Press Release

Morningstar DBRS Confirms Credit Ratings on All Classes of Loancore 2022-CRE7 Issuer Ltd.

CMBS
August 07, 2024

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on all classes of notes issued by LoanCore 2022-CRE7 Issuer Ltd. as follows:

-- Class A at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (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 favourable collateral composition of the transaction as the trust continues to be primarily secured by the multifamily collateral (29 loans, representing 97.8% 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.

The initial collateral consisted of 29 floating-rate mortgages, secured by 29 transitional properties, with a cut-off balance of $1.25 billion, excluding approximately $65.4 million of future funding participations and $194.7 million of funded companion participations. The transaction was structured with a two-year Reinvestment Period that expired with the March 2024 Payment Date.

As of the July 2024 remittance, the pool comprised 30 loans, secured by 30 properties, with a cumulative trust balance of $1.5 billion. Since Morningstar DBRS' previous credit rating action in August 2023, three loans with a cumulative loan balance of $170.6 million have successfully been repaid from the trust while three loans, with a cumulative trust loan balance of $122.9 million, were added to the pool.

Leverage across the pool has marginally decreased since issuance as the current weighted-average (WA) as-is appraised, loan-to-value (LTV) ratio is 71.5%, with a current WA stabilized LTV ratio of 65.2%. In comparison, these figures were 76.2% and 67.4%, respectively, since issuance. Morningstar DBRS recognizes that select property values may be inflated as the majority of the individual property appraisals were completed in 2022 and may not reflect the current rising interest rate or widening capitalization rate environments. In its analysis, Morningstar DBRS applied upward LTV adjustments across 10 loans, representing 51.1% of the current trust balance.

The remaining collateral in the transaction beyond the multifamily concentration noted above includes one manufactured housing property (2.2% of the current trust balance). The loans are primarily secured by properties in suburban markets as 25 loans, representing 79.4% of the pool, are secured by properties in suburban markets, as defined by Morningstar DBRS with a Morningstar DBRS Market Rank of 3, 4, or 5. An additional two loans, representing 10.5% of the pool, are secured by properties with a Morningstar DBRS Market Rank of 6 or 7, denoting an urban market while three loans, representing 10.3% of the pool, is secured by properties with a Morningstar DBRS Market Rank of 2, denoting a tertiary urban market. In comparison, at issuance, properties in suburban markets represented 84.1% of the collateral, properties in tertiary and rural markets represented 12.1% of the collateral, and properties in urban markets represented 3.9% of the collateral.

As of the July 2024 reporting, the lender had advanced cumulative loan future funding of $65.2 million to 16 of 17 outstanding individual borrowers to aid in property stabilization efforts. The largest advance has been made to the borrower of the El Centro loan ($15.8 million), which is secured by the leasehold interest in a 507-unit Class A multifamily property in Hollywood, California.

The borrower's business plan focused on increasing occupancy on the retail component by attracting new tenants with competitive tenant improvement packages. There remains $9.4 million of future funding available to the borrower. As of the March rent roll, the property was 89.2% occupied, down slightly from 91.1% at closing. Based on the T-12 financials ended February 29, 2024, the property generated net class flow of $6.8 million equating to a debt service coverage ratio of 0.50 times and debt yield of 4.3%. The borrower recently exercised its final extension option, extending loan maturity to June 2025.

An additional $25.1 million of loan future funding allocated to 12 of the outstanding individual borrowers remains available. The largest portion of available funds is allocated to the borrowers of the aforementioned El Centro loan ($9.4 million) and GVA Sunrise Portfolio Pool C loan (GVA; $4.3 million), which is secured by a portfolio of five crosscollateralized, garden-style multifamily properties, totaling 1,670 units located across five states. The loan was recently modified in June 2024, extending loan maturity to March 2025 and deferring a portion interest until maturity. Additionally, Leste Group, which previously served as GVA's equity partner, will replace GVA as loan sponsor and inject $13.1 million of equity to fund various reserves as well as reducing the loan balance by $6.5 million. In its analysis, Morningstar DBRS applied upward as-is and as-stabilized LTV adjustments resulting in an expected loss slightly above the pool average.

As of the July 2024 remittance, there are no delinquent loans or loans in special servicing, and there are two loans (Parcland Crossing and GVA) on the servicer's watchlist flagged for upcoming maturities; however, the maturity date on both loans was recently extended.

Six loans, representing 18.2% of the current cumulative trust loan balance, have been modified. The modified loans include Elan Heights, 1000 West Apartments, Elan Crockett Row, Parcland Crossing, Skyline MHP, and Pillar at Westgate. In general, the modifications resulted in the waivers of interest rate cap requirements, prepayment penalties, and increasing renovation budgets. In exchange, borrowers have been required to make principal curtailment payments on loans or deposit additional dollars into existing reserves.

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) 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 info-DBRS@morningstar.com.

The credit ratings were initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for these credit rating actions.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with these credit rating actions.

These are solicited credit ratings.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
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 v 1.2.0.0, https://dbrs.morningstar.com/research/428797
-- 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

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 https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

Ratings

  • US = Lead Analyst based in USA
  • CA = Lead Analyst based in Canada
  • EU = Lead Analyst based in EU
  • UK = Lead Analyst based in UK
  • E = EU endorsed
  • U = UK endorsed
  • Unsolicited Participating With Access
  • Unsolicited Participating Without Access
  • Unsolicited Non-participating

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.