DBRS Morningstar Assigns Provisional Ratings to BX 2021-21M Mortgage Trust, Series 2021-21M

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the following classes of Commercial Mortgage Pass-Through Certificates, Series 2021-21M to be issued by BX 2021-21M Mortgage Trust (BX 2021-21M):

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

All trends are Stable. Class H and Class JRR are not rated by DBRS Morningstar.

The collateral for BX 2021-21M includes the borrower’s fee-simple interest in 21 Class A and B multifamily properties totaling 6,671 units across seven states and 10 distinct markets throughout the U.S. The portfolio is primarily concentrated in Texas (10 properties, 3,468 units, 35.4% of NCF), Florida (three properties, 989 units, 19.6% of NCF), and Washington (two properties, 432 units, 15.3% of NCF). Within Texas, nine assets are located throughout Dallas Fort Worth and one asset is in San Antonio. Within Florida, the three properties are in Jacksonville and Sarasota. Additional markets include Atlanta; Seattle; Denver; Savannah, Georgia; Kansas City, Kansas; and Charleston, South Carolina. The sponsor, an affiliate of Blackstone, acquired the portfolio through multiple off-market, all cash acquisitions from April through September 2021. Portfolio composition is split between 13 Class A urban and suburban mid-rise properties built since 2001 and eight 1980s vintage garden-style apartments. The portfolio includes 14 stabilized properties (57.6% of net cash flow (NCF)) and seven newly stabilized assets brought to market within the past two years, which have experienced strong leasing momentum during Q3 2021.

The properties comprising the portfolio generally exhibit favorable finish qualities and comprehensive amenity offerings with a weighted-average (WA) year built of 2002, and 10 properties, representing 61.2% of the portfolio’s NCF, were delivered after 2010. In addition to the generally favorable asset quality of the underlying collateral, DBRS Morningstar generally views the markets to which the portfolio is exposed as highly desirable for multifamily development, with strong growth potential and favorable population statistics. The generally favorable market conditions are further evidenced by relatively tight submarket vacancy rates, which averaged 4.9% across the portfolio per the appraiser and are generally projected to decline through the fully extended loan maturity. While 18 of the 21 properties (representing 71.2% of the portfolio by allocated loan amount (ALA) are in areas characterized as having a DBRS Morningstar Market Rank of between 2 and 4 (ranks generally associated with more suburban locations), the cross-collateralized and geographically diversified nature of the portfolio generally mitigates some of the market risk. As of September 2021, the portfolio was 94.9% occupied with favorably increasing portfolio occupancy and rent trends demonstrated from year-end (YE) 2020 through the trailing one-month period (T-1) ended August 2021. Additionally, despite the noise surrounding lease defaults and nonpayment of rent in the U.S. through the recent and ongoing Coronavirus Disease (COVID-19) pandemic, the sponsor was successful in ramping up toward full stabilization with economic occupancy increasing from 82.1% as of the T-6 ended August 2021 to 95.9% based on the September 2021 rent roll. Portfolio NCF has increased from $47.0 million to approximately $64.5 million from the T-6 ended August 2021 to the T-1 ended August 2021, a 37.1% increase.

As part of its investment thesis, the sponsor plans to increase performance by continuing to lease up recently delivered assets approaching stabilization (40% of units were delivered in 2018 or later) and by renovating and marking to market rents at older, occupancy stabilized assets. The portfolio is currently achieving WA monthly rents of $1,378 per unit, which is approximately 5.4% below the WA submarket rent of $1,455 per unit. Given the sponsor's extensive multifamily portfolio in each of these markets, the sponsor should be able to leverage its existing network to maximize operational efficiency. While DBRS Morningstar did not give any credit to potential upside in cash flow from the sponsor’s business plan, the portfolio’s generally favorable asset quality and location in high-growth markets make it well positioned to maintain stable operating performance through the loan term. Additionally, DBRS Morningstar expects there would be no issues funding any planned renovations, given the sponsor’s strong access to capital and significant financial wherewithal.

The sponsor is the real estate fund commonly known as Blackstone Real Estate Partners (BREP) IX. BREP IX is the firm’s $20.5 billion flagship global real estate opportunity fund that closed in August 2019. The Blackstone Real Estate group was established in 1991 and is the largest private equity real estate investment manager in the world today with more than $457 billion of assets under management (AUM) in the private equity, real estate, hedge fund solutions, and credit sectors. Today, its more than $120 billion real estate AUM includes premier properties in many top locations in the U.S., Europe, Asia, and Latin America, with a diverse mix of hospitality, office, retail, industrial, and residential investments.

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 and X-NCP are IO certificates that reference a single rated tranche or 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.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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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