DBRS Morningstar Confirms Ratings on BSPRT 2021-FL7 Issuer, Ltd.

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on all classes of notes issued by BSPRT 2021-FL7 Issuer, Ltd. as follows:

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

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which has remained in line with DBRS Morningstar’s expectations since issuance as the trust is primarily secured by the multifamily collateral. In conjunction with this press release, DBRS Morningstar has published a Surveillance Performance Update report with in-depth analysis and credit metrics for the transaction and with business plan updates on select loans. For access to this report, please click on the link under Related Documents below or contact us at info@dbrsmorningstar.com.

The initial collateral consisted of 26 floating-rate mortgage loans secured by 29 mostly transitional real estate properties with a cut-off balance totaling $840.7 million excluding $50.3 million in remaining future funding commitments. Most loans were in a period of transition with plans to stabilize performance and improve the asset value. The transaction has a maximum funded balance of $900.0 million and is a managed vehicle with a 24-month reinvestment period scheduled to expire with the December 2023 Payment Date. As of August 2023 reporting, the Reinvestment Account has a minimal balance of $0.6 million.

As of the August 2023 remittance, the pool comprises 37 loans secured by 57 properties with a cumulative trust balance of $899.4 million. Seventeen of the original loans in the transaction at closing, representing 65.3% of the current trust balance, remain in the trust. Since issuance, 21 loans with a former cumulative trust balance of $267.9 million have been successfully repaid from the pool, including 10 loans totaling $184.3 million since the previous DBRS Morningstar rating action in November 2022. An additional 10 loans, totaling $250.0 million, have been added to the trust since the previous DBRS Morningstar rating action.

The transaction is concentrated by property type, as 26 loans are secured by multifamily properties, representing 82.0% of the current trust balance, seven loans are secured by hotel properties, representing 9.9% of the current trust balance, and student housing property, representing 3.6% of the current trust balance. In comparison, at issuance, multifamily properties represented 92.2% of the collateral, hotel properties represented 2.1% of the collateral, and student housing properties represented 3.9% of the collateral.

The loans are primarily secured by properties in suburban markets. Twenty-seven loans, representing 71.1% of the pool, are secured by properties in suburban markets, as defined by DBRS Morningstar, with a DBRS Morningstar Market Rank of 3, 4, or 5. An additional seven loans, representing 23.0% of the pool, are secured by properties with DBRS Morningstar Market Rank of 1 or 2, denoting rural and tertiary markets, while three loans are secured by properties with a DBRS Morningstar Market Rank of 6 or 7, denoting an urban market. In comparison, at issuance, properties in suburban markets represented 84.1% of the collateral, and properties in tertiary markets represented 15.9% of the collateral.

Leverage across the pool has increased slightly as of August 2023 reporting when compared with issuance metrics as the current weighted-average (WA) as-is appraised value loan-to-value ratio (LTV) is 73.5%, with a current WA stabilized LTV of 64.7%. In comparison, these figures were 70.8% and 64.4%, respectively, at issuance. DBRS Morningstar recognizes that select property values may be inflated as the majority of the individual property appraisals were completed in 2021 and 2022 and may not reflect the current rising interest rate or widening capitalization rate environments.

Through July 2023, the lender had advanced cumulative loan future funding of $53.1 million to 22 of the 37 outstanding individual borrowers to aid in property stabilization efforts. The largest advance has been made to the borrower of the Woodhawk Club ($12.3 million) loan. The loan is secured by a 436-unit garden-style multifamily property in Pittsburgh. The advanced funds have been used to fund the borrower’s extensive $14.6 million planned capital expenditure (capex) plan to complete unit renovations, upgrade exterior and project amenities as well as address various deferred maintenance items. According to the Q1 2023 update from the collateral manager, the property was 91.3% occupied as of the March 2023 rent roll with an average rental rate of $1,252 per unit. As of Q1 2023, the borrower had renovated 121 units, 92 of which had been leased with achieved monthly premiums of $204 per unit over nonrenovated units. There remains an additional $2.3 million of available loan funding.

An additional $62.1 million of loan future funding allocated to 21 of the outstanding individual borrowers remains available. Available loan proceeds for each respective borrower are for planned capex improvements with the largest portion of available funds, $26.2 million, allocated to the borrower of the Cedar Grove Multifamily Portfolio loan. The loan is secured by a portfolio of 15 multifamily properties totaling 1,679 units across North Carolina, South Carolina, and Oklahoma. Loan future funding is available to the borrower to complete a planned capex program including interior and exterior renovations as well as amenity upgrades across the portfolio. According to the Q1 2023 collateral manager update, the renovation program had yet to begin. As of August 2023, the loan had a funded balance of $62.1 million with a $13.8 million pari passu piece in the subject transaction and a $48.3 million pari passu piece in the BSPRT 2021-FL6 transaction (also rated by DBRS Morningstar).

As of the July 2023 reporting, no loans are delinquent or in special servicing, but five loans, representing 11.2% of the current trust balance, are on the servicer’s watchlist. The loans have been flagged for performance issues with low occupancy rates and below breakeven debt service coverage ratios (DSCRs). The largest loan on the servicer’s watchlist, Verandas at Cityview, representing 4.7% of the transaction, is secured by a 314-unit multifamily property in Fort Worth, Texas. The loan was added to the watchlist for below breakeven DSCR; however, the property had an occupancy rate of 90.8% as of the March 2023 rent roll while achieving rental rate premiums of $175 per unit over rents at issuance.

An additional nine loans, representing 26.9% of the current pool balance, have upcoming loan maturity dates throughout 2023. Each loan has at least one remaining 12-month extension option with the exception of the $8.1 million Station House Inn Lake Tahoe and the $4.8 million Hampton Inn Milwaukee Northwest loans, which have final maturity dates of August 2023, and December 2023, respectively. The Station House Inn Lake Tahoe loan underwent a short-term extension in April 2023, which resulted in a principal payment of $1.5 million. According to the collateral manager, the loan is expected to be paid in full in the near term. The Hampton Inn Milwaukee Northwest property has underperformed its competitive set and reported negative cash flow as of the trailing 12 months ended February 28, 2023, financial reporting. DBRS Morningstar increased its probability of default on this loan to account for the increased risk, which resulted in a loan expected loss in excess of the pool average.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/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/416784 (July 4, 2023).

All credit ratings are subject to surveillance, which could result in credit 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 (March 16, 2023; https://www.dbrsmorningstar.com/research/410912).

Other methodologies referenced in this transaction are listed at the end of this press release.

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 credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

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

DBRS, Inc.
22 West Washington Street
Chicago, IL 60602 USA
Tel. +1 312 332-3429

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

-- North American CMBS Multi-Borrower Rating Methodology (March 16, 2023)/North American CMBS Insight Model Version 1.1.0.0, https://www.dbrsmorningstar.com/research/410913

-- DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 12, 2022), https://www.dbrsmorningstar.com/research/402646

-- North American Commercial Mortgage Servicer Rankings (September 8, 2022),
https://www.dbrsmorningstar.com/research/402499

-- Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023),
https://www.dbrsmorningstar.com/research/415687

-- Legal Criteria for U.S. Structured Finance (December 7, 2022),
https://www.dbrsmorningstar.com/research/407008

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