DBRS Morningstar Confirms Ratings on BWAY Commercial Mortgage Trust 2022-26BW

DBRS Limited (DBRS Morningstar) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2022-26WB issued by BWAY Commercial Mortgage Trust 2022-26BW as follows:

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

All trends are Stable.

The rating confirmations and Stable trends reflect the overall stable performance of the underlying collateral since issuance. The collateral for the transaction consists of a 29-story, 839,712-square-foot (sf) office building in the Financial District of Manhattan, New York. The property includes 18,960 sf of street-level retail space. The $290.0 million mortgage loan consists of a $222.2 million trust component with the remaining $67.8 million in companion loans evidenced by four promissory notes that were not deposited into the trust. In addition, the property is encumbered by a $40.0 million mezzanine loan.

The collateral was 82.2% leased at issuance, with credit tenants accounting for more than 40% of the net rentable area (NRA). While occupancy remains healthy at 78.7% per the September 2022 rent roll, the loan was added to the servicer’s watchlist for a low debt service coverage ratio of 0.74 times, which appears to be attributed to the reduced rents for the second-largest tenant, Live Primary, LLC (Live Primary; 8.8% of the NRA, lease expiry December 2027), coupled with rent steps not fully realized and a lack of full-year reporting as the deal only closed in February 2022. The servicer has reached out to the borrower to gather additional information in regards to the net cash flow decline. The loan, however, has remained current on its debt service payments since issuance.

At issuance, DBRS Morningstar noted the second-largest tenant, Live Primary, filed for federal bankruptcy in 2020. Although the coworking company is not in bankruptcy anymore, it does pay reduced rent through Q1 2023. The loan includes a Live Primary Rent Replication Reserve of $1.15 million to pay the difference between the reduced Live Primary rent through March 31, 2023, and the rent payable after April 1, 2023. As of the December 2022 reserve report, the loan noted a total reserve balance of $5.6 million, including the Live Primary Rent Replication Reserve and a $1.5 million capital expenditure reserve to address the physical needs of the property.

The largest tenants at the collateral include The New York City Department of Education (34.3% of NRA, lease expiries in January 2039 and March 2041; noted as a long-term credit tenant by DBRS Morningstar), Live Primary, and Court of Claims (5.2% of NRA, lease expiry January 2032). Through YE2023 there is minimal rollover risk, with only 6.1% of the NRA with upcoming lease expirations.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no environmental, social, and governance factors that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022).

Class X is an interest-only (IO) certificate that references 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.

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

The principal methodology is North American CMBS Surveillance Methodology (October 3, 2022), 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.

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@dbrsmorningstar.com.

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.

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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