Morningstar DBRS Confirms Credit Ratings on All Classes of MTK 2021-GRNY Mortgage Trust

DBRS, Inc. (Morningstar DBRS) confirmed its credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2021-GRNY issued by MTK 2021-GRNY Mortgage Trust as follows:

-- Class A 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)
-- Class X-EXT at AAA (sf)

All trends are Stable.

The credit rating confirmations and Stable trends reflect the continued stable performance of the collateral, which is in line with Morningstar DBRS expectations at issuance, as evidenced by healthy revenue per available room (RevPAR) penetration figures and operating performance as further discussed below. The loan is secured by the borrower's fee-simple interest in Gurney's Montauk Resort & Seawater Spa, a 149-key full-service luxury resort directly on the beach in the community of Montauk, New York. The property, which is considered one of the premier beachfront luxury hotels in Montauk, is located on 20 acres of prime oceanfront real estate, with the majority of rooms having unobstructed ocean views with private balconies and terraces. The interest-only loan was structured with an initial two-year term, with three one-year extension options for a fully extended maturity of December 2026. In 2023, the borrower purchased an interest rate cap to exercise its first one-year extension option, extending the maturity date to December 2024. There are two extension options remaining and Morningstar DBRS believes, given the continued stability of cash flow, continued demand, and competitive performance, the loan is well positioned to refinance or extend again.

The loan is sponsored by a joint venture between BLDG Management Co. Inc. and Metrovest Equities Inc., two seasoned real estate investment firms headquartered in New York City. Since 2013, the sponsor has invested a total of $54.1 million into the property, revitalizing it as a sought-after luxury full-service resort, including a $16.4 million renovation of the property's Seawater Spa having been completed in early 2022.

As per the June 2024 STR report, the trailing 12-month (T-12) occupancy, average daily rate (ADR), and RevPAR figures were 61.7%, $903.89, and $557.26, respectively. RevPAR increased slightly from the YE2023 figure of $550.42 and remains far above the pre-pandemic YE2019 figure of $443.88. The property continues to outperform its competitive set with a RevPAR penetration rate of 131%. Overall, the occupancy, ADR, and RevPAR metrics remain in line with the Morningstar DBRS figures derived at issuance.

The loan is currently on the servicer's watchlist due to upcoming maturity and a low debt service coverage ratio (DSCR) of 0.84x as of YE2023. The YE2023 net cash flow (NCF) was approximately $17.3 million, which represents a slight decrease from the YE2022 figure but remains an improvement from the Morningstar DBRS NCF of $13.7 million derived at issuance. The corresponding DSCR has decreased due to the floating-rate nature of the loan. This increase in debt service is mitigated by the interest rate cap agreement that remains in place.

At issuance, Morningstar DBRS derived a value of $188.7 million based on the Morningstar DBRS NCF of $13.7 million and a capitalization rate of 7.25%, which represents a 22.7% haircut from the appraisal value of $224.0 million. In addition, Morningstar DBRS applied positive qualitative adjustments totaling 7.0% to the sizing to reflect the property's quality, market fundamentals, and cash flow volatility. Although cash flow has improved, Morningstar DBRS has elected to not update its valuation approach given the loan's upcoming maturity.

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; https://dbrs.morningstar.com/research/437781/morningstar-dbrs-criteria-approach-to-environmental-social-and-governance-factors-in-credit-ratings).

Class X-EXT is an interest-only (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 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.

-- 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

-- Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024), https://dbrs.morningstar.com/research/428623

-- 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

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

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