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

DBRS, Inc (Morningstar DBRS) confirmed its ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2021-LGCY issued by BX Trust 2021-LGCY:

-- Class A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at A (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 consistent performance of the underlying collateral, which remains healthy, as the annualized Q1 2024 reported net cash flow (NCF) of $37.1 million is above the Morningstar DBRS Net Cash Flow (NCF) of $28.8 million. The collateral consists of the borrower's fee-simple interest in 12 Class A/B multifamily properties consisting of 3,030 units across six states, with the largest concentrations in Texas, Florida, and North Carolina. The majority of the underlying properties, built between 1999 and 2014, are situated in highly desirable markets with strong growth potential based on historical occupancy and rental rate trends. No individual property accounts for more than 15.0% of the portfolio net operating income and no properties have been released to date. The portfolio continues to benefit from its strong sponsorship in Blackstone Real Estate Income Trust, Inc., stable occupancy, and geographic diversity.

The subject transaction totals $575.0 million and consists of three componentized, floating-rate promissory notes. Loan proceeds and sponsor equity were used to acquire the portfolio and fund closing costs. Individual properties can be released, subject to customary debt yield and loan-to-value (LTV) tests. Prepayment premiums for the release of individual assets are 105.0% of the allocated loan amount (ALA) for the first 30.0% of the original principal balance and 110.0% of the ALA thereafter. The transaction has a partial pro rata structure that allows for pro rata pay downs for the first 30.0% of the original principal balance.

The floating-rate loan had an initial maturity date of October 9, 2023, with three 12-month extension options and is interest only throughout its five-year fully extended loan term. After exercising one of the extension options last year, the loan's current maturity date is October 9, 2024. The servicer expects the sponsor to exercise the second extension, but no formal request has been submitted as of the date of this press release. As a condition to exercising its extension options, the borrower is required to enter into an interest rate cap agreement with a strike rate equal to the greater of 3.5% or a rate that results in a debt service coverage ratio (DSCR) of at least 1.10 times (x).

The loan reported a Q1 2024 annualized NCF of $37.1 million, which represents an increase from the YE2023 and YE2022 figures of $36.3 million and $32.3 million, respectively, as well as the Morningstar DBRS NCF of $28.8 million. Although cash flow has increased year over year, the DSCR has decreased as a result of the floating rate nature of the loan. The loan reported a Q1 2024 annualized DSCR of 0.89x, down from the YE2023 DSCR of 0.96x and the Morningstar DBRS DSCR of 2.78x. The overall cash flow growth is attributable to the sustained healthy occupancy rate for the portfolio as a whole, as well as rent growth since issuance. Per the Q1 2024 reporting, the collateral reported a consolidated occupancy rate of 93.0%, which remains in line with the YE2022 and YE2023 figures of 94.0%. Per the March 2024 rent rolls, occupancy rates by property range from 90.6% to 96.6%.

For purposes of this review, Morningstar DBRS maintained the cash flow and valuation assumptions used when ratings were assigned. The Morningstar DBRS value of $443.6 million, based on the Morningstar DBRS NCF of $28.8 million and a capitalization rate of 6.50%, represents a loan-to-value ratio of 129.6%. Qualitative adjustments totaling 6.50% were also maintained to represent the property's strong historical occupancy and stable cash flow expectations, property quality, and favorable locations.

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, or 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 Factors in Credit Ratings at https://dbrs.morningstar.com/research/437781 (August 13, 2024).

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

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