DBRS Morningstar Finalizes Provisional Ratings on LIFE 2021-BMR Mortgage Trust

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2021-BMR issued by LIFE 2021-BMR Mortgage Trust:

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

All trends are Stable. Class HRR is not rated by DBRS Morningstar.

The transaction consists of a portfolio of 17 properties with 43 individual tenants totaling approximately 2.4 million square feet (sf) of Class A office and laboratory space in the life-sciences hubs of Cambridge, Massachusetts; San Diego; and San Francisco. The portfolio includes 15 assets that were securitized in the CGDBB 2017-BIOC transaction, 500 Kendall, which was securitized in the GSMS 2017-500K transaction, and 65 Grove, which the sponsor acquired with a term loan in 2018.

The portfolio benefits greatly from its granular rent roll, institutional quality tenancy, and locations in the top-three life-sciences hubs in the country. These leading clusters exhibit low availability rates and high barriers to entry. DBRS Morningstar is optimistic that rents in the these markets will continue to rise as laboratory space in the life-sciences and biotechnology industries becomes more expensive and companies continue to congregate around established universities, research centers, and hospitals, most often in dense urban areas.

The transaction benefits from strong cash flow stability attributable to a significant proportion of credit tenant leases across the portfolio. Approximately 67.8% of the in-place base rent is attributable to investment-grade tenants. Additionally, the portfolio serves as the global or domestic headquarters for 15 tenants comprising 44.0% of base rent, including five of the top 15 tenants, comprising 35.7% of base rent. In addition to a large percentage of investment-grade tenancy, there is limited lease rollover during the five-year fully extended loan term. Leases comprising only 4.9% of the DBRS Morningstar gross potential rent expire within the two-year initial term of the loan and only 28.6% during the five-year fully extended term. The lease rollover during the fully extended term is evenly distributed with no more than 10.8% of rents expiring in any calendar year.

The sponsor for the transaction, BioMed Realty, is a fully integrated real estate investment trust that is focused on acquiring, developing, leasing, owning, and managing laboratory and office space for the life-science and technology industry. BioMed Realty was founded in 2004 and merged with The Blackstone Group in 2016. BioMed is a full-service life-science and technology office operating platform with 16 million sf (including in-process developments and announced acquisitions pending close). In November 2020, Blackstone recapitalized BioMed Realty for $14.6 billion as part of a new long-term, perpetual capital, core+ strategy.

The DBRS Morningstar loan-to-value ratio on the trust loan is significant at 105%. The high leverage point, combined with the lack of amortization, could potentially result in elevated refinance risk and/or loss severities in an event of default. However, the sponsor has approximately $1.06 billion of market equity in the portfolio, which substantially mitigates this risk.

Nine of the portfolio’s 17 assets are single-tenant buildings. Together, the nine properties represent 50.5% of the portfolio’s total net cash flow (NCF). Single-tenant properties generally present higher risk than multiple-tenant properties because their sole source of income is generated by one lessee rather than a diversified roster of tenants. However, five of the assets, totaling 48.2% of NCF, are approximately 100% leased to investment-grade tenants, three of which, totaling 45.6% of NCF, have lease expirations beyond the loan’s fully extended maturity in March 2026.

The loan allows for pro rata paydowns associated with property releases for the first 30% of the unpaid principal balance. The loan has been structured with a partial pro rata/sequential-pay structure. DBRS Morningstar considers this structure credit negative, particularly at the top of the capital stack. Under a partial pro rata structure, deleveraging of the senior notes through the release of individual properties occurs at a slower pace as compared with a sequential-pay structure. DBRS Morningstar applied a penalty to the transaction's capital structure to account for the pro rata nature of certain prepayments.

The borrower can also release individual properties subject to customary requirements. However, the prepayment premium for the release of individual assets is 105.0% for the first 30.0% of the loan balance and 110.0% of the loan balance thereafter. DBRS Morningstar considers the release premium to be weaker than those of other previously rated single-borrower, multi-property deals and, as a result, applied a penalty to the transaction's capital structure to account for the weak deleveraging premium.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

For supporting data and more information on this transaction, please log into www.viewpoint.dbrsmorningstar.com. DBRS Morningstar provides analysis and in-depth commentary in the DBRS Viewpoint platform.

Notes:
All figures are in U.S. dollars unless otherwise noted.

With regard to due diligence services, DBRS Morningstar 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 DBRS Morningstar’s methodology, DBRS Morningstar used the data file outlined in the independent accountant’s report in its analysis to determine the ratings referenced herein.

The principal methodology is the North American Single-Asset/Single-Borrower Ratings Methodology (March 2, 2021), which can be found on dbrsmorningstar.com under Methodologies & Criteria. For a list of the structured-finance-related methodologies that may be used during the rating process, please see the DBRS Morningstar Global Structured Finance Related Methodologies document, which can be found on dbrsmorningstar.com in the Commentary tab under Regulatory Affairs. Please note that not every related methodology listed under a principal structured finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrsmorningstar.com.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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