Morningstar DBRS Confirms All Credit Ratings on BDS 2022-FL12 LLC

DBRS Limited (Morningstar DBRS) confirmed the credit ratings on all classes of notes issued by BDS 2022-FL12 LLC as follows:

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

All trends are Stable.

The credit rating confirmations reflect the favorable composition of the underlying collateral as the trust continues to be solely secured by multifamily properties. Historically, loans secured by such properties have exhibited lower default rates and the ability to retain and increase asset value. Additionally, the majority of individual borrowers are progressing in their stated business plans to increase property cash flow. 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 and with business plan updates on select loans. To access this report, please click on the link under Related Documents below or contact us at info-DBRS@morningstar.com.

As of the October 2024 remittance, the pool comprised 18 loans secured by 21 properties with a cumulative trust balance of $708.1 million. The collateral pool for the transaction is static; however, the Issuer has the right to use principal proceeds to acquire fully funded future funding participations subject to stated criteria. The replenishment period ends with the April 2025 Payment Date. Since issuance, six loans with a cumulative trust balance of $133.2 million have been paid in full, and five of these (totaling $118.2 million) were paid in full since Morningstar DBRS' previous credit rating action in October 2023.

Leverage across the pool has remained consistent as of the September 2024 reporting when compared with issuance metrics. The current weighted-average (WA) as-is appraised value loan-to-value ratio (LTV) is 70.9%, with a current WA stabilized LTV of 60.9%. In comparison, these figures were 70.6% and 61.0%, respectively, at issuance. Morningstar DBRS recognizes that select property values may be inflated as the majority of the individual property appraisals were completed in 2022 and may not reflect the current rising interest rate or widening capitalization rate environments. In its analysis for this review, Morningstar DBRS applied upward LTV adjustments to seven loans, representing 62.4% of the current trust balance.

As of the October 2024 remittance, there are no delinquent or special serviced loans; however, 11 loans, representing 64.6% of the pool, are being monitored on the servicer's watchlist. The loans have primarily been flagged for below breakeven debt service coverage ratios and/or deferred maintained items. Performance declines noted in the pool are expected to be temporary as multifamily units become unavailable while their respective borrowers complete interior renovations. One loan, representing 7.2% of the pool, matured in September 2024 while most loans are scheduled to mature in 2025. All loans are structured with extension options.

Through June 2024, the lender had advanced cumulative loan future funding of $63.0 million to the borrowers of 16 of the 18 outstanding loans to aid in property stabilization efforts. The largest advance, $10.3 million, was made to the borrower of the South Hampton Estates loan (Prospectus ID#22; 3.4% of the pool). The loan is secured by a 330-unit, Class B multifamily property in College Park, Georgia. The advanced funds have been used for the borrower's planned $13.0 million capital improvement plan. The plan entails approximately $7.5 million for the unavailable units and $2.3 million for the vacant units. As of Q2 2024, 300 units have been renovated.

An additional $17.4 million of loan future funding allocated to eight individual borrowers remains available. The largest portions are allocated to the borrowers of the Haven at Towne Center (Prospectus ID#1; 9.7% of the pool) and Harmon at 370 Apartments (Prospectus ID#5; 6.7% of the pool) loans. Haven at Towne Center is secured by a 240-unit, Class B multifamily property in Glendale, Arizona. The available funds are to be used for unit interior renovations totaling $6.3 million ($26,133 per unit) across all 240 units and $1.3 million for common area improvements and amenity upgrades. Through June 2024, the lender had advanced $4.8 million of future funding to the borrower. As of Q2 2024, 168 units had been renovated with an average rent premium of $216 per unit, slightly below the Morningstar DBRS stabilized estimate of $252 per unit. The Harmon at 370 Apartments loan is secured by a 996-unit multifamily property in Las Vegas. The sponsor's business plan is to invest $15.0 million in capital improvements across the property, consisting of $8.9 million ($8,928 per unit) toward interior renovations to all 996 units and $6.1 million toward exterior renovations. Through September 2024, the lender had advanced $8.2 million of future funding to the borrower.

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

Classes C-X, D-X, and E-X 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 v 1.2.0.0, https://dbrs.morningstar.com/research/428797
-- Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024), https://dbrs.morningstar.com/research/428623
-- 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

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.