DBRS Morningstar Assigns Provisional Ratings to BSST 2021-SSCP Mortgage Trust

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

-- Class A at AAA (sf)
-- Class B at AAA (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)
-- Class X-CP at A (sf)
-- Class X-EXT at A (sf)

All trends are Stable.

Classes X-CP and X-EXT are interest-only (IO) classes whose balances are notional.

The BSST 2021-SSCP single-asset/single-borrower transaction is collateralized by the borrower’s fee-simple interest in a portfolio of 32 industrial/logistics properties and one laboratory property across 11 states being acquired by a newly formed joint venture (JV) between Raith Capital Partners, LLC (Raith) and Equity Industrial Partners (EIP).

The portfolio benefits from strong functionality metrics and has a weighted-average (WA) year built of 2005, which is significantly newer than other recently analyzed industrial portfolios that have averaged around 1993. Additionally, the portfolio's WA clear heights are approximately 30 feet, which are greater than other recently analyzed portfolios that have averaged closer to 27 feet. Newer facilities tend to have taller clear heights, more efficient layouts, and a wider array of potential tenants at more favorable rental rates.

With the exception of one laboratory property, the entire remainder of the portfolio is classified as functional warehouse/distribution product, which DBRS Morningstar generally confirmed via site tours on a sampling of the portfolio. Furthermore, only 6.7% of the portfolio's square footage composed of office space, which is very favorable among industrial portfolios recently analyzed by DBRS Morningstar.

There is potential postsecuritization cash flow upside embedded in the portfolio, primarily related to the 10089 North Main Street asset in Jacksonville, Florida. The 240,000-sf property is currently entirely vacant, and DBRS Morningstar expects the sponsors to find success re-leasing the property in the short to medium term. Using the appraiser's concluded $4.25 psf market rent, there is approximately $1 million in potential revenue upside from the space. DBRS Morningstar marked the property vacant and did not assume any upside in its concluded NCF.

The borrower sponsors, a JV partnership between Raith and EIP, are contributing approximately $79.4 million in cash equity as a part of the transaction to acquire the portfolio for a purchase price of $311.0 million. DBRS Morningstar generally views acquisition loans with significant amounts of cash equity more favorably than cash-out financings, given the stronger alignment of economic incentives with certificateholders.

The portfolio has performed well through the Coronavirus Disease (COVID-19) pandemic, with collections averaging 96.0% through YE2020. Collections have averaged 99.8% through Q1 2021, and only two tenants in the portfolio totaling 3.0% of the net rentable area were granted coronavirus rent deferrals; both tenants fully repaid all deferred rent by YE2020.

While a number of properties in the portfolio are in primary industrial markets such as Chicago, Atlanta, and Jacksonville, Florida, the remainder of the portfolio is largely concentrated in secondary markets. While these markets have performed well, they lack the robust and diversified economies and port access that often characterize primary, gateway markets. Collectively, the portfolio's submarkets have a WA availability rate of approximately 7.5%, which is slightly above the Q4 2020 national average of approximately 7.4%, according to CBRE Econometric Advisers.

Twenty-five of the portfolio's 32 properties are leased to single-tenant users, thereby reducing tenant diversity and granularity. The properties collectively compose approximately 76.2% of the DBRS Morningstar in-place base rent. This proportion of single-tenant properties is higher than other recently analyzed transactions. Additionally, two of the tenants in the portfolio are currently dark, including Schilli Distribution Services, Inc. (single-tenant at 6400 Mississippi Street in Merrillville, Indiana) and Nestle Prepared Foods (single-tenant at 18501 Northstar Court in Tinley Park, Illinois). Both tenants are current on their rent.

The transaction is the second in a series of issuances based on a novel transaction structure whereby the issuer may periodically offer commercial mortgage pass-through certificates in separate series under one master trust and servicing agreement and offering circular. Each series will have an offering circular supplement and a series supplement to the trust and servicing agreement. Further, each series will be rated independently of the others, each will have its own priority of payments, and there will be no pooling of risk.

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.

Class X-CP and Class X-EXT are IO certificates that reference 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 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 2, 2021), 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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