Morningstar DBRS Confirms Credit Ratings on All Classes of CALI Commercial Mortgage Trust 2024-SUN
CMBSDBRS Limited (Morningstar DBRS) confirmed its credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2024-SUN issued by CALI Commercial Mortgage Trust 2024-SUN as follows:
-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (high) (sf)
-- Class D at BBB (low) (sf)
-- Class E 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 is early in its life cycle, having closed in July 2024. The transaction is secured by the borrower's fee-simple interest in two full-service luxury hotels located in Santa Monica, California - Shutters on the Beach (Shutters) and Hotel Casa del Mar (Casa).
Morningstar DBRS continues to hold a positive view of the portfolio considering the excellent quality and prime beachfront location (on Ocean Avenue) of the collateral, in addition to the commitment and experience of the sponsor, Edward and Thomas Slatkin. In addition, the portfolio benefits from its strong base in tourism, high barriers to entry due to strict zoning laws and severe supply constraints and close proximity to major demand drivers including the Santa Monica Pier, Third Street Promenade and Santa Monica Place.
The $280 million interest-only, floating rate trust loan has a two-year initial term with three one-year extension options resulting in a fully extended maturity date in July 2029. The property is encumbered by a $120.0 million mezzanine loan that is co-terminous with the mortgage loan. The loan proceeds, along with a sponsor equity contribution of $47.5 million, were used to refinance the existing debt of $430.0 million and cover $17.5 million in closing costs. The borrower entered into an interest rate cap agreement with a strike rate of 3.25% to hedge against interest rate volatility throughout the initial term of the loan. A replacement interest rate cap agreement is required, according to the loan documents, with each subsequent extension of the loan term. In order to exercise the second and third extension options, the borrower will be required to maintain a debt yield equal to or greater than 8.5% and 9.5%, respectively, on the whole loan.
Each of the iconic hotels has its own distinct personality, which allows them to complement, rather than compete, with each other. Both Shutters and Casa have received considerable investment and have historically displayed strong performance, when compared with the luxury segment of the Los Angeles hotel market. The sponsor has reportedly spent $12.5 million ($62,890 per room) at Shutters and $9.8 million at Casa ($75,584 per room) on renovations since 2018. Shutters offers 198 guest rooms (including 12 suites), two award-winning restaurants with outdoor dining patios and more than 17,800 sf of event space, a spa, a heated outdoor pool, and on-site surface parking. More than 41% of the rooms at Shutters have direct or partial ocean views. Casa offers 129 guest rooms (including 17 suites), more than 15,200 sf of event space, an expansive beachfront pool deck, a bar area known as the Terrazza Lounge, and Patio del Mar, a seafood restaurant. More than 57% of the rooms at Casa have direct or partial ocean views.
According to the financial reporting for the trailing 12 (T-12) months ended March 31, 2025, the collateral generated NCF of $18.2 million (a debt service coverage ratio (DSCR) of 0.82 times (x)), 26.9% lower than the Morningstar DBRS NCF figure of $24.9 million (a DSCR of 1.39x). The decline in NCF was driven by a reduction in room, and food & beverage revenue with expenses relatively in line with Morningstar DBRS' expectations. The properties were 68.1% occupied as of March 2025 and reported average daily rate and RevPar figures of $753.6, and $512.8, respectively, below the Morningstar DBRS figures derived at issuance of $808.0 and $551.0, respectively. Although both properties were not directly affected by the January 2025 wildfires in Los Angeles County, Morningstar DBRS notes that operating performance may have temporarily been disrupted as a result of reduced foot traffic and limited end-user demand. The properties' restaurants and bar/lounge areas draw significant demand from the Los Angeles area, and the sponsor estimates that 80% of patrons are not guests of the hotels. A number of online sources indicate that both properties were part of group of hotels sheltering fire evacuees.
At issuance, Morningstar DBRS derived a value of $321.6 million based on a capitalization rate of 7.75% and the Morningstar DBRS NCF figure noted above. The Morningstar DBRS value implies loan-to-value ratios (LTV) of 87.1% and 124.4% on the $280.0 million senior mortgage loan and $400.0 million total debt stack, respectively. The Morningstar DBRS value is -46.9% below the portfolio's appraised value of $605.4 million, which implies LTVs of 46.3% and 66.1% on the senior mortgage loan and whole loan, respectively. In addition, Morningstar DBRS maintained positive qualitative adjustments totaling 8.0% to reflect the portfolio's strong market fundamentals, premium property quality, and generally low cash flow volatility.
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 at https://dbrs.morningstar.com/research/454196 (May 16, 2025).
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.
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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
-- 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
A description of how Morningstar DBRS analyzes structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/417279 (July 17, 2023)
For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.
Ratings
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