Morningstar DBRS Confirms Credit Ratings on All Classes of BX Trust 2022-CLS

DBRS, Inc. (Morningstar DBRS) confirmed its credit ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2022-CLS issued by BX Trust 2022-CLS:

-- Class A at AAA (sf)
-- Class X-NCP at A (high) (sf)
-- Class B at A (high) (sf)
-- Class C at A (sf)

All trends are Stable.

The credit rating confirmations reflect the overall stable performance of the underlying collateral, a 704,160-square-foot (sf) Class A LEED Gold two-story life sciences and medical office building in Boston's Longwood Medical Area (LMA). The transaction continues to benefit from the collateral property's full occupancy with investment-grade tenants leasing more than 95% of the net rentable area (NRA) beyond the loan's maturity in 2027.

The loan is secured by the borrower's fee-simple interest in the Center for Life Science (CLS), which serves as a mission-critical space for many of its tenants concentrated in the life sciences and biomedical research fields. The tenants, Beth Israel Deaconess Medical Center (Beth Israel) (51.5% of NRA, lease expires in June 2028), Boston Children's Hospital (31.9% of NRA, lease expires in April 2033), and Dana-Farber Cancer Institute (7.2% of NRA, lease expires in March 2028), are all teaching hospitals and institutions affiliated with nearby Harvard University, which is critical for students, faculty, and researchers to collaborate. The sponsor is BRE Edison L.P., a joint venture of BioMed Partners and Blackstone Real Estate Partners. At issuance, Blackstone and BioMed Realty had 14.9 million sf of owned life sciences real estate and roughly 320 tenants nationwide, including 6.0 million sf of life sciences assets owned and operated in Greater Boston.

The $750 million five-year, fixed-rate, interest-only (IO) whole loan is part of a split loan structure composed of the following six promissory notes: (1) two promissory A notes with a cut-off date principal balance of $610 million; (2) two subordinate promissory B notes with an aggregate cut-off date principal balance of $100 million; and (3) two promissory C notes with a cut-off date principal balance of $40 million. The subject trust assets consist primarily of the mortgage loan, which is secured by a first-priority lien on the property. The promissory notes comprising Notes B and C are not assets of the subject trust. The subject loan proceeds were partially used by the sponsor to repatriate approximately $33.5 million of equity.

According to the financial reporting for the trailing 12-month period ended September 30, 2024, the property generated net cash flow (NCF) of $61.0 million (a debt service coverage ratio (DSCR) of 1.30 times (x)), compared with the YE2023 NCF of $59.6 million (a DSCR of 1.28x), and the Morningstar DBRS issuance NCF of $58.5 million. Per the September 2024 rent roll, the average in-place rental rate of $88.48 psf (per square foot) is slightly above the Cushman & Wakefield reported average asking rent of $82.95 psf for the Boston life science market, as of Q4 2024. While the largest tenant's lease expiration in 2028, one year beyond the loan term, is noteworthy, there are mitigating factors in place, as noted at issuance. Beth Israel is an original tenant and signed its original 15-year lease in 2005 (prior to construction), and has two five-year extension options remaining. Morningstar DBRS believes that it is unlikely Beth Israel would opt to vacate the property at the end of its lease term given its location adjacent to Beth Israel Deaconess Medical Center, low availability rate in the LMA, and a maximum renewal rental rate in 2028 that is considered below market.

In the analysis for this review, the Morningstar DBRS Value derived at the previous credit rating action was maintained. A 6.75% capitalization rate and the Morningstar DBRS NCF figure of $58.5 million resulted in a Morningstar DBRS Value of $866.0 million, a variance of -42.2% from the issuance appraised value of $1.50 billion. The Morningstar DBRS Value implies a loan-to-value ratio (LTV) of 70.4%, compared with the LTV of 40.7% on the issuance appraised value. In addition, Morningstar DBRS maintained positive qualitative adjustments totaling 8.5% in the LTV Sizing Benchmarks to reflect the limited cash flow volatility given its long term, institutional-grade tenancy, superior property quality, and prime positioning in the LMA submarket.

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-NCP is an interest-only (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.