Morningstar DBRS Assigns Provisional Credit Ratings to Morgan Stanley Capital I Trust 2024-NSTB

DBRS, Inc. (Morningstar DBRS) assigned provisional credit ratings to the following classes of Commercial Mortgage Pass-Through Certificates Series 2024-NSTB (the Certificates) to be issued by Morgan Stanley Capital I Trust 2024-NSTB (MSC 2024-NSTB, or the Trust):

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

All trends are Stable.

The collateral of the MSC 2024-NSTB transaction consists of 149 CRE loans secured by 146 predominantly multifamily properties with an aggregate cut-off date balance of $489.9 million. The loans were originated by Signature Bank between 2013 and 2023. The pool was analyzed to determine the provisional ratings, reflecting the long-term probability of loan default within the term and its liquidity at maturity. The transaction has a sequential-pay pass-through structure.

Morgan Stanley Mortgage Capital Holdings LLC (Morgan Stanley), the Mortgage Loan Seller, purchased the loans for cash in March 2024 from a joint venture and terms of the sale were not disclosed. Subsequently, Morgan Stanley selected a portion of the loans from the initial transaction to serve as collateral in the subject transaction.

The pool consists of 149 performing loans secured by 146 properties spread across four states and six major metro statistical areas (MSAs), resulting in a Herfindahl Index of 59.34, well above traditional CMBS conduit transactions. The high loan count and diversification is credit positive and results in an overall decrease in credit enhancement levels. The individual exposure to any potentially problematic loan in the pool decreases as the pool size increases.

There are 98 loans, representing 53.7% of the pool, located in areas with Morningstar DBRS Market Ranks of 7 or 8, which are indicative of dense urban areas that benefit from increased liquidity driven by consistently strong investor demand, even during times of economic stress. Markets with these rankings benefit from lower default frequencies than less dense suburban, tertiary, and rural markets. The urban market most represented in this deal is New York. Additionally, 148 loans, representing 86.7% of the pool, are located in MSA Group 3 - New York-Northern New Jersey-Long Island, which represents the best-performing group in terms of historical CMBS default rates among the top 25 MSAs.

There are 145 loans secured by multifamily properties in this transaction, representing 88.5% of the total pool balance. There are 131 loans comprising 91.3% of the pool that are secured by 100% market rate units. The remaining 18 loans accounting for 6.8% of the pool are secured by properties of which 15 units are 100% rent stabilized, and 3 of which have some rent stabilized or controlled component. Market rate units are favorable as there are no potential income restrictions as the property's rental rates can freely rise with market conditions. Additionally, multifamily properties have had historically lower default rates compared to other commercial property types, and the asset class is viewed favorably by Morningstar DBRS due to high cost of home ownership today and strong rental tailwinds.

The pool is expected to amortize by 11.9% by final maturity, which results in a WA balloon LTV of 56.7%. The pool includes 86 loans, representing 39.6% of the pool, that have no IO period at all, and either partially or fully amortize by maturity. There are 62 loans, representing 59.9% of the pool, that were originated with partial IO periods ranging from 12 to 60 months, that will amortize following the IO period. Amortization is considered credit positive and results in a lower loan-level expected loss as the borrower is required to pay down the principal balance of the loan during the term, resulting in a smaller balloon balance.

The majority of loans in the pool feature an Adjustment Date, where the coupon resets at a higher interest rate for an additional 5-year term until the Maturity Date. The reset rate following the Adjustment Date is generally the greater of the in-place coupon or the Five-Year UST + 2.50% to 3.00% across the pool, which may be considerably higher than the loan's pre-Adjustment rate based on the US Treasury rate at that time. The increase in interests rates poses additional risk to loans through higher debt service burdens and lower DSC. However, the loans are structured with scaling, decreasing prepayment penalties leading up to the Adjustment Date, making it favorable for borrowers to refinance their loans before the Adjustment Date. Morningstar DBRS modeled each loan assuming the interest rate adjustment, resulting in a stressed DSCR. The WA DSCR assuming all loans reset their rates is 1.18x. The WA DSCR based on each loans interest rate as of the cut-off date is 1.49x.

Morningstar DBRS' credit rating on the Certificates addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the related Principal Distribution Amounts and/or Interest Distribution Amounts for the rated classes.

Morningstar DBRS' credit rating does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations. For example, Prepayment Premiums.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
General Considerations
ESG considerations had a significant effect on the credit analysis.

Environmental (E) Factors
The following Environmental factor(s) had a significant effect on the credit analysis: There are 29 loans in the pool backed by collateral with environmental conditions noted in the Rep Exceptions. There are no mitigants provided in the Rep Exceptions, no opinions of cost, and no remediation plans noted for these loans. Depending on the severity, these environmental issues can lead to expensive remediation work, property damage, and overall increases to loss severity in a downside scenario.

There were no 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 Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (13 August 2024) https://dbrs.morningstar.com/research/437781

Classes X-A, X-B, X-C, X-D, X-E, X-F, and X-G 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 US dollars unless otherwise noted.

The principal methodology is North American CMBS Multi-Borrower Rating Methodology (March 1, 2024)
https://dbrs.morningstar.com/research/428797

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

With regard to due diligence services, Morningstar DBRS 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 Morningstar DBRS' methodology, Morningstar DBRS used the data file outlined in the independent accountant's report in its analysis to determine the credit ratings referenced herein.

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.

A provisional credit rating is not a final credit rating with respect to the above-mentioned securities and may change or be different than the final credit rating assigned or may be discontinued. The assignment of final credit ratings on the above-mentioned securities is subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalize the credit ratings.

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://dbrs.morningstar.com/about/methodologies.

North American Commercial Mortgage Servicer Rankings (August 23, 2024)
https://dbrs.morningstar.com/research/438283

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (June 28, 2024)
https://dbrs.morningstar.com/research/435293

Rating North American CMBS Interest-Only Certificates (June 28, 2024)
https://dbrs.morningstar.com/research/435294

Legal Criteria for U.S. Structured Finance (April 15, 2024)
https://dbrs.morningstar.com/research/431205/legal-criteria-for-u.s.-structured-finance

North American Insight Model v 1.2.0.00
https://dbrs.morningstar.com/research/428797

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.