Morningstar DBRS Confirms All Credit Ratings of BANK 2022-BNK39

DBRS Limited (Morningstar DBRS) confirmed the credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2022-BNK39 issued by BANK 2022-BNK39 as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-3-1 at AAA (sf)
-- Class A-3-2 at AAA (sf)
-- Class A-3-X1 at AAA (sf)
-- Class A-3-X2 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-4-1 at AAA (sf)
-- Class A-4-2 at AAA (sf)
-- Class A-4-X1 at AAA (sf)
-- Class A-4-X2 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class A-S-1 at AAA (sf)
-- Class A-S-2 at AAA (sf)
-- Class A-S-X1 at AAA (sf)
-- Class A-S-X2 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)
-- Class B at AA (high) (sf)
-- Class B-1 at AA (high) (sf)
-- Class B-2 at AA (high) (sf)
-- Class B-X1 at AA (high) (sf)
-- Class B-X2 at AA (high) (sf)
-- Class C at A (high) (sf)
-- Class C-1 at A (high) (sf)
-- Class C-2 at A (high) (sf)
-- Class C-X1 at A (high) (sf)
-- Class C-X2 at A (high) (sf)
-- Class D at A (low) (sf)
-- Class X-D at BBB (high) (sf)
-- Class E at BBB (sf)
-- Class X-F at BBB (low) (sf)
-- Class F at BB (high) (sf)
-- Class X-G at BB (sf)
-- Class G at BB (low) (sf)

All trends are Stable.

The credit rating confirmations reflect the overall stable performance of the pool in the two years since issuance, with only a small concentration of loans on the servicer's watchlist and no special serviced or delinquent loans as of the August 2024 reporting. Cash flows overall are stable, with the 15 largest loans in the pool generally reporting increased cash flows over the issuance figures.

The transaction consists of 66 loans secured by 96 properties with a current trust balance of $1.2 billion, representing a minimal collateral reduction of 0.4% since issuance, per the August 2024 remittance report. Amortization is limited through the life of the deal as 44 loans, representing 79.5% of the pool balance, are interest only (IO) for their full term. An additional seven loans, representing 6.8% of the pool balance, have partial IO periods that remain in place. The lack of amortization is partially offset by the pool's favorable leverage metrics with Morningstar DBRS weighted-average issuance and balloon loan-to-value ratios (LTVs) of 53.7% and 52.0%, respectively, primarily driven by very low LTVs from the shadow-rated loans and co-operative loans. By property type, the pool is most concentrated by loans backed by retail, office and multifamily properties, which represent 26.4%, 21.4%, and 20.4% of the pool, respectively.

The pool's office concentration is noteworthy given the low investor appetite for this property type and the high vacancy rates in many submarkets as a result of the shift in workplace dynamics. Despite this, the office loans in this pool are generally performing in line with Morningstar DBRS' expectations. While there has been some moderate cash flow disruption to the 5 Crosby Street (Prospectus ID#9; 3.6% of the pool) and Park Avenue Plaza (Prospectus ID #11 2.9% of the pool) loans, mainly as a result of the tenant expansions and rental abatements that were contemplated at issuance, occupancy levels remains strong, based on the most recent reporting.

The 5 Crosby Street loan is secured by a 70,074 square foot (sf) office building in New York City's Soho neighborhood. The property's largest tenant, Lemonade (80.3% of the net rentable area) has an initial lease expiration in November 2025. However, the tenant has expanded several times since taking occupancy in December 2017 and executed lease amendments to expand into the fifth and second floors in May 2022 and May 2023, respectively. In conjunction with the expansions, the borrower agreed to provide Lemonade with $1.5 million of free rent and $1.3 million of landlord work related to the reconfiguration of the second and fifth floors. These costs were funded through an upfront reserve of $4.4 million, which also covers gap rent, leasing commissions, and lease buy-out costs. The loan also benefits from structural features to protect against rollover, including an upfront tenant improvement/leasing commission reserve of $1.25 million as well as a cash flow sweep that is triggered 12 months prior to Lemonade's lease expiration.

Four loans, 601 Lexington Avenue (Prospectus ID#1; 9.2% of the pool), 333 River Street (Prospectus ID#3; 6.3% of the pool), CX - 350 & 450 Water Street (Prospectus ID#7; 4.4% of the pool), and Park Avenue Plaza, were assigned investment-grade shadow ratings by Morningstar DBRS at issuance. These loans benefit from low going-in and balloon A-note LTVs ranging between 31.9% and 50.5%, based on the Morningstar DBRS value derived at issuance and debt service coverage ratios of more than 3.00 times. With this review, Morningstar DBRS maintained the shadow ratings given the loan performance trends have remained consistent with investment-grade loan characteristics.

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

Classes XA, XB, XD, XF, and XG are 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 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 [email protected].

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 version 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

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/417279. (July 17, 2023)

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at [email protected].