DBRS Morningstar Finalizes Draft Ratings for BX Commercial Mortgage Trust 2022-LP2
Class A to
Class B to AA (low) (sf)
Class C to A (low) (sf)
Class D to BBB (low) (sf)
All trends are stable.
The BX 2022-LP2 single asset/single borrower transaction is secured by the borrower’s fee simple interest in a portfolio of 166 industrial properties totaling over 24.3 million square feet in 19 markets, including some of the major industrial centers in the Midwest and coastal areas of the country. markets in 16 states.
DBRS Morningstar continues to have a favorable view of the long-term growth and stability of the warehouse and logistics industry, despite the uncertainties and risks that the current coronavirus disease (COVID-19) pandemic has created across all commercial real estate asset classes. Consumers’ increased reliance on e-commerce and door-to-door delivery during the pandemic has only accelerated pre-pandemic consumer trends, and DBRS Morningstar believes retail’s loss generally continues to be a gain. for industry. The portfolio exhibits strong functionality metrics, with weighted average clear heights (WA) of 27.1 feet and a WA year built in 1998. The portfolio is 94.5% occupied with incredibly granular rent; there are over 400 unique tenants, with no tenant accounting for more than 1.9% of gross rent. As a result, the risk of NOI volatility is minimized, as it is one of the most diversified industry portfolios rated by DBRS Morningstar in recent years. The portfolio has a remaining lease term WA of 3.8 years and no more than 18.1% of the net leasable area (NRA) is expected to roll over in any given year. While WA’s remaining lease term is not particularly strong, the sponsor believes that expiring leases are having a positive impact on the portfolio, as the sponsor has seen a positive lease spread of 17.3% since assets acquired in 2019. High-quality tenants occupy 19.3% of NRA, and one tenant qualifies for long-term tenant credit treatment in DBRS Morningstar’s Free Cash Flow by Maturity long-term lease, providing additional cash flow stability.
The portfolio of 166 properties is spread across 19 unique markets in 16 different states, primarily in major metropolitan statistical areas across the country. The portfolio is 94.5% occupied by over 400 unique tenants with a remaining lease term of 3.7 years, no property contributing more than 2.1% of the NOI and no year during the lease term will experience lease renewal representing more than 18.7% of NAV. Based on industry portfolios recently rated by DBRS Morningstar, the portfolio in question is one of the most diversified, with minimal NOI volatility risk.
The majority of the portfolio consists of functional bulk warehouse products with strong functionality metrics and relatively low proportions of office square footage. The portfolio benefits from strong WA headroom of 27.1ft and a relatively low proportion of office space at 9.7%.
The portfolio enjoys locations in many high-performing coastal gateway and Midwestern industrial markets, including the
The portfolio has a base rent WA of
The portfolio has been largely unaffected by the coronavirus pandemic, with collections averaging over 99.0% since
Blackstone, which is a subsidiary of
The borrower can also release individual properties across the portfolio with the usual requirements. However, the prepayment premium for releasing individual assets is 105% of the allocated loan amount for the first 30% of the initial mortgage principal balance and 110% thereafter. DBRS Morningstar considers the release premium to be lower than a generally credit-neutral standard of 115% and, therefore, applied a capital structure penalty to the transaction to account for the higher deleveraging premium. weak.
According to DBRS Morningstar analysis, leases representing 72.0% of total NRA and 74.8% of portfolio gross rent are to expire during the term of the fully extended five-year loan. The renewal of leases is particularly concentrated on the years 2023 and 2024. The residual duration of the WA leases in the portfolio is 3.7 years. Significant portfolio turnover allows for potential volatility in future cash flows, particularly if market rents or occupancy rates deteriorate over time. There are also no ongoing rental reservations collected.
The mortgage has a partial prorated/sequential payment structure, which allows prorated repayments for the first 30% of the outstanding principal balance. DBRS Morningstar considers this structure to be credit negative, particularly at the top of the capital stack. Under a prorated partial payout structure, deleveraging of senior notes through the release of individual properties occurs at a slower rate compared to a sequential payout structure. DBRS Morningstar applied a capital structure penalty to the transaction to account for the proportional nature of certain prepayments.
ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors in the DBRS Morningstar analytical framework is available in DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.
All ratings are subject to monitoring, which could result in ratings being upgraded, downgraded, revised, confirmed or discontinued by DBRS Morningstar.
For supporting data and more information on this transaction, please log on to www.viewpoint.dbrsmorningstar.com. DBRS Morningstar provides in-depth analysis and commentary on the DBRS Viewpoint platform.
Remarks:
All figures are in
With respect to due diligence services, DBRS Morningstar has received Form ABS Due Diligence-15E (Form-15E), which contains a description of the information a third party reviewed in performing the due diligence services and a summary of findings and conclusion. Although the due diligence services described in Form 15E are not part of DBRS Morningstar’s methodology, DBRS Morningstar used the data file described in the independent accountant’s report in its analysis to determine the ratings referenced herein.
The primary methodology is the North American Single Asset/Single Borrower Rating Methodology (
DBRS
The rated entity or its related entities participated in the rating process for this rating metric. 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 relevant appendix for more information on the sensitivity of the assumptions used in the rating process.
The full report providing additional analytical detail is available by clicking the link under Related Documents below or by contacting us at info@dbrsmorningstar.com.
For more information about this credit or this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.
Phone. +1 312 332-3429
Ratings
Date Issued Debt Rated Action Rating Trend Attributesi
US = Lead Analyst based in the USA
CA = Lead Analyst based in
EU = Lead Analyst based in EU
E = EU approved
U=
Unsolicited participation with access
Unsolicited participation without access
Unsolicited Non Participating
22-Feb-22 Commercial Mortgage Pass-Through Certificates, Series 2022-LP2, Class A Provis.-FinalAAA (sf) Stb US
22-Feb-22 Commercial Mortgage Pass-Through Certificates, Series 2022-LP2, Class B Provis.-Final AA (low) (sf) Stb US
22-Feb-22 Commercial Mortgage Pass-Through Certificates, Series 2022-LP2, Class C Provis.-Final A (low) (sf) Stb US
22-Feb-22 Commercial Mortgage Pass-Through Certificates, Series 2022-LP2, Class D Provis.-Final BBB (low) (sf) Stb US
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