Morningstar DBRS Confirms Credit Ratings on All Classes of Morgan Stanley Capital I Trust 2021-PLZA

DBRS, Inc. (Morningstar DBRS) confirmed its credit ratings on the Commercial Mortgage Pass-Through Certificates, Series 2021-PLZA issued by Morgan Stanley Capital I Trust 2021-PLZA as follows:

-- Class A at AAA (sf)
-- Class X at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (sf)

All trends are Stable.

The credit rating confirmations reflect the overall stable performance of the underlying collateral, Park Avenue Plaza, a 45-story, 1.16 million-square-foot (sf) LEED Platinum office tower along Park Avenue between 52nd Street and 53rd Street in Midtown Manhattan's Plaza submarket. Although there has been some volatility in cash flow tied to rent abatements, the occupancy rate for the underlying collateral remains strong at nearly 100.0%, with only a few small ground-floor retail leases, representing less than 1.5% of the net rentable area (NRA), having lease expiry dates prior to the loan's maturity. Additional details are outlined below.

The $460 million whole loan, composed of nine promissory notes (eight senior A notes totaling $339.2 million and one junior B note of $120.8 million), along with $115 million of mezzanine debt (held outside the trust) repaid existing debt, funded upfront reserves, paid closing costs, and returned equity to the borrower. The trust loan of $260 million consists of the senior A-1 note with an aggregate principal balance of $139.2 million and the $120.8 million junior B note. The interest-only (IO) loan has a fixed interest rate and is structured with a 10-year term.

At issuance, Morningstar DBRS noted that two major tenants, BlackRock and Aon Services Corporation (Aon), collectively accounting for about half of the NRA and base rent, had given notice that they would be vacating upon their respective lease expiration dates in April 2023. The BlackRock space was backfilled by three tenants at a weighted-average rental rate of $85 per sf (psf), a premium of more than 10.0% over BlackRock's rental rate of $76 psf at issuance, with lease commencement dates between July 2023 and September 2023 and rent commencement dates between November 2024 and January 2025. All of Aon's space was being subleased to General Atlantic and Evercore. Upon Aon's lease expiration, those subleases were converted to direct leases with expiration dates ranging from 2035 to 2039. According to Q4 2024 Reis data, the Plaza submarket reported an average effective rental rate of $81.24 psf and an average vacancy rate of 12.1%.

The servicer-reported YE2023 net cash flow (NCF) of -$8.9 million represents an expected, but significant, decline from the YE2022 and Morningstar DBRS NCF figures of $43.6 million and $46.1 million, respectively. The decline in cash flow is tied to contractual rent abatements that were granted to backfill the BlackRock and Aon spaces, and as such, Morningstar DBRS expects revenue to remain temporarily depressed through YE2024 and then rebound once concessions burn off in early 2025. It is worth noting that the increase in revenue may be partially offset by rising operating expenses in the near to moderate term. Operating expenses grew by approximately 50% between issuance and YE2023, as a result of an increase in repair and maintenance (R&M) costs tied to building modernization projects. The servicer noted that R&M costs were expected to remain elevated through 2024. At issuance, the loan was structured with an upfront retenanting reserve of approximately $43.5 million with a cash sweep provision active through December 2024. The upfront reserve and the cash sweep were used to pay for all property-level operating expenses including real estate taxes, tenant improvements and leasing commissions, and covering debt service obligations.

Given that the loan continues to perform as expected, Morningstar DBRS maintained its analytical approach from the prior credit rating action in April 2024. At that time, Morningstar DBRS updated its value for the collateral property, increasing the capitalization rate to 6.75% from 6.50% at issuance. The Morningstar DBRS NCF derived at issuance (as noted above) was maintained, resulting in a Morningstar DBRS value of $682.2 million (an implied whole loan-to-value (LTV) ratio of 67.4%, excluding mezzanine debt), a variance of -35.8% from the issuance appraised value of $1.1 billion (an implied LTV ratio of 43.3%). Morningstar DBRS also maintained positive qualitative adjustments to the LTV sizing benchmarks, which total 6.75%, to reflect the subject property's Class A quality, superior location, and long-term in-place tenancy. 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" dated April 15, 2024.

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) at https://dbrs.morningstar.com/research/437781.

Class X is an IO certificate that references 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 (February 28, 2025), https://dbrs.morningstar.com/research/448963.

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.

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 (February 28, 2025), https://dbrs.morningstar.com/research/448962
-- 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

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