Morningstar DBRS Confirms Credit Ratings on BX Trust 2021-LBA

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

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

All trends are Stable.

The credit rating confirmations reflect the overall stable performance of the transaction, which remains in line with Morningstar DBRS’ expectations as evidenced by the most recent net cash flow (NCF) and stable occupancy rate. The transaction consists of two separate, uncrossed portfolios of assets, Pool 1 (Fund V; 16 assets) and Pool 2 (Fund JV; 35 assets), each of which supports the payments on its respective series of certificates. Generally, each of the portfolios consists of functional bulk warehouse product that exhibits strong functionality metrics and favorable locations within major industrial markets.

Since last review, one property was released from Fund V, representing an 8.6% collateral reduction since issuance. Both mortgage loans have a partial pro rata/sequential-pay structure, which allows for pro rata paydowns for the first 30.0% of the unpaid principal balance at a release premium of 105.0% of the allocated loan amount, which increases to 110.0% for the remaining 70.0% of the principal balance. Both loans, which are floating-rate loans, are currently on the servicer’s watchlist for their upcoming maturity in February 2024, but the loans have four one-year extension options remaining.

Morningstar DBRS remains concerned with the elevated rollover risk throughout the fully extended loan term for both portfolios. At issuance, leases representing approximately 72.5% and 87.1% of Morningstar DBRS’ base rent were scheduled to roll through the fully extended loan term across the Fund V and Fund JV portfolios, respectively. However, this risk is mitigated by the success of e-commerce as consumer demand for faster and ultimately same-day shipping times becomes commonplace.

Fund V consists of 16 industrial properties, totaling approximately 2.6 million square feet (sf) in four states (Arizona, California, Oregon, and Washington), and reported an occupancy rate of 100% with an NCF of $20.3 million per the trailing 12 months (T-12) ended June 30, 2023, financials, compared with the Morningstar DBRS NCF of $19.8 million at issuance for the 16 remaining properties. Fund JV consists of 35 industrial properties, totaling about 6.6 million sf in six states (Washington, Nevada, California, Utah, Texas, and Colorado) and reported an occupancy rate of 98.0% with an annualized NCF of $45.4 million, per the Q2 2023 reporting, compared with the Morningstar DBRS NCF of $34.1 million at issuance. The underlying properties consist mainly of warehouse and distribution facilities with comparatively low proportions of office square footage. These property types have generally performed well given the continued dominance of e-commerce and demand for industrial space. The pool is located across several well-performing West Coast markets, with a geographic concentration in Southern California.

In the analysis for this review, Morningstar DBRS updated its NCF assumption to exclude the released property, resulting in an updated figure of $19.8 million for Fund V. The capitalization rate of 6.75% applied at issuance stayed the same, resulting in a Morningstar DBRS value of $293.7 million, a variance of -40.9% from the issuance appraised value of $496.8 million for the Fund V portfolio. The Morningstar DBRS value implies a loan-to-value ratio (LTV) of 104.7%. Morningstar DBRS maintained the issuance analysis for Fund JV, which was based on the Morningstar DBRS NCF of $34.1 million and a capitalization rate of 7.0%, resulting in a Morningstar DBRS value of $487.3 million. The Morningstar DBRS value reflects a 45.9% haircut from the issuance appraised value of $900.0 million and an LTV of 113.9%. Morningstar DBRS maintained the positive qualitative adjustments for Fund V and Fund JV totaling 8.5% and 8.0%, respectively, to reflect the low cash flow volatility, good property quality, and strong market fundamentals.

Morningstar DBRS penalizes transactions with this structure as it is credit negative, particularly at the top of the capital stack. Under a partial pro rata paydown structure, deleveraging of the senior notes through the release of individual properties occurs at a slower pace compared with a sequential-pay structure. The borrower can also release individual properties across both portfolios with customary requirements.

The sponsors under the mortgage loans are joint-venture partnerships between Blackstone Real Estate Income Trust, Inc. (BREIT) and LBA Logistics. BREIT is an affiliate of The Blackstone Group, Inc. (Blackstone), whose real estate group was founded in 1991 and has a global real estate portfolio valued at $579 billion. Blackstone is also one of the world's largest industrial landlords. LBA Logistics is the industrial arm of LBA Realty LLC, a real estate investment and management company with a diverse portfolio of industrial properties across the United States.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS 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).

Classes X-V-NCP and X-JV-NCP are interest-only (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 credit ratings are subject to surveillance, which could result in credit ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by Morningstar DBRS.

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 Morningstar DBRS Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. Morningstar DBRS 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 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.

Morningstar DBRS 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 Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

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

North American Single-Asset/Single-Borrower Ratings Methodology (October 19, 2023; https://www.dbrsmorningstar.com/research/422174)

Rating North American CMBS Interest-Only Certificates (December 13, 2023; https://www.dbrsmorningstar.com/research/425261)

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 22, 2023; https://www.dbrsmorningstar.com/research/420982)

North American Commercial Mortgage Servicer Rankings (August 23, 2023; https://www.dbrsmorningstar.com/research/419592)

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, 2023; https://www.dbrsmorningstar.com/research/425081)

A description of how Morningstar DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/417279.

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