DBRS Morningstar Finalizes Provisional Ratings on Benchmark 2022-B34 Mortgage Trust

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings to the following classes of Commercial Mortgage Pass-Through Certificates, Series 2022-B34 issued by Benchmark 2022-B34 Mortgage Trust:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-M at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (high) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class G at B (sf)
-- Class X-A at AAA (sf)
-- Class X-D at BBB (sf)
-- Class X-F at BB (sf)
-- Class X-G at B (high) (sf)

All trends are Stable.

Classes A-3, X-D, X-F, X-G, X-H, D, E, F, G, H, S, and R will be privately placed. The VRR Interest Certficates will not be offered.

DBRS Morningstar discontinued and withdrew its ratings on the Class A-4 and X-B certificates initially contemplated in the offering documents, as it was removed from the transaction.

DBRS Morningstar analyzed the conduit pool to determine the ratings, reflecting the long-term probability of loan default within the term and its liquidity at maturity. The trust’s collateral consists of 37 fixed-rate loans secured by 102 commercial and multifamily properties with an aggregate cut-off date balance of $914.8 million. Two loans, representing 18.6% of the pool, are shadow-rated investment grade by DBRS Morningstar. When the cut-off balances were measured against the DBRS Morningstar net cash flow (NCF) and their respective actual constants, the initial DBRS Morningstar weighted-average (WA) debt service coverage ratio (DSCR) of the pool was 2.21 times (x). The WA DBRS Morningstar Issuance loan-to-value ratio (LTV) of the pool at issuance was 58.1%, and the pool is scheduled to amortize down to a DBRS Morningstar Balloon WA LTV of 55.5% at maturity. These credit metrics are based on the A note balances. Excluding the shadow-rated loans, the deal still exhibits a favorable WA DBRS Morningstar Issuance LTV of 61.7% and WA DBRS Morningstar Balloon LTV of 58.5%. The pool additionally includes three loans, representing 10.1% of the allocated pool balance, that exhibit an issuance DBRS Morningstar LTV in excess of 67.1%, a threshold generally indicative of above-average default frequency.

The transaction has a sequential-pay pass-through structure.

Eight loans, representing 42.2% of the pool, are in areas identified as DBRS Morningstar Market Ranks 7 or 8, which are generally characterized as highly dense urbanized areas that benefit from increased liquidity driven by consistently strong investor demand, even during times of economic stress. Urban markets represented in the deal include New York and Los Angeles. Furthermore, 13 loans, representing 48.3% of the pool balance, have collateral in MSA Group 3, which represents the best-performing group in terms of historical CMBS default rates among the top 25 MSAs.

Two of the loans (18.6% of the pool) – 601 Lexington Avenue and One Wilshire– exhibited credit characteristics consistent with investment-grade shadow ratings. 601 Lexington Avenue has credit characteristics consistent with an “A” shadow rating while One Wilshire exhibits credit characteristics consistent with a BBB shadow rating.

Fourteen loans, representing a combined 34.4% of the pool by allocated loan amount (ALA), exhibit issuance LTVs of less than 59.3%, a threshold historically indicative of relatively low-leverage financing and generally associated with below-average default frequency. Even with the exclusion of the shadow-rated loans representing 18.6% of the pool, the transaction exhibits a favorable WA DBRS Morningstar Issuance LTV of 61.7%.

Term default risk is low, as indicated by a strong DBRS Morningstar DSCR of 2.21x. Even with the exclusion of the shadow-rated loans, the deal exhibits a very favorable DBRS Morningstar DSCR of 1.94x.

Nine loans, representing 38.7% of the pool balance, received a property quality assessment of Average + or better, including three loans, representing 12.5% of the pool, deemed to have Above Average quality. It is noted that only one loan had a property quality score of Average – and it accounts for 3.3% of the pool balance.

Three loans, representing 27.9% of the pool, were classified by DBRS Morningstar as having Strong sponsorship strength. Furthermore, DBRS Morningstar identified no loans with sponsorship strength below Average.

The pool has a relatively high concentration of loans secured by office and retail properties, with 25 loans representing 78.0% of the pool balance. The ongoing Coronavirus Disease (COVID-19) pandemic continues to pose challenges globally, and the future demand for office and retail space is uncertain, with many store closures and companies filing for bankruptcy, downsizing, or extending their remote-working strategy. Two of the 15 office loans, 601 Lexington Avenue and One Wilshire, which represent 18.6% of the total pool, are shadow-rated investment grade by DBRS Morningstar. Furthermore, six of the office loans, representing 39.2% of the total pool, are located in DBRS Morningstar Market Ranks 7 and 8, which represent the lowest historical commercial mortgage-backed securities (CMBS) probability of default (POD) and loss severity given default (LGD). The office and retail properties exhibit a favorable WA DBRS Morningstar DSCRs of 2.37x. Additionally, both property types exhibit favorable WA DBRS Morningstar Issuance and Balloon LTVs of 57.5% and 55.1%, respectively. Three office properties in the transaction, representing 27.9% of the total pool balance, have a DBRS Morningstar sponsorship strength of Strong. Seven office and retail properties in the transaction, representing 35.5% of the total pool balance, have Above Average or Average + property quality.

Twenty-four loans, representing 76.4% of the pool balance, are structured with full-term interest-only (IO) periods. An additional seven loans, representing 13.7% of the pool balance, are structured with partial IO terms ranging from 12 to 60 months. Loans that are full-term IO do not benefit from amortization. Of the 24 loans structured with full-term IO periods, nine loans, representing 43.7% of the pool by ALA, are in areas with DBRS Morningstar Market Ranks of 6 or higher with 41.4% of those in DBRS Morningstar Market Ranks of 7 or 8. These urban markets benefit from increased liquidity even during times of economic stress. Two of the loans, 601 Lexington and One Wilshire, representing 18.6% of the total pool balance, are shadow-rated investment grade by DBRS Morningstar. The full-term IO loans are effectively pre-amortized, as evidenced by the low WA DBRS Morningstar Issuance LTV of only 55.6% for this concentration of loans.

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.

Classes X-A, X-D, X-F, X-G, and X-H 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 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 CMBS Multi-Borrower Rating Methodology (March 26, 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.

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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