Morningstar DBRS Confirms All Credit Ratings on BX Commercial Mortgage Trust 2022-AHP

DBRS Inc. (Morningstar DBRS) confirmed the following credit ratings on the Commercial Mortgage Pass-Through Certificates, Series 2022-AHP issued by BX Commercial Mortgage Trust 2022-AHP:

-- Class A at AAA (sf)
-- Class A-S 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 continued stable performance of the portfolio, as evidenced by the stable to improved net cash flow (NCF) and occupancy rates since issuance. The collateral for the transaction is backed by a portfolio of affordable housing properties spread across several markets in Florida that continue to exhibit low vacancy rates. Previously, Morningstar DBRS had noted concerns regarding increased insurance expenses. As of the most recent financial statements, the portfolio's expense ratio appears to have stabilized, primarily driven by increases in rental revenue. Morningstar DBRS expects the portfolio will continue to exhibit stable performance through loan maturity.

The transaction is secured by the borrower's fee-simple interest in 43 affordable housing multifamily properties, totaling 10,965 units located throughout the state of Florida. The sponsor, Blackstone Real Estate Income Trust (BREIT), contributed over $1.2 billion of equity in the $2.7 billion acquisition of the subject portfolio. The interest-only (IO) floating-rate loan was structured with an initial two-year term and three one-year extension options, the first of which was previously exercised extending maturity to January 2025. Each extension option requires the purchase of an interest rate cap agreement. According to the servicer, the borrower is likely to exercise the second extension option, however, the extension has not been officially documented as of this commentary.

The loan has a partial pro rata/sequential-pay structure that allows for pro rata paydowns of the first 30.0% of the original principal balance. The prepayment premium for the release of individual assets is 105.0% of the ALA for the first 30.0% of the principal balance and 110.0% of the ALA thereafter. Morningstar DBRS considers the release premium to be weaker than the generally credit-neutral standard of 115.0%. To date, there have been no property releases.

As of the June 2024 reporting, the portfolio reported an occupancy of 98.2% remaining in line with issuance expectations. According to Reis, the weighted-average (WA) affordable housing market vacancy rate for the portfolio's five largest properties is approximately 0.4% as of Q3 2024, with a WA five-year forecast vacancy rate of 0.9%. The portfolio's market exposure includes Miami (17 properties representing 42.7% of the allocated loan amount (ALA)), Fort Lauderdale (eight properties representing 20.0% of the ALA), Tampa-St. Petersburg (six properties representing 10.4% of the ALA), and several smaller markets, each containing less than 10.0% of the ALA. Given these locations and the heavy impact of storms during the 2024 hurricane season, Morningstar DBRS reviewed servicer reports for indications of sustained damage, but so far none have been confirmed. The majority of the underlying collateral is situated away from Florida's gulf coast, and all underlying properties are required to carry insurance as per the loan agreement.

Annualizing the June 2024 financials yields an NCF of approximately $95.2 million, up from the YE2023 NCF of $87.6 million and in line with the Morningstar DBRS issuance derived figure of $89.3 million. The debt service coverage ratio (DSCR) has declined below breakeven given the increased interest rate environment and the loan's floating rate. However, the borrower is required to maintain an interest rate cap agreement that results in a minimum DSCR of 1.10 times (x).

At issuance, Morningstar DBRS derived a value of $1.6 billion based on the Morningstar DBRS NCF of $89.3 million and a capitalization rate of 5.5%. Morningstar DBRS maintained this value approach for purposes of this review, resulting in a Morningstar DBRS Loan-to-Value Ratio (LTV) of 93.9%, compared with the LTV of 54.7% based on the appraised value at issuance. Positive qualitative adjustments to the LTV Sizing Benchmarks, totaling 7.5%, were maintained to reflect the portfolio granularity, favorable occupancy trends, and strong underlying market fundamentals for the property type.

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, or 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.

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
-- Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024);
https://dbrs.morningstar.com/research/428623
-- 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
-- Legal Criteria for U.S. Structured Finance (December 3, 2024);
https://dbrs.morningstar.com/research/444064

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