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

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on the Commercial Mortgage Pass-Through Certificates, Series 2021-BXMF issued by BX Trust 2021-BXMF:

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

All trends are Stable.

The credit rating confirmations reflect the overall stable performance of the transaction, which has remained in line with Morningstar DBRS' expectations as evidenced by the steady occupancy rate of 94.0% and stable net cash flow (NCF) since issuance.

The collateral initially consisted of the borrower's fee-simple interest in 12 mid-rise Class A multifamily properties and one student housing property totaling 5,449 units across seven states and nine distinct markets. As of the July 2024 remittance, two properties have been released from the pool, resulting in a collateral reduction of 6.7% since issuance. The portfolio is predominantly concentrated in Texas (two properties, 2,062 units, 32.5% of the allocated loan amount (ALA)), Florida (four properties, 1,360 units, 30.3% of the ALA), and Georgia (three properties, 1,183 units, 23.2% of the ALA). The portfolio generally comprises newer vintage properties, with a weighted-average (WA) vintage of 2012 and only one property in the portfolio built before 2004. The loan benefits from experienced sponsorship in an affiliate of Blackstone Group, Inc., a global real estate investment platform.

Whole loan proceeds of $1.075 billion along with $347.7 million of borrower equity were used to recapitalize existing debt. Individual properties can be released, subject to customary debt yield and loan-to-value ratio (LTV) tests. Prepayment premiums for the release of individual assets is 105.0% of the 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 paydowns for the first 30.0% of the original principal balance. Morningstar DBRS considers this to be a credit-negative structure, particularly at the top of the capital stack, where a penalty was applied to reduce the proceeds between the AAA (sf) and A (high) credit rating categories in the LTV sizing benchmarks.

The loan had an initial maturity date in October 2023 with three one-year extension options and is interest-only (IO) throughout its five-year fully extended loan term. There are no performance triggers, financial covenants, or fees required for the borrower to exercise the three one-year extension options; however, the borrower must purchase an interest rate cap with a strike rate equal to the greater of 3.25% or a rate that results in a debt service coverage ratio (DSCR) of at least 1.10 times (x). The borrower exercised the loan's first extension option, extending the maturity to October 2024 and the servicer recently placed the loan on the watchlist because of the upcoming maturity date. Based on recent performance trends as described below, Morningstar DBRS believes a second extension option would be approved if requested by the borrower, which the servicer believes is likely.

As of the YE2023 financials, the loan reported NCF of $59.7 million, which includes nine months' of cash flow attributed to the Helios at Englewood property, which was released from the pool in September 2023, and a full year of cash flow attributed to the Bexley House property, which was released from the pool in June 2024. The YE2023 NCF represents a slight decline from the YE2022 NCF of $60.7 million, but comfortably surpasses the Morningstar DBRS NCF of $55.9 million derived at issuance. Because of the loan's floating-rate coupon, debt service increased significantly in 2023, resulting in the DSCR declining to 0.83x. There is an interest rate cap in place, and the borrower is required to purchase a new rate cap in order to exercise the loan's second extension option.

Per the March 2024 rent rolls, the portfolio occupancy rate was 94.8%, down slightly from the issuance occupancy rate of 95.8%. Individual property occupancy rates ranged from 89.8% to 99.3%. Although multifamily vacancy rates have risen in many markets over the past few years because of increased supply, the subject portfolio's markets have largely performed well, with declining vacancy rates on average. According to Reis, the Q1 2024 weighted-average (WA) market vacancy rate for the portfolio was 4.8%compared with 6.2% at issuance. Despite the slight decline in occupancy compared with the issuance metrics, cash flow growth has been realized due to year-over-year rental rate growth, as evidenced by the portfolio's WA rental rate of $1,959 per unit, compared with $1,588 per unit at issuance.

At issuance, Morningstar DBRS derived a value of $894.7 million based on a Morningstar DBRS NCF of $55.9 million and a capitalization rate of 6.25%. For this review, the Morningstar DBRS NCF was updated to reflect the property releases, resulting in an adjusted Morningstar DBRS NCF of $52.2 million and an adjusted Morningstar DBRS value of $834.7 million. The updated value represents a variance of -41.6% from the issuance appraised value of $1.43 billion for the remaining 11 properties in the portfolio. The Morningstar DBRS value implies an LTV of 120.1% compared with the LTV of 70.1% on the issuance appraised value for the remaining collateral. Positive qualitative adjustments totaling 6.25% were maintained to reflect the collateral's stable occupancy, class A construction, and favorable market fundamentals.

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

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 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 Limited
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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 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

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