Morningstar DBRS Confirms All Credit Ratings on All Classes of Benchmark 2022-B36 Mortgage Trust

DBRS, Inc. (Morningstar DBRS) confirmed its credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2022-B36 issued by Benchmark 2022-B36 Mortgage Trust as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 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 AAA (sf)
-- Class C at A (high) (sf)
-- Class D at BBB (high) (sf)
-- Class E at BBB (low) (sf)
-- Class X-D at BBB (sf)
-- Class F at BB (high) (sf)
-- Class X-F at BBB (low) (sf)
-- Class G at BB (sf)
-- Class X-G at BB (high) (sf)
-- Class H at B (high) (sf)
-- Class X-H at BB (low) (sf)
-- Class J at B (low) (sf)
-- Class X-J at B (sf)

All trends are Stable.

The credit rating confirmations and Stable trends reflect the overall stable performance of the transaction, which remains in line with Morningstar DBRS' expectations at issuance. Overall, the pool continues has a weighted-average (WA) debt service coverage ratio (DSCR) of 2.01 times (x) and the WA debt yield of 10.9% based on the most recent financial reporting available. The pool is well diversified by property type with office, retail, and mixed-use properties comprising 32.6%, 16.9%, and 15.6% of the pool, respectively. Morningstar DBRS has a cautious outlook on the office asset type as sustained upward pressure on vacancy rates in the broader office market may challenge landlords' efforts to backfill vacant space, and, in certain instances, contribute to value declines, particularly for assets in noncore markets and/or with disadvantages in location, building quality, or amenities offered. Morningstar DBRS increased the probability of default and/or loan-to-value ratios for two loans representing 16.1% of the pool, given performance and/or tenancy concerns, and the WA expected loss (EL) for these loans was more than 2x the WA pool EL.

As of the August 2024 remittance, all 31 of the original loans remain in the pool with an aggregate balance of $753.8 million. There has been no defeasance since issuance and no loans are in special servicing. Two loans, representing 10.5% of the pool, are on the servicer's watchlist, including the largest loan in the pool, which has been flagged for performance-related concerns as further discussed below.

The largest loan in the pool and the largest loan on the servicer's watchlist is 79 Fifth Avenue (Prospectus ID#1; 9.4% of the pool), which is secured by a 345,751-square-foot (sf) Class B office property, which includes 28,345 sf of ground floor retail, in New York City. The loan is currently on the servicer's watchlist for low debt service coverage ratio (DSCR), which was most recently reported at 0.99x for the trailing-three month period ended March 31, 2024. According to the watchlist commentary, the decline in performance was primarily the result of increased repair and maintenance expenses. Morningstar DBRS has inquired about the potential cause of the increased expenses, but no additional information is available at this time.

According to the March 2024 rent roll, the property was 98.8% occupied, a marginal increase from 95% at issuance. The YE2023 reported DSCR was 1.72x, with cash flow indicating a slight improvement from Morningstar DBRS' expectation. Over the next 12 months, two leases, representing 12.2% of the net rentable area (NRA), are scheduled to expire, including that of the third-largest tenant, Hulu (11.6% of the NRA, lease expiry in May 2025). According to the lease terms, Hulu has no exercisable extension options and it remains uncertain whether Hulu plans on remaining at the subject property. The largest tenant at the property is the New School, which has been at the subject since 2004. The tenant currently occupies more than 66% of the NRA on a lease expiring in June 2030, with two 10-year extension options remaining and no termination options. According to the Reis report for the Midtown South submarket in Manhattan, the office vacancy rate averaged 12.7% as of Q2 2024. Given the low reported DSCR for March 2024 and upcoming lease rollovers, Morningstar DBRS stressed the loan-to-value ratio (LTV), resulting in an EL that was more than 80% higher than the WA pool EL.

At issuance, Morningstar DBRS shadow-rated one loan: Yorkshire and Lexington Avenue (Prospectus ID#2 8.8% of the pool). Morningstar DBRS confirms that the characteristics of the loan remain consistent with an investment-grade shadow rating, supported by strong sponsorship strength and the historically stable performance of the collateral.

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), https://dbrs.morningstar.com/research/437781.

Classes X-A, X-B, X-D, X-F, X-G, X-H, and X-J 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 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 CMBS Multi-Borrower Rating Methodology (March 1, 2024)/North American CMBS Insight Model v 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

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