Morningstar DBRS Confirms Credit Ratings on BDS 2021-FL7 Ltd.

DBRS, Inc. (Morningstar DBRS) confirmed its credit ratings on the classes of notes issued by BDS 2021-FL7 Ltd. as follows:

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

All trends are Stable.

The credit rating confirmations reflect the favorable collateral composition of the transaction as the trust continues to be primarily secured by the multifamily collateral (14 loans, representing 90.0% of the current pool balance). Historically, loans secured by multifamily properties have exhibited lower default rates and the ability to retain and increase asset value. Additionally, the majority of individual borrowers are progressing with the stated business plans to increase property cash flow asset value. 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 and with business plan updates on select loans. For access to this report, please click on the link under Related Documents below or contact us at info-DBRS@morningstar.com.

At issuance, the pool consisted of 22 floating-rate mortgage loans secured by 22 mostly transitional real estate properties. The majority of the collateral was in a period of transition, with plans to stabilize and improve asset value. The transaction was structured with a Reinvestment Period that expired with the May 2023 Payment Date.

As of the July 2024 remittance, the pool comprised 17 loans secured by 17 properties with a cumulative trust balance of $381.3 million. Since issuance there has been a collateral reduction of 23.1%. Since Morningstar DBRS' previous credit rating action in August 2023, eight loans with a former cumulative trust balance of $172 million have been repaid in full, four of which, totaling $60.3 million, were purchased out of the trust via a credit risk exchange in May 2024. The four previously defaulted loans, including The Life at Beverly Palms, The Life at Westland Estates, The Reserve at Eagle Landing, and The Life at Highland Village, were replaced with Avidor Edina, Rise on McClintock, and Rise on Country Club. Morningstar DBRS considers the exchange credit positive as the average expected loss across the replacement loans is below the current pool average.

The remaining collateral in the transaction beyond the multifamily concentration noted above includes two industrial properties (5.1% of the current trust balance) and one manufactured housing community (4.9% of the current trust balance). In comparison with August 2023 when Morningstar DBRS last published a Surveillance Performance Update report for the transaction, multifamily properties represented 92.2% of the collateral, industrial properties represented 4.0% of the collateral, and the same manufactured housing community represented 3.8% of the collateral.

The loans are concentrated by properties in suburban locations, which Morningstar DBRS defines as markets with a Morningstar DBRS Market Rank of 3, 4, or 5. As of July 2024, 16 loans, representing 95.1% of the current trust balance, were secured by properties in suburban markets. The remaining loan, representing 4.9% of the pool, is secured by a property with a Morningstar DBRS Market Rank of 2, denoting a tertiary market. In comparison, in July 2023, properties in suburban markets represented 92.8% of the collateral, and properties in tertiary markets represented 7.2% of the collateral.

Leverage across the pool has remained stable. As of the July 2024 reporting, the weighted-average (WA) as-is appraised value loan-to-value (LTV) ratio is 64.5%, with a WA as-stabilized LTV ratio of 57.1%. In comparison, these figures were 74.5% and 69.2%, respectively, as of July 2023. 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 13 loans, representing 85.5% of the current trust balance.

Through June 2024, the collateral manager had advanced cumulative loan future funding of $43.1 million across all 14 remaining individual borrowers to aid in property stabilization efforts. The largest advances have been made to the borrowers of the Mailwell Drive ($6.6 million) and Seventh Apartments ($5.8 million) loans. The Mailwell Drive loan is secured by an industrial property in Milwaukie, Oregon. The advanced funds have been used to complete the borrower's capital expenditure (capex) plan to modernize the property and to fund accretive leasing costs. According to the March 2024 rent roll, the property was 100% occupied. The borrower recently exercised the first of two 12-month extension options, extending loan maturity to May 2025. The Seventh Apartments loan is secured by a multifamily property in Phoenix. The advanced funds were used to complete the borrower's capex plan across the property to upgrade unit interiors, amenities, common areas, and building exteriors. There remains $0.4 million of future funding available to the borrower. As of the March 2024 rent roll, the property was approximately 74.0% occupied and the borrower appeared to be behind in its business plan. The borrower recently exercised the first of two 12-month extension options, extending loan maturity to May 2025.

An additional $16.3 million of loan future funding allocated to eight individual borrowers remains available. The largest portion of available funds, $9.2 million, is allocated to the borrower of the 40th Avenue Industrial loan, which is secured by an industrial property in Denver. The borrower's business plan entails a complete modernization of the existing collateral budgeted at $13.1 million with an additional $5.7 million of budgeted leasing costs. According to the Q1 2024 update from the collateral manager, site improvement work remains ongoing but is behind schedule because of permit delays with the City of Denver. As of March 2024, the property was 17% occupied.

As of the July 2024 remittance, there were no delinquent loans or loans in special servicing, and there were three loans on the servicer's watchlist, representing 31.2% of the current trust balance. The loans were flagged for below-breakeven debt service coverage ratios, deferred maintenance items, or upcoming maturity dates. The largest loan in the pool, Landmark at Wynton Pointe (Prospectus ID#31, 13.4% of the current trust balance), is secured by a 380-unit, garden-style multifamily property in Nashville. The loan is being monitored on the servicer's watchlist for performance-related concerns after occupancy decreased to 48.4% as of the January 2024 rent roll, down from 92.1% at closing. Additionally, the loan was assumed by Fairfield Residential in April 2024 for a purchase price of $51.8 million, implying an LTV of 100% based on the current A note balance. As part of the sale, Fairfield Residential will assume the subject loan and cover all outstanding interest payments as well as deposit $0.8 million into the debt service reserve and $0.8 million into the capex reserve, of which $50,000 will be used to address immediate repairs. In its analysis, Morningstar DBRS applied upward as-is and as-stabilized LTV adjustments based on the recent sale price. The resulting loan expected loss is similar to the expected loss for the pool.

Regarding upcoming loan maturity, only two loans, representing 23.0% of the current trust balance, have scheduled maturity dates within the next six months and both borrowers have loan extension options available.

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 credit rating assigned to the Class F Notes materially deviates from the credit rating implied by the predictive model. Morningstar DBRS typically expects there to be a substantial likelihood that a reasonable investor or other user of the credit rating would consider a three-notch or more deviation from the credit rating stress(es) implied by the predictive model to be a significant factor in evaluating the credit rating. The rationale for the material deviation is that the sustainability of loan performance trends has not been demonstrated as the majority of the loans remaining in the transaction are secured by properties that have yet to fully stabilize.

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 CMBS Multi-Borrower Rating Methodology (March 1, 2024)/North American CMBS Insight Model Version 1.2.0.0, https://dbrs.morningstar.com/research/428797
-- 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
-- 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/410863.

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