Morningstar DBRS Confirms All Credit Ratings on BX 2023-DELC Mortgage Trust

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2023-DELC issued by BX 2023-DELC Mortgage Trust as follows:

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

All trends are Stable.

The credit rating confirmations reflect the overall stable performance of the transaction, which remains in line with Morningstar DBRS' expectations. The transaction is collateralized by the fee-simple and leasehold interests held by the borrower, and the fee-simple interest held by HdC North Beach Development, LLP in the Hotel del Coronado. The full-service luxury hotel consists of 681 guest rooms and 220 third-party owned condominium units on Coronado Island in San Diego.

At issuance, it was noted that the sponsor had recently invested approximately $375 million toward a major capital improvement project to renovate the property and had plans to complete more than $165 million in renovations, including the transformation of more than 350 guest rooms in the Victorian building and the modernization of the luxury condominium community known as Beach Village, over a two-year period commencing at the end of 2023. The most recently reported cash flows -- as of YE2024 -- are depressed, reflective of the ongoing renovations that have resulted in a considerable number of rooms being unavailable. Morningstar DBRS notes that cash flow is not expected to stabilize until the completion of the capital improvement project when all guest rooms are fully operational. According to the servicer, a total of 367 rooms were unavailable in 2024 with the borrower having spent approximately $140.0 million on renovations through February 2025. According to the February 10, 2025, SanDiegoUnionTribune.com, larger suites were to be converted into smaller suites, increasing the total suite count by 37 units. The renovated guest rooms in the Victorian building will become available in clusters, beginning in February 2025, and all are expected to be fully operational in June 2025.

The landmark, luxury, full-service beachfront hotel and resort (with 1,400 feet of direct ocean frontage), was constructed in 1888 on a 29-acre site. The sponsor, Blackstone Real Estate Partners VIII L.P., owns all 681 guest rooms that serve as direct collateral for the loan. These rooms are spread across the Victorian building, The Cabanas, and The Views. The 220 condominium units in the Share House and Beach Village are owned by third-parties and managed by the sponsor with a revenue-sharing program. The Hotel del Coronado offers premiere amenities, including three outdoor pools, a full-service spa, a fitness center that offers indoor and outdoor classes for guests, a private beach with lounge seating,10 retail outlets, and a multitude of restaurant options.

The borrower used whole-loan proceeds to repay existing debt, make an unrelated internal debt repayment for Blackstone, and reinvest equity in the property. The interest-only, floating-rate mortgage loan was structured with an initial two-year loan term with a maturity date in June 2025. Morningstar DBRS received confirmation that the borrower intends to exercise the first of three one-year extension options. There are no performance triggers, financial covenants, or fees required for the borrower to exercise any of the extension options; however, the execution of each option is conditional upon the borrower's purchase of an interest rate cap agreement at the greater of 5.0% or an amount resulting in a debt service coverage ratio of 1.10 times.

According to the financial reporting for the trailing 12-month period ended December 31, 2024, the hotel was 37.90% occupied, a decline from the YE2023 figure of 64.30%. Similarly, revenue per available room (RevPAR) declined to $262.59 from $412.72 at YE2023, placing downward pressure on in-place cash flows. As outlined above, guest rooms became unavailable in 2024 as a result of the ongoing renovations and, as such, Morningstar DBRS expected temporary disruptions in operating performance as the borrower works toward completing its business plan. To mitigate the risk associated with the temporary declines in cash flow, at issuance, the borrower funded an upfront lender-controlled cash reserve of $60 million, of which $45 million was allocated to a shortfall reserve, and $15 million to a capital expenditure reserve. Morningstar DBRS inquired about the current balance on the shortfall reserve account, and, as per the servicer, it appears to be mostly depleted. 

For this review, Morningstar DBRS maintained the as-stabilized value derived at issuance for the underlying property. The Morningstar DBRS value of $1.2 billion was derived using an as-stabilized net cash flow of $86.7 million and a capitalization rate of 7.25% and implies a loan-to-value ratio (LTV) of 79.4%. In addition, Morningstar DBRS maintained total qualitative adjustments of 8.00% in the LTV sizing benchmark to reflect the limited cash flow volatility (when stabilized) given the strong barriers to entry and historical RevPAR penetration rate, strong property quality (further strengthened by the significant capital investment from the sponsor), and superior market fundamentals.

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 transaction's 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.

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.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

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 03, 2024): https://dbrs.morningstar.com/research/444064

-- Interest Rate Stresses for U.S. Structured Finance Transactions (March 27, 2025): https://dbrs.morningstar.com/research/450750

-- 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.