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

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on all classes of the Commercial Mortgage Pass-Through Certificates, Series 2021-VR issued by BGME Trust 2021-VR as follows:

-- Class A at AAA (sf)
-- Class B at A (high) (sf)
-- Class C at BBB (high) (sf)
-- Class D at BBB (low) (sf)
-- Class HRR at BB (high) (sf)

All trends are Stable.

The credit rating confirmations reflect the stable performance of the transaction since the previous Morningstar DBRS credit rating action in April 2024. The collateralized office buildings have been fully occupied by Meta Platforms, Inc. (Meta), an investment-grade tenant, since issuance.

The loan is secured by the borrower's fee-simple interest in Burlingame Point, a four-building Class A office and research property totaling 805,118 square feet (sf) in Burlingame, California. All four buildings are solely occupied by Meta, on a 12.5-year triple net lease, co-terminous with the loan's final maturity date in January 2033. The collateral is located between Silicon Valley and downtown San Francisco and serves as the headquarters for the company's Meta Quest division (formerly, Oculus).

The whole loan amount of $620.0 million includes $380.0 million of senior debt, of which $260.0 million is held within the subject transaction. There is also $240.0 million of junior debt, with the entirety held in the trust. An additional $130.0 million of mezzanine debt is held outside of the trust. The whole loan is interest only with an anticipated repayment date in July 2030, after which the loan will amortize on a 30-year schedule and hyper-amortize if excess cash flow is available through the final maturity date in January 2023.

The loan is sponsored by Kylli Inc. (Kylli), a subsidiary of Genzon Investment Group, a full-service real estate investment management company that focuses on acquiring, developing, and managing institutional-quality assets in the Western United States. Since acquiring the property for $45.7 million in 2015, Kylli has spent approximately $757.0 million to transform the asset.

According to September 2024 rent roll, the collateral properties remain fully occupied by Meta. Per its lease terms, Meta has two eight-year renewal options that are exercisable by the borrower at 95.0% of market rent, as long as the tenant does not default under the lease. There are no contraction or termination options available during the lease term. Meta currently pays an average rental rate of $61.60 per square foot, above the average effective rental rate of $44.33 per square foot for office properties in the Central San Mateo submarket, according to YE2024 Reis reporting. Reis also reported a vacancy rate of 20.0% for the submarket.

The availability rate recently increased in the submarket, as according to a CoStar news article dated February 11, 2025, Meta has made more than 500,000 sf of space across three properties available for sublease. The properties are located down the street from the subject collateral. The article notes Meta plans to reduce its Bay Area office portfolio with a projected overall staff reduction of 5.0%. While there is no impact on the collateral properties, Morningstar DBRS notes Meta's intention to downsize its lease in the submarket and will continue to monitor the developments.

The servicer reported an annualized net cash flow (NCF) for the trailing nine months ended September 30, 2024, of $49.1 million, reflecting a debt service coverage ratio (DSCR) of 2.58 times (x). The cash flow figure is consistent with YE2023 reporting of $50.0 million (DSCR of 2.63x), but remains slightly below the Morningstar DBRS NCF of $51.19 million (DSCR of 2.74x) derived at closing. Cash flow is expected to increase year over year, however, as Meta's lease includes 3.0% annual rent escalations.

At the April 2024 Morningstar DBRS credit rating action, Morningstar DBRS completed an updated collateral valuation. 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," published on April 15, 2024. For the purpose of this credit rating action, Morningstar DBRS continued the valuation approach from the April 2024 review, which was based on a capitalization rate of 7.25% applied to the Morningstar DBRS NCF of $51.2 million. Morningstar DBRS also maintained positive qualitative adjustments to the loan-to-value (LTV)-sizing benchmarks, totaling 8.75% to reflect the investment-grade tenancy, substantial capital investment made into the property, and the property's strong market position. The resulting Morningstar DBRS value is $699.3 million, which represents a -33.4% variance from the issuance appraised value of $1.05 billion and reflects an LTV of 107.26%.

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 factor(s) 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.

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 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.

DBRS Limited
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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 (July 17, 2023), 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.