Morningstar DBRS Confirms Credit Ratings on All Classes of VASA Trust 2021-VASA

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

-- Class A at AAA (sf)
-- Class A-IO at AAA (sf)
-- Class A-Y at AAA (sf)
-- Class A-Z at AAA (sf)
-- Class B at A (high) (sf)
-- Class C at BBB (high) (sf)
-- Class D at BB (sf)
-- Class E at B (low) (sf)
-- Class F at CCC (sf)

All trends are Stable, with the exception of Class F, which has a credit rating that does not typically carry a trend in commercial mortgage-backed securities (CMBS) credit ratings.

The credit rating confirmations reflect the overall stable performance of the transaction since the last credit rating action, as evidenced by the annualized net cash flow (NCF) and occupancy rate for the trailing six-month (T-6) period ended June 30, 2024, of $31.6 million and 92.4%, respectively, relatively in line with the YE2023 figures of $32.6 million and 90.5%, respectively.

The collateral consists of the borrower's fee and leasehold interest in a 576,921-square-foot (sf) mixed-use office and retail development in the heart of Mountain View, California, which is part of the Silicon Valley. The property was built in 2017 and consists of 456,760 sf (79.2% of the net rentable area (NRA)) of Class A office space and 120,161 sf (20.8% of the NRA) of ground/second-floor retail space. There is also a nine-story parking garage. The property benefits from its location within the highly developed and affluent Mountain View submarket, which has relatively high barriers to entry.

Senior mortgage loan proceeds of $506.6 million along with $139.2 million of borrower equity were used to purchase the property at a cost of $603.0 million and fund $4.8 million of upfront reserves, cover outstanding leasing and gap rent shortfalls, and cover closing costs. The loan is structured with a two-year initial term that ended in April 2023 and three 12-month extension options. The floating-rate loan is interest only (IO) through the fully extended loan term. However, commencing after the fully extended anticipated repayment date (ARD) in April 2026, the loan is scheduled to hyper-amortize until the balance is repaid in full, subject to a final maturity date in July 2029. Per the most recent servicer commentary, the borrower does intend to exercise the ARD extension.

The collateral's office component was originally 100.0% leased by LinkedIn but following Microsoft's acquisition of LinkedIn in 2016, Microsoft assigned the LinkedIn lease to WeWork and provided a guaranty on the assigned lease that extends through July 2029. The lease has a provision enabling the execution of license agreements instead of formal subleases; WeWork and Amazon have entered into a newly executed license agreement to fully occupy the entire office portion of 401 San Antonio (37.6% of NRA). Other tenants include LaceWork (7.5% of NRA) under a sublease, Earning (7.3% of NRA) under a newly executed license agreement, and Yahoo (13.2% of NRA) under an extended license agreement. The largest retail tenant at the property is ShowPlace ICON Theatre (8.8% of NRA) and has a lease expiration in December 2040. Microsoft is subject to an absolute and unconditional guarantee of the payment and performance of WeWork's covenants, obligations, liabilities, and duties that arise in relation to the leased space through July 2029.

Given the stable performance over the past year, in the current review, Morningstar DBRS maintained its analytical approach from the prior credit rating action in April 2024, when Morningstar DBRS updated its value for the collateral buildings from the issuance analysis to reflect an increased capitalization (cap) rate of 7.25%, up from the issuance cap rate of 6.50%. The Morningstar DBRS NCF of $31.3 million derived at issuance was maintained and the resulting value was $432.3 million, a -32.5% variance from the issuance appraised value of $640.0 million and a loan-to-value ratio (LTV) of 117.0%. Morningstar DBRS also maintained positive qualitative adjustments totaling 5.75% to reflect the portfolio's generally low cash flow volatility, good property quality, and strong market fundamentals. For more information regarding the approach and analysis conducted, please refer to the press release for this transaction dated April 15, 2024, on Morningstar DBRS' website. Overall, Morningstar DBRS has a favorable outlook on the property throughout the loan term.

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 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).

Class XIO, AY, and AZ are 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 (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 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.

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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)

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

-- 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)

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