Morningstar DBRS Confirms Credit Ratings on All Classes of CSMC 2021-GATE, Changes Trends on Three Classes to Stable From Negative

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on the Commercial Mortgage Pass-Through Certificates, Series 2021-GATE issued by CSMC 2021-GATE as follows:

-- Class A at AA (high) (sf)
-- Class B at A (sf)
-- Class C at BBB (sf)
-- Class D at CCC (sf)
-- Class E at CCC (sf)
-- Class F at CCC (sf)

Morningstar DBRS changed the trends on Classes A, B, and C to Stable from Negative. Although Classes D, E, and F have credit ratings that do not typically carry a trend in commercial mortgage-backed securities (CMBS) transactions, Morningstar DBRS elected to assign a Positive trend to Class D for the purposes of this credit rating action. Additional details are outlined below.

The transaction is secured by three Class A office buildings totaling 1.7 million square feet (sf), including Gateway Center I, Gateway Center II, and Gateway Center IV; a 86,400-sf retail concourse, two parking garages and a surface lot in downtown Newark, New Jersey. The properties are part of a larger complex known as the Gateway Center with proximity to the Prudential Center arena and the New Jersey Performing Arts Center, and access to Newark Penn Station, which serves as a hub for Amtrak, NJ Transit, and the PATH trains to Manhattan.

The credit rating confirmations reflect Morningstar DBRS' overall outlook for the transaction, which remains relatively unchanged since the prior credit rating action, in July 2024. At that time, Morningstar DBRS downgraded its credit ratings on the Class D and E certificates to reflect the accumulation of interest shortfalls, which exceeded the maximum Morningstar DBRS shortfall tolerance for the associated credit rating categories. Morningstar DBRS also assigned Negative trends to the Class A, B, and C certificates given those classes were deemed more susceptible to additional interest shortfalls.

Since that time, cumulative interest shortfalls on the Class D certificate were repaid in full with the January 2025 remittance and there have been no new shortfalls for that class. The shortfall repayment and view that shortfalls are unlikely to recur in the near term based on the outlook for interest rates form Morningstar DBRS' primary rationale for the assignment of a Positive trend on that class. Although cumulative interest shortfalls on the Class E certificate have increased to $1.7 million from $1.1 million at the prior review, that class began receiving partial interest repayments in February 2025, at a rate of approximately $145,000 per month. The servicer began shorting interest on the transaction as part of the loan modification executed in December 2023, which reduced the interest rate on the underlying loan. While the borrower's pay rate was reduced to 4.1% in Year 1 and 5.0% in Year 2, interest continues to accrue at the floating index rate (based on the Secured Overnight Financing Rate) as set forth in the original loan agreement. Morningstar DBRS notes that the full repayment of shorted interest on Class D and the partial repayment of shorted interest on Class E are likely due to a reduction in the index rate, which has declined by approximately 100 basis points between July 2024 and July 2025. Given Morningstar DBRS' forward-looking interest rate outlook, shortfalls are not expected to affect Classes A, B, and C in the near to moderate term, further supporting the trend changes to Stable from Negative on those classes.

Should the Class D certificate continue to receive full interest due, and in the event interest shortfalls on the Class E certificate are further paid down or eliminated entirely, Morningstar DBRS notes it could change trends and/or credit rating upgrades may be warranted in the future.

Whole-loan proceeds of $325.0 million consist of the $285.0 million trust loan and a $40.0 million mezzanine loan held outside of the trust. The trust loan had an initial two-year term with an initial maturity in December 2023 and three 12-month extension options, with a fully extended maturity date in December 2026. The loan transferred to special servicing in November 2023 for maturity default in connection with the loan's December 9, 2023, maturity date. The borrower failed to satisfy the conditions required to exercise the first extension option. A loan modification, which included a 24-month maturity extension to December 2025 with an option to extend the loan to December 2026, closed in December 2023. The borrower was also required to purchase an interest rate cap agreement (rate cap) with a strike price no less than 4.10% and a minimum term of 12 months, compared with the original loan terms where the required strike price was 3.0%. In addition, the borrower's Year 1 and Year 2 pay rate was reduced as noted above. The resulting shortfalls will be accrued and deferred for repayment on the loan's maturity date, or any earlier date on which the debt is repaid in full. Lastly, the borrower contributed approximately $45.0 million of additional equity into a leasing reserve at closing of the modification, with those funds earmarked to cover leasing expenses related to the New Jersey Transit Corporation (NJTC) lease. The loan was returned to the master servicer in April 2024 but is on the servicer's watchlist and will be cash managed until maturity. To exercise the final extension option through 2026, the borrower is required to purchase a rate cap that would yield a debt service coverage ratio (DSCR) of 1.05 times (x), in addition to resuming making monthly payments of interest only at the full floating interest rate.

According to the YE2024 financial reporting, the portfolio generated a net cash flow (NCF) of $13.8 million (resulting in a DSCR of 1.53x) compared with the YE2023 figure of $9.5 million (reflecting a DSCR of 0.37x). The increase in cash flow is primarily driven by an increase in base rent and a decrease in operating expenses. The considerable improvement in the DSCR is attributed to the loan's reduced pay rate, as outlined above. Morningstar DBRS notes that the property's cash flow is expected to increase considerably as the free rent period for a number of major tenants continues to burn off. The borrower secured a 25-year lease with NJTC for approximately 407,000 sf (23.9% of the net rentable area (NRA)) with staggered commencement dates that began in January 2024. Approximately 80.0% of NJTC's space has rent abatements ending in July 2025. In addition, rent abatement for the third-largest tenant, WebMD (8.9% of the NRA, lease expiration date (LXD) of January 2033) have concluded. The second largest tenant, Broadridge Securities (9.1% of the NRA, LXD of September 2032) has less than $2.0 million of free rent staggered through the end of its lease term. According to the March 2025 rent roll, the collateral was approximately 77.0% occupied, compared with the YE2023 figure of 56.1%. The property has minimal rollover risk over the next 12 months. The Newark office submarket has an average submarket vacancy rate of 17.2% as of Q1 2025 compared with 18.2% in Q1 2024 per Reis, Inc.

For purposes of this credit rating action, Morningstar DBRS maintained the valuation approach from the prior review. At that time, Morningstar DBRS reanalyzed the collateral's NCF to reflect NJTC's lease. The concluded Morningstar DBRS Value of $255.1 million resulted from a Morningstar DBRS NCF of $22.3 million and a capitalization rate of 8.75%, unchanged from the prior review. Morningstar DBRS also applied a negative value adjustment totaling $18.4 million to account for the rent abatements owing to a few tenants, most notably NJTC, that were not being funded from a reserve account. As part of this credit rating action, Morningstar DBRS reduced the negative value adjustment to $5.2 million to reflect the remaining rent abatements, as outlined above. The final Morningstar DBRS Value of $250.0 million is 20.1% below the March 2024 appraised value of $314.7 million, and 45.1% below the issuance appraised value of $455.2 million. The implied trust loan-to-value ratio (LTV) based on the updated Morningstar DBRS Value against the trust debt is 114.0%. A positive qualitative adjustment totaling 0.5% was maintained from issuance to account for property quality.

The credit ratings on Classes B and C are three or more notches lower than the results implied by the LTV sizing benchmarks. The variances are warranted given the uncertain loan-level event risk. Although NJTC recently signed a long-term lease at the property, Morningstar DBRS has concerns with the high submarket vacancy rate, accruing interest shortfalls and the borrower's ability to secure replacement financing, or to exercise the final extension option through 2026, which will require the purchase of a rate cap and the resumption of interest at the contract floating interest rate.

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.

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 (May 16, 2025) 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 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 17g-7 disclosure report and/or the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

As applicable, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS' outlooks and credit ratings are monitored.

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 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

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

Legal Criteria for U.S. Structured Finance (December 3, 2024)
https://dbrs.morningstar.com/research/444064

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.