Morningstar DBRS Confirms Credit Ratings on All Classes of BWAY 2021-1450 Mortgage Trust

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on all classes of the Commercial Mortgage Pass Through Certificates issued by BWAY 2021-1450 Mortgage Trust as follows:

-- Class A at AA (sf)
-- Class B at A (low) (sf)
-- Class C at BB (high) (sf)
-- Class X-NCP at BB (low) (sf)
-- Class D at B (high) (sf)
-- Class E at B (low) (sf)
-- Class F at CCC (sf)

Class F has a credit rating that generally does not carry a trend in commercial mortgage backed securities (CMBS) credit ratings. All other classes have a Stable trend.

The credit rating confirmations and Stable trends are reflective of performance that remains in line with Morningstar DBRS' expectations following the previous credit rating actions in April 2024. Occupancy at the subject remains depressed from issuance; however, the borrower has had success in renewing and securing new leases at the subject over the last eight months. Morningstar DBRS notes its ongoing concern regarding the property's exposure to WeWork as the second largest tenant. In addition, the loan has an upcoming final maturity in September 2026 where significant gap financing needs could affect the borrower's ability to secure takeout financing.

The $215.0 million transaction is secured by the fee simple interest in 1450 Broadway, a Class A office tower located at the southeast corner of 41st Street and Broadway in Manhattan's Times Square South submarket. The collateral primarily consists of office space, with a small ground-floor retail component. The floating-rate loan had an initial loan term of two years, with three one-year extension options available for a fully extended maturity date of September 2026. There are no performance triggers associated with the extension terms; however, the borrower must purchase a rate cap at a price that will ensure a minimum DSCR of 1.20 times. The borrower has exercised its second of three extensions with a current maturity date in September 2025. The sponsor, ZG Capital Partners (the Zar Group), is a New York-based real estate investment firm with extensive ownership and operating experience.

According to the July 2024 rent roll, the subject was 70.5% occupied down from the March 2023 occupancy of 85.9%. The largest collateral tenants include Shazdeh Fashion Inc (10.4% of the net rentable area (NRA), lease expiry in January 2029), WeWork (9.8% of the NRA, lease expiry in April 2029), and FGX International (5.8% of the NRA, lease expiry in May 2027). The decline in occupancy is attributable to the downsizing of the former largest tenant WeWork from 14.2% of NRA to its current footprint; downsizing of Iconix International Inc from 8.1% of NRA to 2.3% of NRA; and departure of the former tenant, Tarrant Apparel Group, which previously occupied 7.9% of the NRA. Offsetting some of these concerns are signs of continued leasing activity at the subject. According to the July 2024 rent roll, new leases representing 6.3% of the NRA have been signed and commenced between August and December 2024, indicating in-place occupancy of approximately 76.8%. There is minimal scheduled rollover over the next 12 months. The leasing agent is marketing approximately 8.5% of the NRA as available on the property's website. As of the Q3 2024 Reis report, the Midtown West submarket reported a vacancy rate of 12.9% with an effective rent of $54.61 per square foot (psf), compared with the Q3 2023 vacancy rate of 13.0% with an effective rent of $55.85 psf. The subject currently achieves an average rental rate of $62.38 psf.

Morningstar DBRS' concerns with regards to WeWork center on the firm's bankruptcy filing in November 2023 and the expectation at that time that terms of nonrejected leases were likely to be amended over the near to medium term. Although unconfirmed by the servicer, it appears that WeWork has negotiated a reduction in its lease term to 2029 from 2035, as well as a reduction to its rental rate to $37.00 psf from its issuance rate of $56.50 psf. At issuance, WeWork's lease included a corporate guarantee from the parent company, WeWork Companies Inc., totalling $6.1 million ($97 psf), which would reduce annually to a minimum of $3.6 million ($53 psf). Although WeWork has since exited bankruptcy, Morningstar DBRS notes that the current value of this guaranty is likely negligible. According to the December 2024 reserve report, there is $7.7 million in leasing reserves and $2.0 million in tenant reserves on hand.

The subject reported a net cash flow (NCF) of was $12.2 million for the trailing twelve-month period ended June 30, 2024, according to servicer reporting, down from the year-end 2023 NCF of $14.3 million. The June 2024 figure may not include year-end expense reimbursements paid by tenants; however, Morningstar DBRS expects WeWorks' rent reduction will have an impact on rental revenue. This will be partially offset by new leasing activity, which at the time of this writing appears to be positive.

Morningstar DBRS' previous credit rating action, dated April 2024, included an update to the valuation of the asset. For more information regarding the approach and analysis conducted, please refer to the press release titled "Morningstar DBRS Takes Rating Actions on North American Single-Asset/Single-Borrower Transactions Backed by Office Properties," published on April 15, 2024. For purposes of this credit rating action, Morningstar DBRS maintained the valuation approach from the April 2024 review, which was based on a capitalization rate of 8.0% applied to the Morningstar DBRS NCF of $12.4 million. Morningstar DBRS also maintained positive qualitative adjustments to the Loan-to-Value Ratio (LTV) Sizing benchmarks totaling 2.0% to reflect the subject property's favorable location near Bryant Park consistent with other comparable properties within the area. The Morningstar DBRS concluded value of $154.9 million represents a -55.1% variance from the issuance appraised value of $345 million and implies an all-in LTV of 138.8%.

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/morningstar-dbrs-criteria-approach-to-environmental-social-and-governance-factors-in-credit-ratings).

Classes X-NCP 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 (December 13, 2024; https://dbrs.morningstar.com/research/444617/north-american-cmbs-surveillance-methodology).

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. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The Morningstar DBRS Long-Term Obligation Rating Scale definition indicates that credit ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
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 (December 13, 2024; https://dbrs.morningstar.com/research/444612/north-american-single-assetsingle-borrower-ratings-methodology)

-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (September 19, 2024; https://dbrs.morningstar.com/research/439702/morningstar-dbrs-north-american-commercial-real-estate-property-analysis-criteria)

-- Legal Criteria for U.S. Structured Finance (December 3, 2024; https://dbrs.morningstar.com/research/444064/legal-criteria-for-us-structured-finance)

-- North American Commercial Mortgage Servicer Rankings (August 23, 2024; https://dbrs.morningstar.com/research/438283/north-american-commercial-mortgage-servicer-rankings)

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.