Morningstar DBRS Confirms Credit Ratings on All Classes of BANK 2021-BNK35

DBRS, Inc. (Morningstar DBRS) confirmed the credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2021-BNK35 issued by BANK 2021-BNK35 as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-3 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-5 at AAA (sf)
-- Class A-5-1 at AAA (sf)
-- Class A-5-2 at AAA (sf)
-- Class A-5-X1 at AAA (sf)
-- Class A-5-X2 at AAA (sf)
-- Class X-A 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 B at AAA (sf)
-- Class B-1 at AAA (sf)
-- Class B-2 at AAA (sf)
-- Class B-X1 at AAA (sf)
-- Class B-X2 at AAA (sf)
-- Class X-B at AA (sf)
-- Class C at AA (low) (sf)
-- Class C-1 at AA (low) (sf)
-- Class C-2 at AA (low) (sf)
-- Class C-X1 at AA (low) (sf)
-- Class C-X2 at AA (low) (sf)
-- Class X-D at A (low) (sf)
-- Class D at A (low) (sf)
-- Class E at BBB (high) (sf)
-- Class X-FG at BBB (low) (sf)
-- Class F at BBB (low) (sf)
-- Class X-H at BB (high) (sf)
-- Class G at BB (high) (sf)
-- Class H at BB (sf)
-- Class X-J at B (high) (sf)
-- Class J at B (sf)

All trends are Stable.

The credit rating confirmations and Stable trends reflect the overall strong performance of the transaction, as exhibited by a healthy weighted-average (WA) pool debt service coverage ratio (DSCR) of 3.36 times (x), low WA pool expected loss and no loans in special servicing. As of the September 2024 remittance, all 76 of the original loans remain in the pool with a marginal collateral reduction of 1.2% since issuance. One loan, representing 0.2% of the pool, has been fully defeased. Additionally, there are only three loans, representing 1.3% of the pool balance, on the servicer's watchlist, all of which are being monitored for deferred maintenance concerns. The pool is concentrated with loans backed by office and retail properties that make up 27.6% and 25.1% of the pool balance, respectively.

The loans backed by office properties have generally performed well, reporting a WA DSCR of 3.6x, slightly higher than the pool average for all loans. There is a notable concentration of government- and city-affiliated tenant exposure for the collateral properties, with three loans in the top 15 (accounting for 9.6% of the pool balance) 100% leased to such entities. While the office-backed loans are expected to continue to perform overall, there are challenges for the office sector as a whole and, as such, select loans with factors suggesting risks could increase over the loan term were stressed in the analysis for this review.

Among these loans is One Trinity Center (Prospectus ID#11, 2.9% of the pool balance), which is secured by a Class B office property located in downtown San Francisco. The $40.0 million fixed-rate loan pays interest-only (IO) for the entirety of its 10-year term. According to the June 2024 rent roll, occupancy was 86.0%, and increase from 81.2% in June 2023 due to the signing of a new tenant, Department of Public Health (4.7% of the net rentable area (NRA), lease expiry July 2034). In addition, San Francisco City Health Service System (14.4% of the NRA, lease expiry in June 2034) recently renewed their lease for a 10-year term. However, a recent lease expiration and exposure to month-to-month (MTM) tenancy are concerns for two of the top three tenants, City and County of San Francisco (27.4% of NRA, lease expiry in July 2024) and the San Francisco Law Library (14.8% of the NRA, MTM lease). Online news sources located by Morningtar DBRS indicated that the City and County of San Francisco has been in discussions regarding a lease extension, but this has not been confirmed by the servicer. Per the Reis Q2 2024 report for the Van Ness/Civic Center submarket, the average vacancy rate was 49.1%, indicating severely depressed demand, of particular concern given the rollover risk at the subject, and a contributor to Morningstar DBRS' expectation that the in-place DSCR, which is hovering at 3.0x, could significantly decline. As such, Morningstar DBRS applied a stressed loan-to-value ratio and an elevated probability of default in its analysis for this review, resulting in an expected loss nearly three times the deal average.

At issuance, Morningstar DBRS shadow-rated three loans investment-grade: Four Constitution (Prospectus ID#3, 4.0% of the pool balance), River House Coop (Prospectus ID#4 3.7% of the pool balance), and Three Constitution (Prospectus ID#12, 2.8% of the pool balance). As confirmed with this review, these loans continue to exhibit credit characteristics consistent with the respective investment-grade shadow ratings. The Four Constitution and Three Constitution loans are backed by office properties that are 100% occupied by the United States Department of Justice on 15-year leases with no termination options through maturity, and the River House Coop loan is backed by an exclusive co-operative apartment building in Manhattan with high property quality.

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 factor(s) 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-FG, 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 Commercial Real Estate Property Analysis Criteria (September 19, 2024; https://dbrs.morningstar.com/research/439702/morningstar-dbrs-north-american-commercial-real-estate-property-analysis-criteria)

North American Commercial Mortgage Servicer Rankings (August 23, 2024; https://dbrs.morningstar.com/research/438283/north-american-commercial-mortgage-servicer-rankings)

Legal Criteria for U.S. Structured Finance (April 15, 2024; https://dbrs.morningstar.com/research/431205/legal-criteria-for-us-structured-finance)

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