Morningstar DBRS Confirms Credit Ratings on All Classes of BSPRT 2022-FL9 Issuer, LLC

DBRS, Inc. (Morningstar DBRS) confirmed its credit ratings on all classes of notes issued by BSPRT 2022-FL9 Issuer, LLC (the Issuer) as follows:

-- Class A Notes at AAA (sf)
-- Class A-S Notes at AAA (sf)
-- Class B Notes at AA (low) (sf)
-- Class C Notes at A (low) (sf)
-- Class D Notes at BBB (sf)
-- Class E Notes at BBB (low) (sf)
-- Class F Notes at BB (high) (sf)
-- Class G Notes at BB (low) (sf)
-- Class H Notes at B (low) (sf)

All trends are Stable.

The credit rating confirmations reflect the overall credit support to the transaction with an unrated, first-loss piece of $62.2 million as well as three below investment-grade bonds, i.e., Class F, Class G, and Class H, totaling $70.3 million. There has also been collateral reduction of 10.11% since issuance. The transaction benefits from a favorable collateral composition as the majority of loan collateral consists of multifamily properties (39 loans, representing 75.3% of the pool). Historically, loans secured by multifamily properties have exhibited lower default rates and the ability to retain and increase asset value. In conjunction with this press release, Morningstar DBRS has published a Surveillance Performance Update report with in-depth analysis and credit metrics for the transaction as well as business plan updates on select loans. For access to this report, please click on the link under Related Documents below or contact us at [email protected].

The initial collateral consisted of 24 floating-rate mortgage loans and participation interests in mortgage loans secured by 48 mostly transitional properties with a cut-off balance totaling $803.2 million. Most loans were in a period of transition with plans to stabilize performance and improve values of the underlying assets. As of the October 2024 remittance, the pool comprises 46 loans and participation interests in mortgage loans secured by 48 properties with a cumulative trust balance of $721.9 million. There are 16 loans, representing 72.2% of the current trust balance, that remain in the transaction since closing.

Since the previous Morningstar DBRS credit rating action in October 2023,10 loans, representing 8.2% of the current pool balance, have been added to the trust. Over the same period, 13 loans with a former trust balance of $236.3 million were paid in full. Beyond the multifamily concentration noted above, four loans (representing 14.1% of the current pool balance) are secured by hotel properties while one loan (representing 7.6% of the current pool balance) is secured by an industrial property.

Leverage across the pool has remained almost unchanged since issuance as the current weighted-average (WA) As-Is appraised LTV is 68.9% with a current WA stabilized appraised LTV of 58.5%. In comparison, these figures were 69.4% and 62.6%, respectively, at issuance. Morningstar DBRS recognizes these appraised values may be inflated as the majority of the individual property appraisals were completed in 2022 and do not reflect the current higher interest-rate or widening capitalization-rate environments. In the analysis for this review, Morningstar DBRS applied LTV adjustments to 22 loans, representing 85.3% of the current pool balance, generally reflective of higher cap rate assumptions compared with the implied cap rates based on the appraisals.

As of October 2024, two loans, representing 4.8% of the pool, are in special servicing. The larger of the two loans, The Cedar Grove Multifamily Portfolio loan (2.5% of the current pool balance), transferred to special servicing in January 2024 for payment default. The sponsor, GVA Real Estate Group (GVA), has incurred stress across its commercial real estate portfolio as a result of slowed rental rate growth, rising construction costs, and increased debt service payments. The loan was originally secured by 15 properties across North Carolina, South Carolina, and Oklahoma with the majority of properties located throughout the Charlotte, North Carolina, metropolitan statistical area. The borrower's business plan was to complete unit interior and property-wide upgrades across the portfolio, financed by loan future funding of $26.2 million to the borrower for property renovations. Prior to the loan becoming delinquent in October 2023, the lender had advanced future funding of $20.8 million to the borrower for property renovations.

To date, nine properties have been released, which has resulted in a principal paydown of $71.4 million, of which $17.2 million of pari passu debt was applied to the subject trust. As of October 2024, the A-note has a balance of $75.4 million with a $18.2 million piece held in the subject trust. While in special servicing, the lender foreclosed on four of the remaining properties including Mallard Green, Reserve Campbell Creek, Signal Hill, and The Woodlands. According to the collateral manager, three of the REO properties are under contract to be sold in the second half of 2024 while Mallard Green has a Letter of Intent (LOI). The two remaining non-REO properties, Bridgepoint and Cobb House, are also expected to be released in the near future as Bridgepoint is expected to be sold by Q1 2025 while Cobb House has a pending purchase and sale agreement. In its current analysis, Morningstar DBRS applied increased LTV and probability of default adjustments to the loan, which resulted in a loan expected loss in excess of the expected loss for the overall pool.

Nine loans, representing 28.3% of the current trust balance, are on the servicer's watchlist as of the October 2024 reporting. The loans have been flagged for debt service coverage ratios (DSCRs) below breakeven and occupancy concerns. The largest loan on the servicer's watchlist, Proximity at ODU (Prospectus ID#3; 7.8% of the current pool balance), is secured by a 909-bed, Class B student housing property in Norfolk, Virginia. The loan is being monitored because of low occupancy and a below-breakeven DSCR. According to the July 2024 rent roll, the property was 26.5% occupancy (by bed count) with an average rental rate of $829 per bed. According to the trailing 12-month ended June 30, 2024 (T-12), reporting provided by the collateral manager, property NCF was $0.8 million, equating to a 0.21x DSCR and a 1.5% debt yield. In its current analysis, Morningstar DBRS applied upward LTV adjustments as well as an increased POD penalty to the loan, which resulted in a loan expected loss in excess of the weighted-average expected loss for the overall pool.

Through October 2024, the collateral manager had advanced cumulative loan future funding of $120.1 million to 36 of the outstanding individual borrowers, including $105.5 million since the previous Morningstar DBRS credit rating action as borrowers continued to make progress in their respective business plans. The largest future funding advances have been released to the borrowers of the aforementioned Cedar Grove Portfolio loan ($18.2 million) and the Lake Village North loan (Prospectus ID#28, 0.2% of the pool; $8.5 million). The Lake Village North loan is secured by a 848-unit garden-style multifamily property in Garland, Texas. The borrower used the funds to complete its significant capital expenditure (capex). Future funding of $2.7 million remains available to the borrower.

An additional $38.9 million of future loan funding allocated to 23 of the outstanding individual borrowers remains available. The largest portion of available funds ($6.8 million) is allocated to the borrower of the Heather Ridge loan (Prospectus ID# 70, 0.1% of the pool), which is secured by a 252-unit garden-style multifamily property in Arlington, Texas. The sponsor's business plan is to complete a $7.7 million capex plan to improve the property's quality. As of the September 2024, the sponsor had only drawn 11.0% of future funding.

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 private rating letters 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 DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024); 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 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 Version 1.2.0.0, https://dbrs.morningstar.com/research/428797

Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (September 19, 2024), https://dbrs.morningstar.com/research/439702

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 [email protected].