Morningstar DBRS Downgrades Credit Ratings on All Classes of BSST 2021-1818 Mortgage Trust

DBRS, Inc. (Morningstar DBRS) downgraded its credit ratings on all classes of the Commercial Mortgage Pass-Through Certificates, Series 2021-1818 issued by BSST 2021-1818 Mortgage Trust as follows:

-- Class A to A (sf) from AAA (sf)
-- Class X-EXT to A (high) (sf) from AAA (sf)
-- Class B to BBB (low) (sf) from AA (low) (sf)
-- Class C to CCC (sf) from A (sf)
-- Class D to C (sf) from BB (low) (sf)
-- Class E to C (sf) from B (low) (sf)
-- Class F to C (sf) from CCC (sf)

The trends on Classes A, X-EXT, and B remain Negative. Classes C, D, and E no longer carry a trend as the classes have credit ratings that do not typically carry a trend in commercial mortgage-backed securities (CMBS) credit ratings.

At the prior credit rating action in April 2024, Morningstar DBRS downgraded its credit ratings on all rated classes except for the Class A and X-EXT certificates and all trends were Negative. The April 2024 credit rating actions were in response to an update to the Morningstar DBRS value given performance declines for the collateral property and the specially serviced status for the loan, which transferred in September 2023, following a request for a loan modification from the borrower. The credit rating downgrades and Negative trends with this review reflect Morningstar DBRS' recovery expectations for the underlying loan, which is secured by an office property in the Philadelphia Central Business District. The discussions between the borrower and the special servicer regarding a loan modification have since fallen through and the special servicer is now pursuing receivership and foreclosure.

As part of the analysis for this review, Morningstar DBRS derived an updated value of $137.9 million, which represents a 34.7% decline from the April 2024 appraisal value of $211.3 million and a 17.7% decline from the previous Morningstar DBRS value of $167.5 million, derived in 2024. The Morningstar DBRS value is reflective of Morningstar DBRS' expectation that the property's as-is appraised value will likely decline further over the remainder of the loan term, given the location and availability of similar collateral in the market, including the office building located just across the street,1700 Market Street. The office building at 1700 Market Street is owned by the same sponsor as the subject and also backing a defaulted CMBS loan in the BSST 2022-1700 Mortgage Trust transaction, which is also rated by Morningstar DBRS. The resulting value per square foot (psf) of $138 psf is in line with the Morningstar DBRS value psf for the 1700 Market Street property, as derived in the analysis for the March 2025 credit rating action for that transaction.

Based on the Morningstar DBRS value of $137.9 million, a liquidation scenario was derived, which showed losses would be realized through the Class D certificate, supporting the credit rating downgrades to C (sf) and CCC (sf) for the Class C certificate and the subordinate classes below, respectively. The liquidation scenario factors in current outstanding advances, projected future advances, on hand reserves, and liquidation expenses with the implied loss severity at 50.1%. The scenario suggested principal recovery for the Class A, B, and C certificates¿but the possibility of further value deterioration, expected tepid demand when the special servicer markets the property for sale, and the reduced credit support implied by the liquidated losses estimated by Morningstar DBRS support the credit rating downgrades for Classes A and B.

The $222.9 million transaction is secured by the borrower's fee-simple and leasehold interest in 1818 Market Street, a 999,828-square-foot (sf) Class A office building located in the Market Street West submarket of downtown Philadelphia. The sponsor, Shorenstein Realty, acquired the collateral in January 2016 for $195.0 million. The loan had an initial term of 24 months, with three one-year extension options, for a fully extended maturity in February 2026.

Occupancy has trended downward in recent years, having decreased to 72.6% as of December 2024, down from 80.0% as of YE2023 and 86.2% at closing. As of the December 2024 rent roll, the property reported a weighted-average rental rate of $34.41 psf, which is up slightly when compared with the issuance weighted-average rental rate of $32.48 psf. The property's largest tenants include WSFS Financial Corporation (8.9% of net rentable area (NRA), expiring December 2028); eResearch Technology, Inc (5.9% of NRA, expiring February 2032); and McCormick Taylor (5.9% of NRA, expiring December 2033). Over the next 24 months (2025-26), there is a cumulative rollover risk of 12.6% of the NRA. According to a listing by JLL in March 2025, there was approximately 29,609 sf (3.0% of the NRA) available immediately for sublease. According to the Reis Q4 2024 market report, the Center City submarket reported an average vacancy rate of 13.6% with effective rental rate of $33.90 psf. Reis forecasts vacancy rates to decrease slightly to 12.2% while asking rents are expected to increase to $35.13 psf over the next five years.

According to the Q3 2024 financial reporting, the property generated annualized net cash flow (NCF) of $13.6 million, with a debt service coverage ratio of 0.67 times (x), compared with the YE2023 figures of $13.7 million and 1.23x., respectively. The YE2023 and annualized Q3 2024 NCF figures remain relatively in-line with the Morningstar DBRS NCF figure of $13.4 million, which was derived in 2021 when credit ratings were assigned.

Morningstar DBRS had previously concluded to a value of $167.5 million for the subject property, which was based on the Morningstar DBRS NCF of $13.4 million and an 8.0% cap rate. With this review, Morningstar DBRS increased the cap rate to 10.0% to reflect increased availability in the market and tightening liquidity for office properties in general. The cap rate adjustment resulted in an updated value of $134.0. million for the subject. Morningstar DBRS gave credit in the liquidation scenario to the loan's total reserves of $3.9 million as of the March 2025 remittance. The result of the liquidation scenario suggested losses that would fully reduce the balance of Classes JRR, H, G, F, E, and more than half of Class D, supporting the credit rating downgrades with this review, as previously outlined.

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, 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.

Class X-EXT 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 (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 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.

These are solicited credit ratings.

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.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS' outlooks and credit ratings are monitored

DBRS, Inc.
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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 (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
-- North American Commercial Mortgage Servicer Rankings (August 23, 2024)
https://dbrs.morningstar.com/research/438283
-- Legal Criteria for U.S. Structured Finance (December 3, 2024)
https://dbrs.morningstar.com/research/444064

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