Morningstar DBRS Confirms Credit Ratings on BX Trust 2021-LBA

DBRS, Inc. (Morningstar DBRS) confirmed the credit ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2021-LBA issued by BX Trust 2021-LBA:

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

All trends are Stable.

The credit rating confirmations reflect the overall stable performance of the transaction, which remains in line with Morningstar DBRS' expectations as evidenced by the most recent net cash flow (NCF) and the stable occupancy rate. The transaction consists of two separate, uncrossed portfolios of assets, Pool 1 (Fund V; 16 assets) and Pool 2 (Fund JV; 35 assets), each of which supports the payments on its respective series of certificates. Generally, each of the portfolios consists of functional bulk warehouse product that exhibits strong functionality metrics and favorable locations with in major industrial markets.

Since Morningstar DBRS' last review, there have been no changes to the underlying collateral. To date, one property has been released from Fund V, representing an 8.6% collateral reduction since issuance. Both mortgage loans have a partial pro rata/sequential-pay structure, which allows for pro rata paydowns for the first 30.0% of the unpaid principal balance at a release premium of 105.0% of the allocated loan amount, which increases to 110.0% for the remaining 70.0% of the principal balance.

Both loans, which are floating-rate loans, are currently on the servicer's watchlist for their upcoming maturity in February 2025; however, the loans each have three, one-year extension options remaining. Servicer commentary indicates that the borrower has requested use of the third extension option and Morningstar DBRS believes the loans are generally well-positioned to exercise the option.

Morningstar DBRS remains concerned with the elevated rollover risk throughout the fully extended loan term for both portfolios. At issuance, leases representing approximately 72.5% and 87.1% of Morningstar DBRS' base rent were scheduled to roll through the fully extended loan term across the Fund V and Fund JV portfolios, respectively. However, this risk is mitigated by the success of e-commerce as consumer demand for faster and ultimately same-day shipping times becomes commonplace. These property types have generally performed well given the continued dominance of e-commerce and demand for industrial space. The pool is located across several well-performing West Coast markets, with a geographic concentration in Southern California.

Fund V consists of 16 industrial properties, totalling approximately 2.6 million square feet (sf) in four states (Arizona, California, Oregon, and Washington), and reported an occupancy rate of 96.0% with an annualized NCF of $24.7 million (a debt service coverage ratio (DSCR) of 1.11 times (x)) per the Q2 2024 financials compared with the Morningstar DBRS NCF of $19.8 million at issuance for the 16 remaining properties. Fund JV consists of 35 industrial properties, totaling approximately 6.6 million sf in six states (Washington, Nevada, California, Utah, Texas, and Colorado), and reported an occupancy rate of 97.5% with an NCF of $47.3 million (a DSCR of 1.16x) per the T-12 period ended June 30, 2024, financials compared with the Morningstar DBRS NCF of $34.1 million.

In the analysis for this review, Morningstar DBRS maintained its NCF assumptions for the portfolios. For Fund V, Morningstar DBRS maintained the NCF assumption of $19.8 million and applied a capitalization rate of 6.75%, resulting in a Morningstar DBRS value of $293.7 million, a variance of 40.9% from the issuance appraised value of $496.8 million and a loan-to-value ratio (LTV) of 104.7%. For Fund JV, Morningstar DBRS maintained the NCF assumption of $34.1 million and a applied a capitalization rate of 7.0%, resulting in a Morningstar DBRS value of $487.3 million, a variance of 45.9% from the issuance appraised value of $900.0 million and an LTV of 113.9%. Morningstar DBRS maintained the positive qualitative adjustments for Fund V and Fund JV totaling 8.5% and 8.0%, respectively, to reflect the low cash flow volatility, good property quality, and strong market fundamentals.

Morningstar DBRS penalizes transactions with this partial pro rata/sequential-pay structure as it is credit negative, particularly at the top of the capital stack. Under a partial pro rata paydown structure, deleveraging of the senior notes through the release of individual properties occurs at a slower pace compared with a sequential-pay structure. The borrower can also release individual properties across both portfolios with customary requirements.

The sponsors under the mortgage loans are joint-venture partnerships between Blackstone Real Estate Income Trust, Inc. (BREIT) and LBA Logistics. BREIT is an affiliate of The Blackstone Group, Inc. (Blackstone), whose real estate group was founded in 1991 and has a global real estate portfolio valued at $602 billion. Blackstone is also one of the world's largest industrial landlords. LBA Logistics is the industrial arm of LBA Realty LLC, a real estate investment and management company with a diverse portfolio of industrial properties across the United States.

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.

Classes X-V-NCP and X-JV-NCP are interest-only (IO) certificates 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 ratings were initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for these credit rating actions.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with these credit rating actions.

These are solicited credit ratings.

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
-- Legal Criteria for U.S. Structured Finance (December 3, 2024), https://dbrs.morningstar.com/research/444064
-- 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
-- Rating North American CMBS Interest-Only Certificates (June 28, 2024), https://dbrs.morningstar.com/research/435294

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