Morningstar DBRS Confirms All Credit Ratings of CSMC 2021-BHAR

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2021-BHAR issued by CSMC 2021-BHAR:

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

All trends are Stable.

The credit rating confirmations reflect the collateral's overall healthy performance since issuance, as revenue per available room (RevPAR) continues to surpass pre-pandemic levels as expected. The loan continues to benefit from strong sponsorship and the collateral's prime location, with the servicer-reported financials for the trailing 12 months (T-12) ended June 30, 2024, reflecting an annualized net cash flow (NCF) of $17.7 million, exceeding the Morningstar DBRS NCF of $15.0 million.

The transaction is collateralized by the fee-simple interest in the St. Regis Bal Harbour Resort, a 216-key luxury full-service hotel in Miami Beach, Florida. The hotel features 192 hotel rooms and 24 third party-owned condominium units that participate in a rental management program. The collateral is within the Center Tower, uniquely offering all oceanfront rooms. The property boasts four upscale restaurants, multiple swimming pools, approximately 14,000 square feet (sf) of amenities, and more than 33,000 sf of indoor/outdoor event space. The property is operated and managed by Sheraton, a Marriott-owned brand, with sponsorship provided by the Qatar-based Al Faisal Holding, a real estate investment company that, at issuance, owned 37 properties across the world, including five luxury hotels in the United States.

The whole-loan proceeds of $188.0 million refinanced existing debt returned $44.5 million of equity to the sponsor and funded upfront reserves. The floating-rate loan is interest-only (IO) and has a two-year initial term, with three one-year extension options and a fully extended maturity date in November 2026. According to servicer commentary, the borrower has decided to exercise the second extension option in November 2024 and the request is currently under review. As a condition to extending the loan, the borrower must enter into an interest rate cap agreement with a strike rate that results in a debt service coverage ratio (DSCR) of at least 1.15 times (x). Given the current interest rate environment, the costs of new interest rate cap agreements have increased significantly in the past year.

According to the STR report for the T-12 ended June 30, 2024, the hotel's occupancy, average daily rate (ADR), and RevPAR were 68.0%, $1,105, and $751, respectively, an improvement over the issuance RevPAR of $695 and the Morningstar DBRS RevPAR of $613. The most recent metrics have surpassed pre-pandemic levels, although occupancy, ADR, and RevPAR declined 2.6%, 2.3%, and 4.9%, respectively, from the T-12 ended June 30, 2023, levels. Despite the year-over-year declines, the property continues to outperform its competitive set, reporting a 121.1% RevPAR penetration rate for the T-12 ended June 30, 2024, period.

The loan continues to perform in line with Morningstar DBRS' expectations. According to the T-12 ended June 30, 2024, financials, the loan reported an NCF of $17.7 million (representing a DSCR of 1.16x), surpassing the Morningstar DBRS NCF of $15.0 million but declining from the YE2023 NCF of $20.7 million (representing a DSCR of 1.43x). The drop in NCF was attributed to a decline in room revenue and an increase in property insurance expenses.

Morningstar's DBRS credit ratings are based on a value analysis completed at issuance, which considered a capitalization rate of 7.75%, resulting in a Morningstar DBRS value of $193.4 million and a whole-loan LTV of 97.2%. The Morningstar DBRS value represents a 47.2% haircut to the appraiser's value of $366.0 million. To account for the high leverage, Morningstar DBRS programmatically reduced its LTV benchmark targets for the transaction by 1.50% across the capital structure. Additionally, Morningstar DBRS applied positive qualitative adjustments to its sizing, totaling 6.0%, to reflect the property's quality, cash flow volatility, and market fundamentals. Despite the recent decline in NCF, Morningstar's DBRS credit view remains unchanged from issuance given the subject's prime location, luxury brand, and experienced institutional sponsorship.

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.

Class X-NCP is an IO certificate 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 Single-Asset/Single-Borrower Ratings Methodology (September 19, 2024), https://dbrs.morningstar.com/research/439699
-- 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 (September 19, 2024), https://dbrs.morningstar.com/research/439702
-- Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024), https://dbrs.morningstar.com/research/428623
-- North American Commercial Mortgage Servicer Rankings (August 23, 2024), https://dbrs.morningstar.com/research/438283
-- Legal Criteria for U.S. Structured Finance (October 28, 2024), https://dbrs.morningstar.com/research/441840

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.