DBRS Morningstar Confirms Ratings on 10 Classes of CRSNT Trust 2021-MOON, Discontinues One Rating

DBRS Limited (DBRS Morningstar) confirmed its ratings on the following classes of the Commercial Mortgage Pass-Through Certificates, Series 2021-MOON issued by CRSNT Trust 2021-MOON:

-- Class A at AAA (sf)
-- Class A-Y at AAA (sf)
-- Class A-Z at AAA (sf)
-- Class A-IO at AAA (sf)
-- Class X-NCP 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 (low) (sf)
-- Class F at B (low) (sf)

In addition, DBRS Morningstar discontinued the rating on Class X-CP as the bond has exceeded its stated maturity date of October 2022 and is no longer receiving interest payments. All trends are Stable.

The rating confirmations and Stable trends reflect the overall performance of the underlying collateral, which has reported increased occupancy and improved financials over DBRS Morningstar’s assumptions at issuance.

The $465.0 million trust loan, which is accompanied by a $60.0 million mezzanine loan (held outside of the trust), is secured by the borrower’s fee-simple interest in a 1.3 million-square-foot (sf) Class A+ office/retail building known as the Crescent in the Uptown/Turtle Creek submarket of Dallas. Building amenities include on-site restaurants, a deli, a fitness center, a conference center, garage parking, concierge services, on-site security, and an outdoor terrace. The property is part of a larger mixed-use development project that includes The Crescent Hotel, a 226-key luxury hotel, which is not a part of the collateral. In between 2015 and 2021, the property received $48.0 million in capital improvements including restroom renovations, a corridor refurbishment, a management office remodel, fitness center upgrades, and lobby updates to modernize the collateral. Per the November 2022 site inspection, there are no deferred maintenance or capital improvements planned within the next 12 months.

The loan is interest only (IO) through its initial three-year term with two one-year extension options. Total loan proceeds of $525.0 million, in addition to $172.3 million of fresh equity, went toward financing the $655.0 million acquisition of the collateral, funding $25.0 million of upfront tenant improvement/leasing commission (TI/LC) reserves, funding $5.4 million in outstanding TI/LC obligations, and covering closing costs. The loan sponsor is Crescent Real Estate LLC, a real estate operating company and investment advisor, which had more than $8.5 billion in assets under management, development, and investment capacity at issuance. Based on the DBRS Morningstar value of $438.0 million, the DBRS Morningstar loan-to-value ratio (LTV) was 106.1% and 119.8%, based on the trust debt and total debt, respectively, including the $60.0 million mezzanine loan, compared with the appraised value of $675.0 million, reflecting LTVs of 68.9% and 77.8%, respectively.

The property benefits from its granular tenancy, with the largest tenant, Weil, Gotshal & Manges LLC, occupying 5.7% of the net rentable area (NRA) (lease expiry in October 2022), followed by McKool Smith, PC (5.5% of the NRA, lease expiry in June 2030), which downsized its space to 5.5% as of YE2021 from 5.8% at issuance, and Stanley Korshak LP (4.2% of the NRA, lease expiry in November 2022). According to the September 2022 rent roll, the property was 91.8% occupied, with an average rental rate of $30.07 per sf (psf), compared with the issuance figures of 84.7% and of $27.30 psf, respectively. According to Reis, Class A office properties within a one-mile radius of the subject reported an average vacancy and rental rate of 24.0% and $33.17 psf, respectively. Despite the submarket’s high vacancy, Reis projects nonagricultural job growth to average 1.5% annually during 2023 and 2024, which will result in absorption averaging 471,000 sf per year.

At issuance, DBRS Morningstar noted the property’s concentrated rollover risk in 2022 for 18.5% of the NRA; that rollover risk increased in the year following issuance as the September 2022 rent roll showed 28 tenants representing 24.1% of the NRA that had scheduled lease expirations in the next 12 months. Of those, 14 tenants, representing 14.7% of the NRA, had lease expirations dated prior to YE2022, including the largest- and third-largest tenants. Rollover risk at this property is generally relatively high in any given year, despite the granularity of the rent roll, because most tenants have shorter-term leases. According to the property’s website, however, only 5.6% of the NRA is currently listed as available for lease. Based on an update from the servicer, Stanley Korshak LP will remain at the property. The leasing update also noted the seven tenants (approximately 6.1% of the NRA) with lease expirations prior to September 2023 are working on renewing their leases.

The loan reported an annualized net cash flow of $40.1 million for the trailing nine months ended September 30, 2022, above the DBRS Morningstar figure of $30.7 million at issuance thanks to increased revenue (including parking income and percentage rent) and lower realized capital expenses. At issuance, DBRS Morningstar applied an economic vacancy rate of 15.1% and estimated capital expenses of $4.6 million, with higher TIs/LCs for new tenants predominantly based on recent leasing activity. According to the January 2023 loan-level reserve, the borrower had $14.4 million remaining in the TI/LC reserve for speculative leasing costs and another $0.6 million to cover outstanding TI/LC obligations, indicating that approximately $15.4 million has been allocated toward speculative and obligated capital expenses since issuance.

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 (May 17, 2022).

Classes X-NCP, and A-IO 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.

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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