Morningstar DBRS Confirms Credit Ratings on All Classes of SUMIT 2022-BVUE Mortgage Trust

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2022-BVUE issued by SUMIT 2022-BVUE Mortgage Trust as follows:

-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class X-A at A (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class F at B (low) (sf)
-- Class H-RR at B (low) (sf)

All trends are Stable.

The credit rating confirmations are supported by the underlying collateral's stable performance since the previous credit rating action in April 2024, when Morningstar DBRS downgraded its credit ratings on all classes except for Class A. The credit rating downgrades in April 2024 were the result of an update to the Morningstar DBRS value for the collateral office property to $490.3 million, reflecting a loan-to-value ratio (LTV) of 107.1% on the whole loan, compared with the 92.8% LTV based on the Morningstar DBRS value derived at issuance. The updated Morningstar DBRS value was based on the Morningstar DBRS net cash flow (NCF) derived at issuance and a capitalization rate (cap rate) of 7.5%, which is an increase from the 6.5% cap rate previously applied by Morningstar DBRS. The Morningstar DBRS value is 45.3% below the issuance appraisal value and a 13.3% decline from the $565.7 million Morningstar DBRS value derived at issuance.

Morningstar DBRS maintained the LTV Sizing benchmarks from the April 2024 credit ration action for this review, with qualitative adjustments totaling 6.25%, applied to reflect favorable property quality, cash flow volatility, and market fundamentals. The total qualitative adjustment of 6.25% is down from 8.0% at issuance, with the reduced credit a reflection of observed changes in market fundamentals and relative property quality from issuance, given the widening vacancy rates within the Bellevue/Issaquah submarket and the early 2000s build year in a market that increasingly favors high-quality and newly built supply. The healthy cash flow at the subject property, which is above the Morningstar DBRS NCF figure, in addition to the significant proportion of investment-grade tenancy, contributed to the stable performance trends observed since Morningstar DBRS' last review.

The transaction is secured by the borrower's fee-simple interest in The Summit, a 907,306-square-foot (sf), LEED Gold and Platinum certified, Class A, three-property office campus in the Bellevue, Washington, central business district. The Summit is strategically located two blocks from I-405, the Eastside's primary interstate, and one block from both the Bellevue Transit Center and the Bellevue Downtown Light Rail Station. The loan is sponsored by a 99%/1% joint venture between KKR Property Partners Americas (KPPA) and prominent commercial property manager and operator Urban Renaissance Group (URG). KPPA is a real estate opportunistic fund managed by Kohlberg Kravis Roberts (KKR) located in New York with investments focused on the Americas. KKR is a leading global investment firm with $79 billion in assets under management as of December 2024.

The $525 million whole loan is composed of 10 promissory notes: eight senior A notes totaling $327 million and two junior B notes totaling $198 million. The $305 million subject transaction consists of two senior A notes with an aggregate principal balance of $107 million and the two junior B notes totaling $198 million. The remaining $220 million of the whole loan is composed of pari passu A notes (companion notes); of those companion notes, 5% is held in BBCMS 2022-C16 (Morningstar DBRS rated) and the remaining 62% is split among BMARK 2022-B32, BBCMS 2022-C15, BBCMS 2022-C14, and BMARK 2022-B33 (not rated by Morningstar DBRS). The underlying loan is interest-only (IO) throughout its seven-year term with a scheduled maturity in February 2029.

According to the September 2024 rent roll, the collateral was 93.3% occupied, a modest decline from the YE2023 and issuance figures of 96.0% and 95.3%, respectively. The decline is primarily the result of the former fourth-largest tenant, First Republic Bank (previously 5.5% of net rentable area (NRA)), departing at lease expiration in December 2023. Since that time, JP Morgan Chase N.A. has leased 25,735 sf, while the remaining 24,173 sf of First Republic Bank's former space remains vacant. In addition, WeWork Inc.'s (WeWork) former space (representing approximately 25.0% of the NRA) is fully subleased to Amazon.com Inc. (Amazon) through an enterprise lease with WeWork and has a lease expiration in May 2025; according to the servicer, renewal negotiations are in process. Excluding the WeWork lease expiration, three tenants, representing 15.8% of the NRA, have leases that recently expired or will expire in the next 12 months.

Amazon is currently a direct tenant at the property, as well, with a lease that runs through August 2036. Including the space subleased from WeWork, Amazon also occupies the entire Summit 3 building (approximately 374,000 sf or 42.9% of NRA). Amazon's direct lease is structured with a one-time termination/contraction option in September 2033 that requires 18 months' notice. The second-largest and investment-grade rated tenant, Puget Sound Energy Inc. (Puget) (25.8% of NRA), is in place on a lease to October 2028. The borrower has the right to amend the Puget lease to reduce the leased space by up to 223,820 sf in aggregate, and to make corresponding reductions to the rent and tenant obligations, provided that the debt yield is equal to or greater than the debt yield at closing, with certain leasing conditions structured into the agreement.

According to Reis Inc. (Reis), the Bellevue/Issaquah submarket reported Q4 2024 average asking rental and vacancy rates of $48.5 per square foot (psf) and 13.6%, respectively, compared with the Q4 2023 figures of $48.4 psf and 12.9%. Class A office properties in the submarket reported higher vacancy and rental rates of 15.1% and $53.1 psf for the same period, according to Reis, although overall submarket vacancy is expected to widen to 17.2% by 2030. Based on the September 30, 2024, financial reporting, the annualized net cash flow (NCF) was $37.9 million (reflecting a debt service coverage ratio (DSCR) of 2.41 times (x)), relatively unchanged from the YE2023 figure of $37.7 million (a DSCR of 2.4x) and above the $36.7 million Morningstar DBRS NCF. Morningstar DBRS expects cash flow to remain stable as tenancy outside of the largest investment-grade rated tenants is granular with no significant rollover scheduled until 2028.

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 credit 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 X-A 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 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 (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

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.

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