KBRA Downgrades All Ratings for CSMC 2021-ADV

KBRA downgrades the ratings of all classes of certificates for CSMC 2021-ADV, a CMBS single borrower transaction. The ratings are simultaneously removed from Watch Downgrade (DN) where they were placed on May 21, 2024, due to the potential impact of ongoing deterioration in the office sector as well as the loan’s foreclosure status with the special servicer. The downgrades follow a surveillance review of the transaction and are primarily driven by a decline in collateral performance coupled with weakness in the collateral properties’ submarkets. In addition, the downgrades reflect the likelihood that interest shortfalls, which are currently impacting Classes F and lower, will reach higher in the capital structure as the special servicer works to resolve the loan.

The loan transferred to the special servicer on March 13, 2023, after the borrower defaulted on the March debt service payment. This came after the loan’s sponsor, Adventus Holdings, LP, a wholly owned subsidiary of Adventus Realty Trust, a Vancouver based Canadian REIT, announced a suspension of its monthly distributions in response to a changing interest rate environment and its impact on the REIT’s variable rate debt. The REIT subsequently made voluntary assignments for the benefit of its creditors pursuant to Section 49 of Canada’s Bankruptcy and Insolvency Act in July 2023. According to the special servicer of the loan, none of the US based entities are included in the bankruptcy. The loan’s current status is foreclosure and according to a May 2024 servicer Asset Status Report, the lender has agreed to take title or liquidate the collateral properties by year-end.

The transaction collateral is a non-recourse, first lien mortgage loan secured by the borrower’s fee simple interests in eight suburban office properties. The portfolio encompasses 2.2 million sf, with properties located in the Atlanta MSA (five, 69.6% of total base rent) and Chicago MSA (three, 30.4%). The loan has an outstanding balance of $350.0 million ($157 per sf) as of July 2024. The loan was structured with an initial two-year term, which matured on July 9, 2023, and was not extended. It requires monthly interest-only payments based on the index plus a spread of 3.85%. At closing, the borrower entered into an interest rate cap agreement with a strike rate of 3.00% which expired with the initial term of the loan. The weighted average coupon as reflected in the July remittance is 9.18%.

According to the July 2024 reporting, the mortgage loan status is non-performing matured balloon, it has approximately $24.1 million in outstanding P&I advances and the workout strategy is foreclosure. An ARA of $117.3 was applied on February 9, 2024, and the loan carries a cumulative ASER of $8.3 million. Appraisals dated December 2023 valued the assets at $279.9 million ($126 per sf), a 36.2% decrease from $439.0 million ($197 per sf) at closing.

KBRA analyzed the cash flow for the properties utilizing information from the trustee and servicer to determine KNCF. The analysis produced a KNCF of $19.8 million and a KBRA value of $201.7 million ($91 per sf). The resulting in-trust KLTV is 173.5%, a change from 156.7% at last review and 130.5% at securitization. KBRA’s valuation takes into account an estimate of the distressed liquidation value of the portfolio. In addition to the loan’s current status with the special servicer and weakness in the Atlanta and Chicago office market submarkets where the assets are located KBRA maintains the loan’s K-LOC status and KPO of Underperform.

Details for the classes with ratings changes are as follows:

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