Morningstar DBRS Confirms Credit Ratings on All Classes of BWAY Commercial Mortgage Trust 2022-26BW

DBRS Limited (Morningstar DBRS) confirmed credit ratings on all classes of the Commercial Mortgage Pass-Through Certificates, Series 2022-26BW issued by BWAY Commercial Mortgage Trust 2022-26BW as follows:

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

All trends are Stable.

The credit rating confirmations and Stable trends reflect the overall stable performance for the underlying collateral office property, as reflected in the steady increase in cash flows over the past few years and the granular tenancy with limited rollover scheduled through the near to moderate term. Although occupancy at the subject property has recently declined because of the departure of the former second largest tenant, recent cash flow trends have been consistently improving, with the debt service coverage ratio (DSCR) for the fixed-rate underlying loan moving back toward the issuer's figure as of the most recent reporting. In addition, at the previous credit rating action in April 2024, Morningstar DBRS downgraded all its credit ratings for this transaction, based on the LTV Sizing benchmarks which resulted from the updated Morningstar DBRS value that was derived with that review, as further outlined below. The credit rating downgrades also reflected the generally increased risks in the declined demand for older, less favorably located product such as the subject property.

The transaction is secured by 26 Broadway, a 29-story, 839,712-square-foot (sf) office property in Manhattan's Financial District. The $290.0 million whole loan includes $222.2 million held within the trust and $67.8 million held in companion loans. In addition, there was a $40 million mezzanine loan in place at closing, secured by the ownership interests of the borrowers. The interest-only (IO) loan is structured with a fixed-rate for the entirety of its 10-year term. The loan is sponsored by the Chetrit Group, a New York-based real estate investment company, who operated approximately 14 million sf of office space at issuance, the majority of which is in New York City. In 1995, the New York City Landmarks Preservation Commission designated the property as an official city landmark, which limits the sponsor's ability to make significant changes to the space.

According to the December 2024 rent roll, the property was 73% occupied compared with 79% as of YE2023 and 82.2% at issuance. The largest tenants include the New York City Department of Education (34.3% of net rentable area (NRA); lease expiry in January 2039 and March 2041); Seed Suite LLC (5.8% of the NRA; lease expiry in December 2027); and New York Film Academy (5.2% of NRA; lease expiry in June 2030). The remaining tenancy is relatively granular, and over the next 12 months there is only a marginal amount of tenant rollover totaling approximately 2.5% of the NRA. As noted above, the decline in occupancy appears to be mainly attributable to the departure of the former second largest tenant, Live Primary (8.8% of the NRA); however, a portion of that tenant's space has been backfilled by Seed Suite LLC. At issuance, Live Primary was paying $33.80 psf, compared with Seed Suite LLC's rental rate of $36.50 psf, as of the December 2024 rent roll. According to a Q4 2024 Reis report for the Downtown submarket, vacancy was reported at 15.2% an increase from the prior year's figure of 14.4%. Vacancy is projected to rise to a high of 16.3% in 2026 and is expected to level out to 15.9% in 2029, according to Reis. Despite the increased submarket vacancy rate, the property benefits from a desirable location in Manhattan's financial district with good access to transit, an experienced sponsor and stable tenancy, given 51% of the NRA is leased to tenants with investment-grade characteristics. LoopNet notes there is approximately 21.5% of the NRA that is currently listed as available for lease at the property.

According to the YE2024 financial reporting, the loan's debt service coverage ratio was 1.18 times (x), which has increased from 0.92x and 0.77x as of YE2023 and YE2022, respectively. Net cash flow (NCF) for those same time periods was reported at $17.1 million, $16.5 million, and $13.7 million, respectively, which remains in line with the Morningstar DBRS NCF of $16.3 million. Morningstar DBRS does expect NCF to decline over the subsequent reporting periods because of the decline in the occupancy rate; however, the core of the property's credit tenancy remains in-place providing overall long-term stability to cash flows. According to the February 2025 reserve report, the subject has a cumulative reserve balance of $3.6 million, the majority of which appears to be Live Primary's former Rent Replication Reserve deposited at issuance.

As noted above, Morningstar DBRS' previous credit rating action in April 2024 considered an updated Morningstar DBRS value for the subject property. 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. In the analysis for this review, Morningstar DBRS maintained the blended capitalization rate of 8.5% and the Morningstar DBRS NCF of $16.3 million analyzed with that credit rating action. Morningstar DBRS maintained positive qualitative adjustments to the LTV-sizing benchmarks, totaling 3.5% to reflect the subject property's limited rollover concerns over the course of the loan term, desirable location in New York's financial district, and age of the building. The Morningstar DBRS concluded value of $191.8 million represents a -58.8% variance from the issuance appraised value of $465 million and implies an all in LTV of 151.24%, exclusive of mezzanine debt.

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.

Class X is an 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.

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 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.

This are solicited credit ratings.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

DBRS Limited
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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
-- 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
-- North American Commercial Mortgage Servicer Rankings (August 23, 2024), https://dbrs.morningstar.com/research/438283

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.