Morningstar DBRS Assigns Provisional Credit Ratings to BANK5 2024-5YR11

DBRS, Inc. (Morningstar DBRS) assigned provisional credit ratings to the following classes of Commercial Mortgage Pass-Through Certificates Series, 2024-5YR11 (the Certificates) to be issued by BANK5 2024-5YR11 (the Trust):

-- Class A-2 at (P) AAA (sf)
-- Class A-2-1 at (P) AAA (sf)
-- Class A-2-2 at (P) AAA (sf)
-- Class A-2-X1 at (P) AAA (sf)
-- Class A-2-X2 at (P) AAA (sf)
-- Class A-3 at (P) AAA (sf)
-- Class A-3-1 at (P) AAA (sf)
-- Class A-3-2 at (P) AAA (sf)
-- Class A-3-X1 at (P) AAA (sf)
-- Class A-3-X2 at (P) AAA (sf)
-- Class X-A at (P) AAA (sf)
-- Class X-B at (P) AA (low) (sf)
-- Class A-S at (P) AAA (sf)
-- Class A-S-1 at (P) AAA (sf)
-- Class A-S-2 at (P) AAA (sf)
-- Class A-S-X1 at (P) AAA (sf)
-- Class A-S-X2 at (P) AAA (sf)
-- Class B at (P) AA (sf)
-- Class B-1 at (P) AA (sf)
-- Class B-2 at (P) AA (sf)
-- Class B-X1 at (P) AA (sf)
-- Class B-X2 at (P) AA (sf)
-- Class C at (P) A (high) (sf)
-- Class C-1 at (P) A (high) (sf)
-- Class C-2 at (P) A (high) (sf)
-- Class C-X1 at (P) A (high) (sf)
-- Class C-X2 at (P) A (high) (sf)
-- Class X-D at (P) A (low) (sf)
-- Class X-F at (P) BBB (low) (sf)
-- Class X-G at (P) BB (sf)
-- Class D at (P) BBB (high) (sf)
-- Class E at (P) BBB (high) (sf)
-- Class F at (P) BB (high) (sf)
-- Class G at (P) BB (low) (sf)

All trends are Stable.

Classes X-D, X-F, X-G, D, E, F, and G will be privately placed.

The Class A-2-1, Class A-2-2, Class A-2-X1, Class A-2-X2, Class A-3-1, Class A-3-2, Class A-3-X1, Class A-3-X2, Class A-S-1, Class A-S-2, Class A-S-X1, Class A-S-X2, Class B-1, Class B-2, Class B-X1, Class B-X2, Class C-1, Class C-2, Class C-X1, and Class C-X2 certificates are also offered certificates. Such classes of certificates, together with the Class A-2, Class A-3, Class A-S, Class B, and Class C certificates, constitute the "Exchangeable Certificates". The Class D, Class E, Class F, Class G, and Class J certificates, together with the Exchangeable Certificates with a certificate balance, are referred to as the "principal balance certificates."

The collateral of the BANK5 2024-5YR11 transaction consists of 33 fixed-rate loans secured by 77 commercial and multifamily properties with an aggregate cut-off date balance of $795.38 million. One loan (Atrium Hotel Portfolio 24 Pack), representing 6.3% of the pool, is shadow-rated investment grade by Morningstar DBRS. The conduit pool was analyzed to determine the provisional ratings, reflecting the long-term probability of loan default within the term and its liquidity at maturity. When the cut-off balances were measured against the Morningstar DBRS NCF and their respective constants, the initial Morningstar DBRS WA DSCR of the pool was 1.47x. The WA Morningstar DBRS Issuance LTV and Balloon LTV of the pool is 58.3% as a result of the pool lacking amortization. These credit metrics are based on the A-note balances. Excluding the shadow-rated loans, the deal still exhibits reasonable WA Morningstar DBRS Issuance and Balloon LTVs of 60.1%. However, six loans, representing 23.7% of the allocated pool balance, exhibit a Morningstar DBRS Issuance LTV in excess of 67.1%, a threshold generally indicative of above-average default frequency. Additionally, 18 loans, representing 41.0% of the allocated pool balance, exhibit a Morningstar DBRS DSCR below 1.25x, a threshold indicate of a higher likelihood of midterm default. The transaction has a sequential-pay pass-through structure.

Seven loans, representing 28.7% of the pool, are located in areas with a Morningstar DBRS Market Rank of 7 or 8, indicative of dense urban areas that benefit from increased liquidity driven by consistently strong investor demand, even during times of economic stress. Additionally, seven loans, representing 26.8% of the allocated pool balance, are located in areas with a Morningstar DBRS Market Rank of 5 or 6. Markets with these ranks benefit from lower default frequencies than less dense suburban, tertiary, and rural markets. The predominant urban markets represented in the deal are in New York and Chicago. Additionally, 12 loans, representing 43.3% of the pool, are located in MSA Group 3, which represents the best-performing group in historical CMBS default rates among the top 25 MSAs.

Eleven loans, representing 35.2% of the pool, have Morningstar DBRS Issuance LTVs below 59.3%, a threshold historically indicative of relatively low-leverage financing and generally associated with below-average default frequency. Even with the exclusion of the shadow-rated loan, which represents 6.3% of the pool, the transaction exhibits a WA Morningstar DBRS Issuance LTV of 60.1%. Only one loan in the pool, Lake Eustis MHP, has a Morningstar DBRS LTV equal to or above 70.0%.

Four loans, representing 19.5% of the pool, received a property quality assessment of Average + or better, with no loans in the pool receiving a property quality of Average - or worse. Higher-quality properties are more likely to retain existing tenants/guests and more easily attract new tenants/guests, resulting in a more stable performance.

The pool contains 33 loans and is concentrated with a lower Herfindahl score of 16.0, with the top 10 loans representing 70.5% of the pool. These metrics are lower than those in the Morningstar DBRS-rated BANK5 2024-5YR7, BANK5 2024-5YR8, and BANK5 2024-5YR10 transactions, which had Herfindahl scores of 21.2, 16.7, and 19.5, respectively. The pool's low diversity is accounted for in the Morningstar DBRS model, raising the transaction's credit enhancement levels to account for the more concentrated pool.

The pool has a relatively high concentration of loans secured by office and retail properties at 14 loans, representing 59.5% of the pool balance. These were among the property types most affected by the COVID-19 pandemic. Future demand for office space is uncertain due to the post-pandemic growth of work from home or hybrid work, resulting in less use of office space, and in some cases, companies downsizing their office space footprints. Retail will continue to be affected by decreasing consumer sentiment and spending, with many retail companies closing stores as a result of decreased sales. Four of the office loans and four of the retail loans, representing 41.4% of the total pool balance, are located in areas with Morningstar DBRS Market Ranks of 6, 7, and 8, which exhibit the lowest historical CMBS PODs and LGDs. Furthermore, two of the office loans and five of the retail loans, representing 35.6% of the total pool balance, are in MSA Group 3, which is the best-performing group among the top 25 MSAs in historical CMBS default rates. Four of the five office loans and six of the nine retail properties in the pool were sampled, representing 94.3% and 89.4% of each property type's respective trust balance.

In today's challenging interest-rate environment, debt service payments have nearly doubled from mid-2022. Elevated interest rates have severely constrained DSCRs, and the subject transaction has a WA Morningstar DBRS DSCR of 1.47x, or 1.30x when excluding shadow-rated loans. While adequate to service debt, the ratio is considerably lower than historical conduit transactions and provides for a smaller cushion should cash flows be disrupted. Loans with lower DSCRs receive a POD penalty in the Morningstar DBRS model.

All 33 loans in the pool are structured with IO payment structures and do not benefit from any amortization. One of the IO loans, Atrium Hotel Portfolio 24 Pack, representing 6.3% of the pool, is shadow-rated investment grade by Morningstar DBRS. The IO loans have a WA Morningstar DBRS LTV of 58.3%, indicative of moderately low leverage. Twelve loans, representing 46.2% of the pool, are located in areas with Morningstar DBRS Market Ranks of 6 or higher, while seven loans, representing 28.7% of the pool are in areas with Morningstar DBRS Market Ranks of 7 or 8. These urban markets benefit from increased liquidity even during times of economic stress.

Twenty-five loans, representing 86.1% of the total pool balance, are refinancing or recapitalizing existing debt. Morningstar DBRS views loans that refinance existing debt as more credit negative compared with loans that finance an acquisition. Acquisition financing typically includes a meaningful cash investment by the sponsor, which aligns their interests more closely with those of the lender, whereas refinance transactions may be cash neutral or cash-out transactions, the latter of which may reduce the borrower's commitment to a property. The loans that are refinancing existing debt exhibit relatively low leverage. Specifically, the Morningstar DBRS WA Issuance and Balloon LTVs of the loans refinancing existing debts are 57.4%.

Twenty-six of the 33 loans in the pool exhibit negative leverage, defined as the issuer's implied cap rate (issuer's NCF divided by the appraised value), less the current interest rate. On average, the transaction exhibits -0.32% of negative leverage. While cap rates have been increasing over the last few years, they have not surpassed the current interest rates. In the short-term, this suggests borrowers are willing to have their equity returns reduced in order to secure financing. Longer-term, should interest rates hold steady, the loans in this transaction could be subject to negative value adjustments that may affect the borrower's ability to refinance their loans.

Morningstar DBRS' credit rating on the Certificates addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the related Principal Distribution Amounts and/or Interest Distribution Amounts for the rated classes.

Morningstar DBRS' credit rating does not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations. For example, Yield Maintenance Charges, and Prepayment Premiums.

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-F, and X-G, are 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 Multi-Borrower Rating Methodology (March 01, 2024) https://dbrs.morningstar.com/research/428797).

Other methodologies referenced in this transaction are listed at the end of this press release.

With regard to due diligence services, Morningstar DBRS was provided with the Form ABS Due Diligence-15E (Form-15E), which contains a description of the information that a third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While due diligence services outlined in Form-15E do not constitute part of Morningstar DBRS' methodology, Morningstar DBRS used the data file outlined in the independent accountant's report in its analysis to determine the credit ratings referenced herein.

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.

A provisional credit rating is not a final credit rating with respect to the above-mentioned securities and may change or be different than the final credit rating assigned or may be discontinued. The assignment of final credit ratings on the above-mentioned securities are subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalize the credit ratings.

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 Commercial Mortgage Servicer Rankings (August 23, 2024)
https://dbrs.morningstar.com/research/438283

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

North American Single-Asset/Single-Borrower Ratings Methodology (September 19, 2024)
https://dbrs.morningstar.com/research/439699

Legal Criteria for U.S. Structured Finance (October 28, 2024)
https://dbrs.morningstar.com/research/441840

Rating North American CMBS Interest-Only Certificates (June 28, 2024)
https://dbrs.morningstar.com/research/435294

North American CMBS Insight Model v 1.2.0.0
https://dbrs.morningstar.com/research/428797

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