DBRS Morningstar Assigns Provisional Ratings to COMM 2021-LBA Mortgage Trust

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the following classes of Commercial Mortgage Pass-Through Certificates, Series 2021-LBA to be issued by COMM 2021-LBA Mortgage Trust (COMM 2021-LBA):

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

All trends are Stable. Class J and Class HRR are not rated (NR).

The subject transaction consists of a portfolio of 18 industrial/logistics properties located across seven states being recapitalized by a newly formed joint venture (JV) between LBA Realty Fund VI, L.P. (LBA) and GIC (Realty) Private Limited (GIC), the sovereign wealth fund of Singapore. DBRS Morningstar previously analyzed and assigned ratings to certificates in connection with a similar recapitalization sponsored by a JV partnership between LBA and Blackstone (BX Trust 2021-LBA).

The portfolio benefits from its position across several strong-performing gateway industrial markets, including Philadelphia, Northern New Jersey, Los Angeles, Sacramento, Chicago, and Salt Lake City. Collectively, the portfolio's markets have a weighted-average (WA) availability rate of 6.4%, which is below the Q3 2020 national average of approximately 7.6% according to CBRE Econometric Advisers (EA). Gateway industrial markets serve as key distribution points in the global supply chain, are near major population centers, and generally exhibit greater liquidity and stability in times of economic stress.

The entire portfolio is classified as warehouse/distribution product, which was generally confirmed by DBRS Morningstar site tours on a sampling of the portfolio. Furthermore, only 8.1% of the portfolio's square footage is composed of office space, which is on the lower end of the range for recently analyzed industrial portfolios.

The transaction benefits from strong cash flow stability attributable to a significant proportion of credit tenant leases across the portfolio. Approximately 43.1% of the DBRS Morningstar in-place base rent is attributable to investment-grade (IG) tenants, including several high investment-grade rated entities. Furthermore, if the sponsor is successful in executing an Amazon lease for the 3825 Forsyth property, the portfolio's proportion of in-place base rent derived from IG tenants would be in excess of 52.0%.

The borrower sponsors, a JV partnership between LBA and GIC, are contributing approximately $238.2 million in cash equity as a part of the transaction to recapitalize the portfolio. DBRS Morningstar generally views acquisition loans with significant amounts of cash equity more favorably, given the stronger alignment of economic incentives when compared with cash-out financings.

The DBRS Morningstar LTV on the trust loan is significant at 106.7%. The high leverage point, combined with the lack of amortization, could potentially result in elevated refinance risk and/or loss severities in an EOD.

The portfolio has a WA year built of approximately 1985, which is significantly older than other recently analyzed industrial portfolios. Older properties tend to have lower clear heights and often lack the benefits of modern building technology and HVAC systems. Accordingly, the portfolio's WA clear heights are approximately 26 feet, which are less favourable than other recently analyzed portfolios, which have averaged closer to 27 feet.

Eleven of the portfolio's 18 properties are leased to single-tenant users, therefore reducing tenant diversity and granularity. The properties collectively comprise approximately 48.0% of the DBRS Morningstar in-place base rent (exclusive of the prospective Amazon lease for 3825 Forsyth). This proportion of single-tenant properties is higher than other recently analyzed transactions. However, as mentioned above, a sizable portion of the portfolio is leased to IG tenants, which offsets some of the single-tenant risk.

The mortgage loan has a partial pro rata/sequential-pay structure, which allows for pro rata paydowns for the first 20.0% of the unpaid principal balance. DBRS Morningstar considers this structure to be 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. DBRS Morningstar applied a penalty to the transaction's capital structure to account for the pro rata nature of certain prepayments.

The borrower can also release individual properties subject to customary requirements. However, the prepayment premium for the release of individual assets is generally 105.0% of the allocated loan amount for the first 20.0% of the original principal balance of the mortgage loan and 110.0% thereafter. DBRS Morningstar considers the release premium to be weaker than a generally credit-neutral standard of 115.0% and, as a result, applied a penalty to the transaction's capital structure to account for the weak deleveraging premium.

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/373262.

All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

For supporting data and more information on this transaction, please log into www.viewpoint.dbrsmorningstar.com. DBRS Morningstar provides analysis and in-depth commentary in the DBRS Viewpoint platform.

Notes:
All figures are in U.S. dollars unless otherwise noted.

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

The principal methodology is the North American Single-Asset/Single-Borrower Ratings Methodology (March 1, 2020), 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.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

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.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrsmorningstar.com.

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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