DBRS Morningstar Assigns Provisional Ratings to BX Trust 2021-RISE Commercial Mortgage Pass-Through Certificates, Series 2021-RISE

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the classes of BX Trust 2021-RISE Commercial Mortgage Pass-Through Certificates, Series 2021-RISE as follows:

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

All trends are Stable. Classes H, HRR, P and ELP are not rated by DBRS Morningstar.

The collateral for BX Trust 2021-RISE includes the borrower’s fee-simple interest in 17 Class A and Class B suburban properties totaling 6,410 units across seven states and 15 distinct multifamily submarkets throughout the U.S. The portfolio is primarily concentrated in Georgia (three properties, 1,497 units, 23.3% of NCF), Texas (four properties, 1,354 units, 17.6% of NCF), and Florida (two properties, 872 units, 15.7% of NCF). Within Texas, the four assets are located throughout Atlanta. Within Florida, the two properties are in Palm Beach and Tampa. Additional markets include Denver; Charlotte; Raleigh; Columbus; and Mesa, Arizona. The sponsor, an affiliate of Blackstone, acquired a 98.0% ownership stake in all 17 portfolio properties through multiple transactions between May and October of 2021 and recapitalized its existing ownership interest in the portfolio . The seller, Cortland Sponsors, LLC, which remains as a minority owner, managed and operated all properties prior to the acquisition and continues to manage the properties. One of the properties, Cortland Mountain Vista in Mesa, AZ, was recently indirectly acquired by the guarantor and has a mortgage in place that does not permit prepayment freely until after December 31, 2021. As a result, the property will have its corresponding allocated loan amount of approximately $86.5 million (7.2% of ALA) held back until the current in place debt lockout expires. If the property does not become collateral prior to the sixth anniversary of the origination date, the holdback will be used to pay down the mortgage loan. DBRS Morningstar’s analysis and all metrics presented in this presale report assume that Cortland Mountain Vista is contributed to the portfolio as planned.

The properties comprising the portfolio generally exhibit favorable finish qualities and comprehensive amenity offerings with a WA year built of 1998, with 16 of the 17 properties undergoing major renovations from 2012 to March 2021 by the prior owners (or its affiliates) at a total cost of approximately $162.5 million or $26,580 per renovated unit. In addition to the generally favorable asset quality of the underlying collateral, DBRS Morningstar generally views the markets to which the portfolio is exposed as highly desirable for multifamily assets, with strong growth potential and favorable population statistics. The generally favorable market conditions are further evidenced by relatively tight submarket vacancy rates, which averaged 4.9% across the portfolio per the appraiser and are generally projected to decline through the fully extended loan maturity. While 100% of the properties are in areas characterized as having a DBRS Morningstar Market Rank of between 2 and 4 (ranks generally associated with more suburban locations), the cross-collateralized and geographically diversified nature of the portfolio generally mitigates a portion of the market risk. As of October 2021, the portfolio was 95.4% occupied. In addition, as of the trailing four week leasing activity through October 7, 2021, the portfolio has exhibited robust leasing activity with new rents growing by 27.0% over prior and renewal rents growing 15.0% over prior. Combined, the portfolio’s trade outs have grown 20.6% lease over lease on a WA basis.

The transaction sponsorship is a joint venture of BCORE MF Acorn 2 Investors LLC (98.0%), which is directly or indirectly owned by BREIT MF Holdings LLC, a subsidiary of BREIT Operating Partnership L.P. and Blackstone Real Estate Trust (BREIT), and CP Acorn Sponsor II, LLC (2.0%), which is directly or indirectly owned by Cortland Sponsors, LLC (Cortland). BREIT is a non-traded REIT focused on investing in U.S. commercial real estate across key property types, including multifamily, industrial, retail, hotel, and office. Blackstone is one of the world’s largest alternative asset managers, with $730.7 billion assets under management (AUM) as of 3Q 2021, including investment vehicles focused on private equity, real estate, hedge fund solutions and credit capabilities. Blackstone Real Estate is a global commercial real estate platform, with $230 billion of AUM as of 3Q 2021. BREIT is one of the largest owners of multifamily assets in the U.S and owned a portfolio of 298 multifamily assets, representing 93,174 units, as of June 30, 2021. Cortland is a multifamily real estate investment, development, and management company. Cortland was founded in 2005 with a focus on garden multifamily development in Atlanta. In 2008, Cortland shifted focus from developing multifamily communities to acquiring and renovating existing multifamily communities. Cortland’s portfolio spans 21 markets across the United States and Canada, with known interests in 200 assets that have an estimated property value of $17 billion. Cortland employs over 2,000 people globally and is headquartered in Atlanta, with an international development office in London. Following the recapitalization, the sponsors will have approximately $640 million of cash and implied market equity in the properties based on the as-is portfolio appraisal value of approximately $1.8 billion.

The trust collateral was originated by Goldman Sachs Bank USA, Bank of America, N.A., and Société Générale and consists of a mortgage loan in the amount of $1.2 billion. The mortgage loan is evidenced by three promissory notes: Note A-1 with an original principal balance of $600 million and Note A-2 with an original principal balance of $300 million and Note A-3 with an original principal balance of $300 million. All three promissory notes are expected to be contributed to the trust and support payments on the rated certificates.

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 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.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS Morningstar long-term rating scale definition indicates that ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

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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