Morningstar DBRS Finalizes Provisional Credit Ratings on BBCMS Mortgage Trust 2025-5C34

DBRS, Inc. (Morningstar DBRS) finalized its provisional credit ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2025-5C34 (the Certificates) issued by BBCMS Mortgage Trust 2025-5C34 (the Trust):

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class X-A at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at A (high) (sf)
-- Class X-B at AA (low) (sf)
-- Class X-D at A (low) (sf)
-- Class X-F at BBB (sf)
-- Class D at A (low) (sf)
-- Class E at BBB (high) (sf)
-- Class F at BBB (low) (sf)
-- Class G-RR at BB (sf)

All trends are Stable.

Classes X-B, X-D, X-F, D, E, F, and G-RR were privately placed.

The collateral for the BBCMS Mortgage Trust 2025-5C34 transaction consists of 37 fixed-rate loans secured by 66 commercial and multifamily properties with an aggregate cut-off date balance of $783.14 million. One loan (Uber Headquarters), representing 4.3% of the pool, is shadow-rated investment grade by Morningstar DBRS. The conduit pool was analyzed to determine the provisional ratings, reflecting the long-term probability of loan default within the term and its liquidity at maturity. When the cut-off balances were measured against the Morningstar DBRS Net Cash Flow (NCF) and their respective constants, the initial Morningstar DBRS weighted average (WA) debt service coverage ratio (DSCR) of the pool was 1.33 times (x). The WA Morningstar DBRS Issuance loan to value (LTV) of the pool was 63.1%, and the loan is scheduled to amortize to a WA Morningstar DBRS Balloon LTV of 63.0% at maturity. These credit metrics are based on the A-note balances. Excluding the shadow-rated loans, the deal still exhibits a reasonable WA Morningstar DBRS Issuance LTV of 63.7% and a WA Morningstar DBRS Balloon LTV of 63.5%. However, 11 loans, representing 30.8% of the allocated pool balance, exhibit a Morningstar DBRS Issuance LTV in excess of 67.6%, a threshold generally indicative of above-average default frequency. Additionally, 19 loans, representing 59.4% of the allocated pool balance, exhibit a Morningstar DBRS DSCR below 1.25x, a threshold indicative of a higher likelihood of midterm default. The transaction has a sequential-pay pass-through structure.

Five loans, representing 15.5% of the pool, are in areas with Morningstar DBRS Market Ranks of 7, which is indicative of dense urban areas that benefit from increased liquidity driven by consistently strong investor demand, even during times of economic stress. Additionally, seven loans, representing 25.0% of the allocated pool balance, are in areas with Morningstar DBRS Market Ranks of 5 or 6. Markets with these rankings benefit from lower default frequencies than less dense suburban, tertiary, and rural markets. New York is the predominant urban market represented in the deal. Another 10 loans, representing 35.2% of the pool, are in metropolitan statistical area (MSA) Group 3, which represents the best-performing group among the top 25 MSAs in historical CMBS default rates.

14 loans, representing 34.5% of the pool, have Morningstar DBRS Issuance LTVs below 60.9%, a threshold historically indicative of relatively low-leverage financing and generally associated with below-average default frequency. Even with the exclusion of the shadow-rated loan, Uber Headquarters, which represents 4.3% of the pool, the transaction exhibits a WA Morningstar DBRS Issuance LTV of 63.7%. There are five loans in the pool (The Wave, Tampa Redstone Portfolio, Mia East, Arlington Village, and Villa Hills Apartments) with Morningstar DBRS LTVs equal to or above 70.0%., which represents 17.6% of the pool.

Nine loans, representing 29.9% of the pool, received a property quality assessment of Average (+) or Above Average, with only six loans, representing 13.3% of the pool, receiving a property quality assessment of Average (-) or Below Average. Higher quality properties are more likely to retain existing tenants/guests and more easily attract new tenants/guests, resulting in a more stable performance.

Uber Headquarters, representing 4.3% of the pool, exhibited credit characteristics consistent with an investment-grade shadow rating of AA.

In today's challenging interest-rate environment, debt service payments have nearly doubled from mid-2022. Elevated interest rates have severely constrained DSCRs, and the subject transaction has a WA Morningstar DBRS DSCR of 1.33x, or 1.30x when excluding shadow-rated loans. While adequate to service debt, the ratio is considerably lower than historical conduit transactions and provides for a smaller cushion should cash flows be disrupted. Loans with lower DSCRs receive a POD penalty in the Morningstar DBRS model.

Thirty-four loans, or 96.6% of the 37 loans in the pool are structured with IO payment structures and do not benefit from any amortization. The three remaining loans do not have interest-only payment periods and are on 25 or 30-year amortization schedules. One of the IO loans, Uber Headquarters, representing 4.3% of the pool, is shadow-rated investment grade by Morningstar DBRS. The IO loans have a WA Morningstar DBRS LTV of 63.2%, indicative of moderately low leverage and effectively loans that have been pre-amortized. Seven loans, representing 20.2% of the pool are in areas with Morningstar DBRS Market Ranks of 6 or higher, while five loans representing 15.5% of the pool are in areas with Morningstar DBRS Market Ranks of 7. These urban markets benefit from increased liquidity even during times of economic stress.

Thirty-three loans, representing 96.6% of the total pool balance, are refinancing or recapitalizing existing debt and may not have a 3rd-party acquisition price to support the value conclusion. Acquisition financing typically includes a meaningful cash investment from the sponsor on an agreed upon price and aligns the interests more closely with those of the lender, whereas refinance transactions may be cash-out transactions that reduce the borrower's commitment to a property. Refinance loans tended to have additional stresses due to low implied cap rates relative to historical trends.

Morningstar DBRS identified eight loans, totaling 24.0% of the pool to be Weak or Bad (Litigious) for reasons that may include lower net worth and liquidity, a history of prior loan defaults, or a lack of experience in commercial real estate. Of the loans assigned a Sponsorship Score of Weak or Bad (Litigious), which increases the POD in Morningstar DBRS' model, three of the loans had a Morningstar DBRS LTV below 60.9%, a threshold historically indicative of relatively low-leverage financing and generally associated with below-average default frequency. These loans have a WA Morningstar DBRS LTV of 49.7%.

Twenty-eight of the 37 loans in the pool exhibit negative leverage, defined as the Issuer's implied cap rate (Issuer's NCF divided by the appraised value), less the current interest rate. On average, the transaction exhibits -1.02% of negative leverage. While cap rates have been increasing over the last few years, they have not in most cases surpassed the current interest rates. In the short-term, this suggests borrowers are willing to have their equity returns reduced in order to secure financing. Longer term should interest rates hold steady, the loans in this transaction could be subject to negative value adjustments that may affect the borrower's ability to refinance their loans.

Morningstar DBRS' credit rating on the Certificates addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the related Principal Distribution Amounts and/or Interest Distribution Amounts for the rated classes.

Morningstar DBRS' credit rating does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations. For example, Yield Maintenance Charges, and Prepayment Premiums.

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   

ESG considerations had a relevant effect on the credit analysis.

Environmental (E) Factors
Emissions, Effluents, and Waste had a relevant effect on the credit analysis because the ESA identified a recognized environmental condition (REC) at Ross RV Park Portfolio (approximately 6.1% of the pool). The ESA reported a REC at Villa Ridge, one of the properties in the portfolio, regarding a petroleum release incident that occurred in 2000. The Missouri Department of Natural Resources (MDNR) issued a letter of warning to the borrower sponsor in August 2023 due to failure to further investigate the issue. The cost to remediate the issue is unknown. Morningstar DBRS included a penalty for this loan; however, the stress did not impact the overall ratings.

There were no Social or Governance factors that had a relevant or significant 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

Classes X-A, X-B, X-D, and X-F are interest-only (IO) certificates 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 Multi-Borrower Rating Methodology (April 09, 2025): https://dbrs.morningstar.com/research/451739

Other methodologies referenced in this transaction are listed at the end of this press release.

With regard to due diligence services, Morningstar DBRS was provided with the Form ABS Due Diligence-15E (Form-15E), which contains a description of the information that a third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While due diligence services outlined in Form-15E do not constitute part of Morningstar DBRS' methodology, Morningstar DBRS used the data file outlined in the independent accountant's report in its analysis to determine the credit ratings referenced herein.

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, 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 Commercial Mortgage Servicer Rankings (August 23, 2024)
https://dbrs.morningstar.com/research/438283

Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (September 19, 2024)
https://dbrs.morningstar.com/research/439702

North American Single-Asset/Single-Borrower Ratings Methodology (February 28, 2025)
https://dbrs.morningstar.com/research/448962

Legal Criteria for U.S. Structured Finance (December 03, 2024)
https://dbrs.morningstar.com/research/444064

North American CMBS Insight Model v 1.3.0.0
https://dbrs.morningstar.com/research/451739

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