Morningstar DBRS Confirms Credit Ratings on All Classes of BBCMS Mortgage Trust 2022-C16

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on the Commercial Mortgage Pass-Through Certificates, Series 2022-C16 issued by BBCMS Mortgage Trust 2022-C16 as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class X-B at A (high) (sf)
-- Class C at A (sf)
-- Class D at BBB (high) (sf)
-- Class X-D at BBB (high) (sf)
-- Class E at BBB (sf)
-- Class X-F at BB (high) (sf)
-- Class F at BB (sf)
-- Class X-G at BB (low) (sf)
-- Class G at B (high) (sf)
-- Class X-H at B (sf)
-- Class H at B (low) (sf)

All trends are Stable.

The credit rating confirmations reflect the overall stable performance of the transaction, which remains in line with Morningstar DBRS' expectations at issuance. Overall, the pool continues to exhibit healthy credit metrics, as evidenced by the strong weighted-average (WA) debt service coverage ratio (DSCR) of 2.0 times (x) and the WA debt yield of approximately 10.0%, based on the most recent financial reporting available. In addition, there are no specially serviced or delinquent loans as of the most recent remittance. Four loans, representing 15.8% of the pool balance, are shadow-rated as investment grade by Morningstar DBRS.

The transaction is generally well distributed by property type, with loans representing 28.6%, 28.2%, and 16.8% of the pool collateralized by office, retail, and multifamily properties, respectively. In general, loans secured by office properties are performing as expected, with a WA DSCR of 2.35x and a WA debt yield of 10.1%.

As of the August 2024 remittance, all of the original 60 loans remained in the pool with a trust balance of $1.1 billion, representing a collateral reduction of 0.6% since issuance. Twelve loans, representing 23.5% of the pool balance, are on the servicer's watchlist; however, only five of those loans, representing 11.5% of the pool balance, are being monitored for performance-related reasons.

The largest loan on the servicer's watchlist, Houston Multifamily Portfolio (Prospectus ID#1; 7.0% of the pool), is secured by a 1,558-unit multifamily portfolio spread across five properties in Houston. Loan payments were reported as delinquent between May and July 2024; however, it appears the borrower has brought all its payments current with the August 2024 remittance. Although the portfolio benefits from diversity across several different submarkets in the broader Houston area, occupancy and cash flow began trending downward shortly after issuance. According to the year-end (YE) 2023 financial reporting, the portfolio was 73.7% occupied, a decline from 90.5% at issuance. Likewise, cash flow has trended downward-- reflective of the property's lower occupancy rate. The portfolio generated $1.7 million of net cash flow (NCF) (a DSCR of 0.36x) as of YE2023, substantially lower than the issuer's underwritten NCF and the Morningstar DBRS NCF of $8.1 million (a DSCR of 1.61x) and $7.1 million (a DSCR of 1.47x), respectively. Morningstar DBRS has requested additional information from the servicer to further clarify the drivers behind the recent fluctuation in occupancy. Morningstar DBRS took a conservative approach and analyzed this loan with an elevated probability of default penalty, resulting in an expected loss that was approximately 2.5x greater than the pool average.

At issuance, five loans, representing 21.7% of the pool balance, were shadow-rated investment grade. With this review, Morningstar DBRS confirms that the performance of four of those loans-- Yorkshire & Lexington Towers (Prospectus ID#2; 6.0% of the pool), 70 Hudson Street (Prospectus ID#5; 4.5% of the pool), ILPT Logistics Portfolio (Prospectus ID#8; 3.7% of the pool), and The Summit (Prospectus ID#20; 1.6% of the pool)-- remains consistent with investment-grade loan characteristics, given the strong credit metrics, experienced sponsorship, and the underlying collateral's historically stable performance.

The 1888 Century Park East (Prospectus ID#3; 6.0% of the pool) loan is secured by the borrower's fee-simple interest in a 502,510-square-foot Class A office tower in Los Angeles' Century City neighborhood. The collateral was constructed in 1970 and was most recently renovated in 2016. Although the loan's DSCR remains strong, most recently reported at 3.51x as of March 2024 (down from 4.35x at issuance), the property's operating performance is trending below Morningstar DBRS' expectations at issuance. According to the YE2023 financials, the property generated $17.2 million of NCF, below the YE2022 and Morningstar DBRS figures of $19.4 million and $19.3 million, respectively. Recent tenant departures have pushed the property's occupancy rate down to 82.0% (per the March 2024 rent roll) from 91.0% at issuance. In addition, the lead tenant was First Republic Bank (First Republic) (21.5% of the net rentable area and 23.6% of Morningstar DBRS' underwritten base rent). In May 2023, the U.S. government announced it had taken control of First Republic and sold the bank to JPMorgan Chase Bank, N.A. (JPM; rated AA with a Stable trend by Morningstar DBRS and most recently confirmed on December 6, 2023). It appears that JPM may have assumed First Republic's lease at the property, which extends through September 2035; however, given that JPM has rejected leases at other properties, Morningstar DBRS has requested confirmation from the servicer on the status of the lease and a response is pending as of the date of this press release. Given the recent developments outlined above, Morningstar DBRS elected to remove the loan's investment-grade shadow rating with this review.

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

Classes X-A, X-B, X-D, X-F, X-G, and X-H are 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 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
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, 2024), https://dbrs.morningstar.com/research/438283

-- 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.