentiment and spending, with many retail companies closing stores as a result of decreased sales. One of the loans secured by a retail property, Stonebriar Centre, which represents 9.4% of the pool, is shadow-rated investment grade by Morningstar DBRS. Two of the three retail properties and two of the four office properties sampled were assessed as having Average + property quality. All office loans and three of the six retail properties in the pool were sampled, which represents 91.1% of the property type's trust balance.

In today's challenging interest rate environment, debt service payments have nearly doubled from mid-2022. Rising interest rates over the past several quarters have severely constrained DSCRs and the subject transaction has WA DSCRs of 1.44 times (x) and 1.35x when excluding shadow-rated loans. While it is adequate to service debt, the ratio is considerably lower than historical conduit transactions and provides for a smaller cushion should cash flows be disrupted. Eighteen loans, representing 62.4% of the pool, have a Morningstar DBRS DSCR of 1.32x or above, a ratio that has historically had lower default frequencies than loans with issuance DSCRs below this threshold. Loans with lower DSCRs receive a probability of default (POD) penalty in the Morningstar DBRS model.

Twenty-eight, or 83.1%, of the 32 loans in the pool have interest-only (IO) payment structures and do not benefit from any amortization. The remaining four loans amortize over their full loan terms with no periods of IO payments. One of the IO loans, Stonebriar Centre, which represents 9.4% of the pool, is shadow-rated investment grade by Morningstar DBRS. The IO loans have a WA LTV of 58.1%, indicative of lower leverage transactions. Of the 28 loans with full-term IO periods, nine loans, representing 30.9% of the pool, are in areas with Morningstar DBRS Market Ranks of 6 or higher, while 11.8% of the pool are in Morningstar DBRS Market Ranks of 7 or 8. These urban markets benefit from increased liquidity even during times of economic stress.

Twenty-eight loans, representing 88.4% of the total pool balance, are refinancing or recapitalizing existing debt. Morningstar DBRS views loans that refinance existing debt as more credit negative compared with loans that finance an acquisition. Acquisition financing typically includes a meaningful cash investment by the sponsor, which aligns its interests more closely with the lender's, whereas refinance transactions may be cash-neutral or cash-out transactions, the latter of which may reduce the borrower's commitment to a property. The loans that are refinancing existing debt exhibit relatively low leverage. Specifically, the Morningstar DBRS WA Issuance and Balloon LTVs of these loans are 55.0% and 54.4%, respectively.

Twenty-six of the 32 loans in the pool exhibit negative leverage, defined as the issuer's implied cap rate (issuer's net cash flow divided by the appraised value), less the current interest rate. On average, the transaction exhibits -0.65% of negative leverage. While cap rates have been increasing over the last few years, they have not surpassed the current interest rates. In the short term, this suggests borrowers are willing to have their equity returns reduced in order to secure financing. In the longer term, should interest rates hold steady, the loans in this transaction could be subject to negative value adjustments that may affect the borrower's ability to refinance its loans.

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/or 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. For example, Yield Maintenance Charges, and Prepayment Premiums.

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) https://dbrs.morningstar.com/research/427030/morningstar-dbrs-criteria:-approach-to-environmental,-social,-and-governance-risk-factors-in-credit-ratings

Classes X-A, X-B, and X-D are IO certificates that reference a single rated tranche or multiple rated tranches. 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 Multi-Borrower Rating (March 1, 2024) https://dbrs.morningstar.com/research/428797/north-american-cmbs-multi-borrower-rating-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.

A provisional credit rating is not a final credit rating with respect to the above-mentioned securities and may change or be different than the final credit rating assigned or may be discontinued. The assignment of final credit ratings on the above-mentioned securities is subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalize the credit ratings.

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

Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (June 28, 2024)
https://dbrs.morningstar.com/research/435293/morningstar-dbrs-north-american-commercial-real-estate-property-analysis-criteria

Rating North American CMBS Interest-Only Certificates (June 28, 2024)
https://dbrs.morningstar.com/research/435294/rating-north-american-cmbs-interest-only-certificates

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

North American Single-Asset/Single-Borrower Ratings Methodology (July 11, 2024)
https://dbrs.morningstar.com/research/436004/north-american-single-assetsingle-borrower-ratings-methodology

North American Insight Model v 1.2.0.00
https://dbrs.morningstar.com/research/428797/north-american-cmbs-multi-borrower-rating-methodology

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