Morningstar DBRS Confirms Credit Ratings on All Classes of BX Commercial Mortgage Trust 2021-CIP

DBRS, Inc. (Morningstar DBRS) confirmed its credit ratings on the Commercial Mortgage Pass-Through Certificates, Series 2021-CIP issued by BX Commercial Mortgage Trust 2021-CIP as follows:

-- Class A at AAA (sf)
-- Class A-1 at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)

All trends are Stable.

The credit rating confirmations reflect the stable performance of the transaction, which is secured by a portfolio of industrial properties comprising about 15 million square feet across more than 20 markets, including some of the nation's core midwestern and coastal industrial markets. The collateral portfolio continues to exhibit healthy performance metrics, with the servicer-reported net cash flow (NCF) figures for the trailing 12-month (T-12) period ended June 30, 2024, and YE2023 exceeding the Morningstar DBRS NCF figure derived at issuance by 11.5% and 9.5%, respectively. Morningstar DBRS notes those figures include revenues and expenses for three properties, representing 4.2% of the allocated loan amount at issuance, that were released between June 2024 and October 2024. Credit support to the individual classes in the transaction is unchanged despite the collateral reduction of 4.1%, as the loan's structure allows for pro rata paydowns associated with property releases for the first 30.0% of the unpaid principal balance. Morningstar DBRS expects cash flow to remain stable over the remaining loan term given tenant granularity within the portfolio, strong geographic positioning, diversity across industries, and institutional sponsorship.

The initial $1.7 billion trust loan, along with $683.3 million of sponsor equity, funded the collateral acquisition, which, at issuance, was composed of the borrower's fee-simple and leasehold interests in a portfolio of 101 industrial properties. The loan benefits from institutional sponsorship by BREIT Operating Partnership L.P., an affiliate of The Blackstone Group Inc. The floating-rate, interest-only loan matured in December 2023, and the borrower exercised the first of up to three available one-year extension options. The servicer confirmed that the borrower and collateral met the performance-based and other requirements as outlined in the loan documents to qualify for the first extension, including the purchase of a new interest rate cap agreement. The servicer reported that the borrower has not yet indicated whether it intends to exercise the second extension at the loan's upcoming maturity date in December 2024.

According to the combined June 2024 rent roll, the portfolio occupancy rate was 88.0%, down from 96.0% at YE2023; however, NCF was up by about 2.0% over the same period and up by about 8.5% since issuance, largely because of rent growth. While about 15.5% of portfolio net rentable area (NRA) is scheduled to roll over prior to YE2025, Morningstar DBRS notes the portfolio benefits from strong historical occupancy and relatively granular tenancy, with the rollover slated for 2025 spread across more than 50 leases, none of which represent more than 1.5% of the portfolio's total NRA. Even though cash flow has been steadily increasing since issuance, the reported debt service coverage ratio (DSCR) has declined because of the loan's floating-rate coupon, evidenced by the below-breakeven T-12 DSCR of 0.62 times (x) compared with 1.78x at issuance. As previously mentioned, the servicer has confirmed an interest rate cap agreement remains in place, mitigating this risk.

Given the nominal collateral reduction of 4.1% and overall performance remaining in line with Morningstar DBRS' expectations at issuance, Morningstar DBRS maintained its aggregate property value of $1.1 billion, which was derived at issuance using an NCF of $74.7 million and a capitalization rate of 6.75%, resulting in a loan-to-value ratio (LTV) of 153.8% on the trust debt and 78.9% on the rated debt. This is compared with the LTV of 72.0% on the trust debt and 37.0% on the rated debt based on the appraiser's portfolio value of $2.36 billion at issuance. Aggregate positive qualitative adjustments of 7.5% were applied in the LTV sizing benchmarks to account for the transaction's favorable tenancy composition, asset quality, property type, and market fundamentals.

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 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.

-- 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

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