Morningstar DBRS Confirms Credit Ratings on All Classes of BX Trust 2021-RISE

DBRS Limited (Morningstar DBRS) confirmed the credit ratings on all classes of Commercial Mortgage Pass-Through Certificates issued by BX Trust 2021-RISE as follows:

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

All trends are Stable.

The credit rating confirmations reflect the overall stable performance of the transaction since issuance, backed by a portfolio of multifamily properties across seven states. The collateral continues to exhibit healthy performance metrics, with occupancy and net cash flow (NCF) figures exceeding the Morningstar DBRS figures derived at issuance.

At issuance, the loan was secured by the borrower's fee-simple interest in 17 Class A and Class B multifamily properties, totalling 6,410 units, across seven states, including Georgia, Texas, Florida, and Colorado. Loan proceeds of $1.2 billion along with $485.2 million of sponsor equity facilitated the acquisition of the portfolio. All of the properties had received extensive renovations by the previous owners, totalling $162.5 million. The loan is sponsored by a joint venture between Blackstone Real Estate Income Trust (BREIT), with a 98.0% stake in the portfolio, and Cortland Sponsors, LLC. The largest property in the portfolio, Bowery Bayside Stepstone (9.9% of the allocated loan amount (ALA)) was affected by Hurricane Milton in October 2024. Although the extent of damage was not communicated to Morningstar DBRS, the loan is structured with casualty insurance from which proceeds are deposited into a lender-controlled account in the amount of 10.0% of the ALA. Net insurance proceeds are made available to the borrower if less than 30.0% of the property has been damaged, destroyed, or rendered unusable.

The transaction features a partial pro rata paydown structure for the first 30.0% of the original principal balance. In addition, individual assets may be released from the transaction, subject to debt yield tests, at a prepayment premium of 105% of the ALA until the outstanding loan amount is reduced to 70%, at which point the prepayment premium increases to 110%. Since Morningstar DBRS' last review, two properties, Berkeley Park at New Albany (previously 2.8% of ALA, released August 2024) and Cortland Southpark Meadows (previously 4.9% of ALA, released September 2024) were released from the portfolio. In total, four properties have been released since issuance, reducing the outstanding loan balance to $1.0 billion per the October 2024 reporting, representing a collateral reduction of 15.5%.

The interest-only loan had an initial two-year term and three one-year extension options, with the fully extended maturity date scheduled for November 2026. As per the issuance documents, the borrower is required to purchase an interest rate cap agreement with each extension that results in a debt service coverage ratio (DSCR) of at least 1.10 times (x). According to the servicer, the borrower intends to exercise its second option to extend the term to November 2025.

According to the financials for the trailing 12 months (T-12) ended June 30, 2024, the portfolio had a consolidated occupancy rate of 96.8% compared with 95.4% at issuance. NCFs continue to steadily increase year-over-year and, when adjusting for the released collateral, the NCF for the T-12 ended June 30, 2024, was $70.7 million, compared with the YE2023 NCF of $68.5 million and the Morningstar DBRS NCF of $58.1 million. Despite the improvement in NCF, the increase in interest rates since issuance has resulted in a lower implied DSCR, which has declined to 0.85x as of the June 2024 reporting, compared with the DSCR of 1.89x for YE2022. Although the interest rate cap agreement mitigates against large swings in the interest rate, the significant cost to the borrower is also a consideration. In addition, Morningstar DBRS notes that the refinance risks have increased from issuance given the current interest rate environment and low in-place coverage. The sponsor's significant equity contribution to close the subject transaction, as well as the overall desirability of the collateral portfolio, should provide motivation for additional capital injection to continue purchasing the required rate caps and to secure a replacement loan at the final maturity in 2026, if necessary.

In the analysis for this review, Morningstar DBRS removed the cash flows for the released properties from the YE2023 NCF, resulting in a Morningstar DBRS NCF of $67.1 million after applying a standard surveillance haircut. Morningstar DBRS maintained the cap rate of 6.5% applied at issuance, which resulted in a Morningstar DBRS value of $1.03 billion, a variance of -28.0% from the issuance appraised value of $1.43 billion for the remaining collateral. The updated Morningstar DBRS value implies a loan-to-value ratio (LTV) of 98.2%, compared with the LTV of 70.7% on the issuance appraised value for the remaining collateral but is relatively unchanged from the Morningstar DBRS Issuance LTV. To evaluate the potential for upgrades given the increases in cashflow and principal paydown from released properties, Morningstar DBRS applied a conservative upgrade stress to the YE2023 NCF and a 6.5% capitalization rate, resulting in a stressed value of $843.2 million (LTV of 120.3% ). The LTV sizing benchmarks resulting from that stressed analysis indicated that upgrades were not warranted with this review. In addition, Morningstar DBRS maintained positive qualitative adjustments totalling 6.5% in the LTV sizing benchmark to reflect the favorable diversification of cash flow and geography, low cash flow volatility, and desirable property quality.

The credit ratings assigned to Classes D, E, F, and G are lower than the results implied by the LTV sizing benchmarks by three or more notches. These variances are warranted given the lack of demonstrated sustained loan performance trends. Although the improvement in NCF since issuance is notable, based on the conservative upgrade stress applied, the LTV sizing benchmarks indicated that upgrades were not warranted with this review.

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 at https://dbrs.morningstar.com/research/437781 (August 13, 2024).

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 01, 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
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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

-- 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 (July 17, 2023).

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