Morningstar DBRS Confirms Credit Ratings on All Classes of BLP Commercial Mortgage Trust 2023-IND

DBRS Limited (Morningstar DBRS) confirmed the credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2023-IND issued by BLP Commercial Mortgage Trust 2023-IND as follows:

-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (high) (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, as evidenced by the steady occupancy across the portfolio since issuance. The portfolio is predominantly backed by industrial properties and benefits from experienced sponsorship, long-term leases, and geographical and sectoral diversity. It was previously noted there have been delays in construction of the largest building in the portfolio (I-10 Logistics Center 41.8% of the net rentable area (NRA)), discussed further below. The servicer confirmed that construction was completed in 2024, and Morningstar DBRS expects financial performance to increase to issuance expectations through the 2025 reporting.

The transaction is collateralized by the borrower's fee-simple or leasehold interest in 30 cross-collateralized properties totaling 4.4 million square feet. The portfolio consists of 28 industrial properties and two office properties spread across 12 states, including California, New Jersey, and Maryland. The sponsor, Brookfield Strategic Real Estate Partners IV (BSREP IV), a fund controlled by Brookfield Asset Management, contributed $329.2 million of equity in the $807.7 million acquisition price of the subject portfolio. The $550 million interest-only, floating-rate loan has an initial upcoming maturity of March 2025 and is structured with three one-year extension options. The initial term as well as each of the extension options require the purchase of an interest rate cap agreement that yields a debt service coverage ratio (DSCR) of 1.10 times (x) and 1.05x, respectively, however, no performance tests are required to exercise any option. According to the servicer, the first maturity extension extending the loan to March 2026, has not been exercised. However, the borrower has until 10 days prior to the maturity date to provide notice of its extension.

The loan has a partial pro rata/sequential-pay structure that allows for pro rata paydowns for the first 20.0% of the unpaid principal balance. The borrower can release any property in the portfolio at a release price of 110.0% of the ALA as long as the portfolio debt yield does not drop below the debt yield prior to the release or the portfolio's debt yield at issuance. As of the December 2024 remittance, there have been no property releases to date.

As of the June 2024 rent roll, the portfolio reported an occupancy rate of 91.7%, compared with the YE2023 figure of 91.3%. The portfolios largest tenants are Shein (41.8% NRA, lease expire in September and December 2024), Kearney Page Warehouse Services (18.0% NRA, lease expiry in February 2029), and Iron Mountain (4.9% NRA, lease expiry in December 2024 and December 2027). Approximately 3.6% of the NRA have leases scheduled to expire in the next 12 months.

According to the annualized trailing six-month financials for the period ended June 30, 2024, the subject reported NCF of $6.3 million (DSCR of 0.13x), compared to $7.9 million (DSCR of 0.17x) at YE2023 and the Morningstar DBRS NCF of $34.9 million derived at issuance. Financials remain below issuance expectations due to the largest tenant, Shein (51.2% of Morningstar DBRS base rent) facing move-in delays due to prolonged construction. At issuance, Shein was expected to take occupancy in the two buildings at the I-10 Logistics Center in September 2023 subject to an initial three-month rent abatement period. Following numerous delays in construction, the servicer has confirmed that the Shein took occupancy in June and September 2024 with both free rent periods complete as of this commentary.

At issuance, Morningstar DBRS derived a value of $527.9 million based on the Morningstar DBRS NCF of $34.9 million and a capitalization rate of 6.75%, resulting in a Morningstar DBRS loan-to-value (LTV) of 104.2% compared with the LTV of 60.0% based on the appraised value at issuance. Positive qualitative adjustments totaling 7.25% were applied to the LTV Sizing Benchmarks to reflect the portfolio's quality, cash flow volatility, and strong market fundamentals. Morningstar DBRS' credit outlook of the transaction remains unchanged from issuance despite the tenant move-in delays and resulting depressed cash flows.

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
Environmental (E) Factors
There is one Environmental factor that had a relevant, but not significant, effect on the credit analysis: Emissions, Effluents, and Waste.

There are four properties (6030 Commerce Boulevard, 74-106 Kenny Place, 125-127 Kingsland Avenue, and 1880 Riverview Drive) that recognized environmental conditions at issuance, which are outlined in more detail in the offering document. As per the servicer, 1880 Riverview Drive property is not undergoing any remediation currently until closer to the tenant's lease expiration, and the 125-127 Kingsland Avenue property has no need for further remediation. Morningstar DBRS has requested an update on the progress of the remediation efforts from the servicer for the remaining properties but did not receive a response as of this commentary.

There were no 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/morningstar-dbrs-criteria-approach-to-environmental-social-and-governance-factors-in-credit-ratings).

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.

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 03, 2024; https://dbrs.morningstar.com/research/444064/legal-criteria-for-us-structured-finance)

-- Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024; https://dbrs.morningstar.com/research/428623/interest-rate-stresses-for-us-structured-finance-transactions)

-- 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.