Morningstar DBRS Confirms Credit Ratings on All Classes of Benchmark 2021-B23 Mortgage Trust

DBRS, Inc. (Morningstar DBRS) confirmed its credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2021-B23 issued by Benchmark 2021-B23 Mortgage Trust as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-4A1 at AAA (sf)
-- Class A-4A2 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-AB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class 360A at A (low) (sf)
-- Class 360B at BBB (low) (sf)
-- Class 360C at BB (low) (sf)
-- Class 360D at B (low) (sf)

All trends are Stable.

The credit rating confirmations reflect the overall stable performance of the transaction since issuance. At closing, the transaction consisted of 53 fixed-rate loans secured by 65 properties, with the pooled certificates totaling $1.53 billion. Per the July 2024 reporting, all 53 loans remain in the pool, with no losses or defeasance to date. There has been minimal amortization, with only 1.1% collateral reduction since issuance. Amortization will be limited through the life of the deal as 34 loans, representing 77.9% of the pool, are interest-only (IO) for the full term. An additional seven loans, representing 4.9% of the pool, have partial IO periods that remain active. As noted at issuance, the pool is expected to pay down by only 3.6% prior to maturity.

The pool is concentrated with loans backed by office properties, which represent 44.8% of the pool, followed by mixed-use and industrial properties, which represent 22.8% and 11.6% of the pool, respectively. In general, the office sector has been challenged, given the low investor appetite for the property type and high vacancy rates in many submarkets as a result of the post-pandemic shift in workplace dynamics. Although the office sector has seen significant challenges in the current economic environment, the majority of office properties secured in this transaction continue to perform as expected, reporting a weighted-average debt service coverage ratio of 2.78 times as of the most recent year-end financials.

As of the July 2024 reporting, there are no delinquent or specially serviced loans. There are, however, seven loans on the servicer's watchlist, representing 10.8% of the pool, including one loan in the top 10. All of these loans, are being monitored for credit-related reasons, including Millennium Corporate Park (Prospectus ID#2, 6.9% of the pool), which was added to the watchlist in June 2024 following a site inspection that indicated much of the space has gone dark, with a large portion of employees working from home.

The five-year IO loan is secured by a 537,000 square foot (sf) office complex consisting of six-, two-, and three-story buildings about 15 miles east of Seattle in Redmond, Washington. The property's largest tenant, Microsoft Corporation, has been at the property for more than 20 years. The tenant initially occupied 89.2% of the net rentable area (NRA) with lease expirations in May 2022 (24.4% of NRA), May 2024 (26.6% of NRA), and April 2028 (37.2% of NRA), each of which had two-, three-, or five-year renewal options; however, no termination options are available. While property occupancy was reported at 91.0% in March 2024, servicer commentary indicates that Microsoft is actively attempting to sublease the entire 479,193 sf of space it occupies. Additionally, Quantarium LLC (2.2% of NRA) terminated its lease in March 2024 and People Tech Group Inc. (1.5% of NRA) is vacating at its lease expiry in July 2024. Additional information regarding the tenancy status has been requested and is pending as of the date of this press release.

The $132.0 million fixed-rate whole loan along with $95.2 million of borrower equity was used to purchase the property. The property resides in the Kirkland/Redmond/Bothell Submarket of Seattle, which reported a vacancy rate of 9.9% as of Q1 2024, with an average asking rental rate of $33.90 psf, per Reis. As the most recent rent roll Morningstar DBRS has on hand is dated as of October 2020, Morningstar DBRS derived an updated base rent for the remaining Microsoft leases based on a 3.0% annual rent step that Morningstar DBRS assumed at issuance. The resulting base rent is approximately $28.96 psf, which is notably lower than the Q1 2024 submarket asking rent. Despite relatively low vacancy rates for the submarket, job losses in the tech sector and the ever-growing work-from-home and hybrid work models will continue to negatively affect the property's surrounding area. Given the uncertainty surrounding future tenancy and the potential refinance risk, Morningstar DBRS conducted a dark value exercise, which resulted in a loan-to-value (LTV) of 165.0%. For this review, Morningstar DBRS analyzed the loan with a stressed LTV resulting in an expected loss (EL) for the loan that was almost 70.0% greater than the pool average.

Three additional loans- 360 Spear (Prospectus ID#3, 6.1% of pool), MGM Grand & Mandalay Bay (Prospectus ID#5, 5.0% of pool), and the Grace Building (Prospectus ID#9, 4.0% of pool)¿were assigned investment-grade shadow ratings at issuance. Combined, these loans represent 15.1% of the pool. As part of this review, Morningstar DBRS concluded that current and expected ongoing performance remains consistent with investment-grade loan characteristics.

Class 360A, Class 360B, Class 360C, and Class 360D are loan-specific certificates (rake bonds) collateralized by the subordinate companion note for the 360 Spear whole loan. The loan-specific certificates will only be entitled to receive distributions from, and will only incur losses with respect to, the trust subordinate companion loan. The trust subordinate companion loan is included as an asset of the issuing entity but is not part of the mortgage pool backing the pooled certificates. No class of pooled certificates will have any interest in the trust subordinate companion loan.

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 factor(s) 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)

Classes X-A is an interest-only (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 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 CMBS Multi-Borrower Rating Methodology (March 1, 2024)/North American CMBS Insight Model v 1.2.0.0 (https://dbrs.morningstar.com/research/428797)

Rating North American CMBS Interest-Only Certificates (June 28, 2024; https://dbrs.morningstar.com/research/435294)

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.