Morningstar DBRS Confirms Credit Ratings on All Classes of LUX Trust 2023-LION
CMBSDBRS, Inc. (Morningstar DBRS) confirmed its credit ratings on all classes of the Commercial Mortgage Pass-Through Certificates, Series 2023-LION issued by LUX Trust 2023-LION as follows:
-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (high) (sf)
-- Class HRR at BBB (sf)
All trends are Stable.
The credit rating confirmations reflect the transaction's overall stable performance, which remains in line with Morningstar DBRS' expectations since issuance. The transaction is collateralized by the borrower's fee-simple and leasehold interests in a portfolio consisting of two full-service hotels in uptown Dallas, Ritz-Carlton Dallas and Hotel Crescent Court, totaling 444 keys.
The borrower used the loan proceeds of $245.8 million and mezzanine financing of $54.3 million to repay existing debt and return $13.2 million of equity to the sponsor. The floating-rate loan has an initial two-year term with three one-year extension options and a current maturity date in August 2025 and is interest-only (IO) throughout the fully extended loan term. According to the servicer, the borrower intends to exercise the first extension option.
Both properties benefit from their location adjacent to The Crescent, an expansive mixed-use development with 1.1 million square feet (sf) of Class A office space and approximately 165,000 sf of upscale retail space. The 218-key Ritz-Carlton Dallas offers a robust amenity package, which includes a spa, a fitness center, two acclaimed food and beverage (F&B) options, and about 19,000 sf of indoor meeting space. The hotel underwent significant renovations that were completed in October 2023 and totaled $20.5 million ($94,037 per key), including full-case and soft-good upgrades to all 218 guest rooms and all bathroom fixtures and finishes. The 226-key Hotel Crescent Court, recognized as an iconic Dallas landmark, underwent comprehensive renovations between 2017 and 2019 totaling $32.3 million ($142,756 per key), including full-case and soft-good upgrades to all guest rooms as well as the spa, the fitness center, and public spaces. Like the Ritz-Carlton Dallas, Hotel Crescent Court offers a variety of amenities including a luxury spa, a wellness center, approximately 16,000 sf of meeting space, and three renowned F&B options.
According to the YE2024 financial reporting, the portfolio reported a net cash flow (NCF) of $26.0 million and a debt service coverage ratio of 1.20 times (x), a slight decline from the YE2023 reported NCF of $27.4 million and a 10.3% decline from the Morningstar DBRS NCF of $29.0 million at issuance. This decline in NCF from the Morningstar DBRS NCF at issuance is mainly expense driven with a YE2024 servicer-reported total operating revenue of $106.2 million, which is in line with the Morningstar DBRS operating revenue figure of $103.6 million at issuance. Total operating expenses for the two hotels increased to $75.8 million as of YE2024, up from the Morningstar DBRS figure of $70.5 million, primarily because of elevated general and administrative as well as advertising and marketing expenses. The hotel portfolio reported consolidated occupancy of 72% as of YE2024 compared with the YE2023 and issuance figures of 74% and 77%, respectively. Both hotels continue to outperform their competitors and have been able to achieve revenue per available room (RevPAR) figures above issuance expectations. According to the February 2025 STR, Inc. report, the Ritz-Carlton Dallas reported trailing 12-month (T-12) occupancy, average daily rate (ADR), and RevPAR figures of 69.7%, $582.1, and $405.6, respectively, compared with the Morningstar DBRS RevPAR figure of $374. During the same period, Hotel Crescent Court reported T-12 occupancy, ADR, and RevPAR figures of 71.3%, $409.9, and $292.3, respectively, compared with the Morningstar DBRS RevPAR figure of $283. Although the YE2024 consolidated NCF represented a variance of -10.3% from the Morningstar DBRS NCF, Morningstar DBRS expects NCF to recover as expenses stabilize over the course of the loan term.
Morningstar DBRS maintained its issuance analysis with this review, which includes a Morningstar DBRS Value of $386.3 million based on the Morningstar DBRS NCF of $29.0 million and a capitalization rate of 7.5%. This results in a loan-to-value ratio (LTV) of 63.6% on the senior debt and 77.7% on the whole-loan debt compared with the whole-loan LTV of 61.3% based on the issuance appraised value of $489.0 million. Morningstar DBRS maintained its qualitative adjustments totaling 6.75% to reflect the portfolio's stable historical cash flows, superior property quality, and strong location.
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 (May 16, 2025) at https://dbrs.morningstar.com/research/454196.
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.
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 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.
-- Interest Rate Stresses for U.S. Structured Finance Transactions (March 27, 2025),
https://dbrs.morningstar.com/research/450750.
For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.
Ratings
ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.