DBRS Morningstar Finalizes Provisional Ratings on BXHPP Trust 2021-FILM

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

-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (sf)
-- Class X-CP at A (sf)
-- Class X-FP at A (sf)
-- Class X-NCP at A (sf)

All trends are Stable.

Classes X-CP, X-FP, and X-NCP are interest-only (IO) classes whose balances are notional.

The BXHPP 2021-FILM transaction is collateralized by five Class A creative office buildings and three studio lots in the Hollywood section of Los Angeles. DBRS Morningstar continues to take a positive view on the joint venture partnership established between Blackstone Property Partners and Hudson Pacific Properties L.P. (HPP) to own and operate the collateral, which represents a high-barrier-to-entry real estate portfolio that serves as a hub for a growing industry (digital content). The properties come together to form a synergistic creative campus in Hollywood that is attractive for tenants in the content creation space; a similar dynamic exists in some of the biomedical office portfolios in markets such as Boston and Cambridge that benefit from their synergistic proximity to research universities.

The office component has no scheduled lease expirations until over five years after loan maturity, and the studio component benefits from longer-term lease structures that are less commonly seen when it comes to studio properties. The properties have also performed well despite initial disruptions in production schedules related to the ongoing Coronavirus Disease (COVID-19) pandemic. Collections have been 100% across the portfolio over the past 16 months.

While studio leases are generally shorter term—typically six to 12 months—the sponsor has successfully executed longer-term lease agreements with the studio tenants, which currently have a weighted-average lease term of 7.23 years. Recent leasing spreads for the sound stages have been significant, with a 30% positive leasing spread on the Confidential Tenant's right-of-first-offer (ROFO) on four stages at Sunset Gower and approximately 13.0% for the Station 19 renewal at Sunset Las Palmas. Furthermore, the sponsor has negotiated must-take minimums with various tenants for grip and light rentals, which reduces the volatility of the grip and light revenue line item.

The properties, specifically the studio component, benefit from high barriers to entry. There have been no substantial deliveries of new studio space to the Los Angeles market in the past 20 years, in part because the high cost of land makes it economically unattractive to construct new studio space. The office and studio components collectively form what is effectively a creative campus for digital content, which DBRS Morningstar believes to be synergistic for tenants at both the office and the studio parcels.

DBRS Morningstar believes that growing demand for creative digital content is likely to continue, and the properties collectively serve as a major creative hub for one of the largest digital streaming services and content producers in the world. The streaming provider added more than 15 million subscribers in Q1 2020 and currently has more than 209 million total subscribers. Furthermore, the firm plans to spend approximately $17 billion on content in 2021.

The studio component of the transaction requires specialized knowledge and expertise in order to operate and lease effectively. For example, HPP handles leasing of the studio component through an in-house sales team that specializes in managing relationships with various space users. The pool of potential buyers either for the studio component or the portfolio as a whole may be more limited than other, more traditional property types.

Approximately 88% of DBRS Morningstar in-place base rent for the office component was attributable to a single tenant (Confidential Tenant). Furthermore, approximately 5% of the DBRS Morningstar in-place base rent is in the form of leases not yet signed. However, a significant upfront reserve was established to address this risk, which DBRS Morningstar determined was adequate to offset the risk that any of the letters of intent do not get signed.

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.

Classes X-CP, X-FP, and Class X-NCP are IO certificates that reference 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 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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