KBRA Downgrades Five Ratings and Affirms All Other Ratings for BSREP 2021-DC

KBRA downgrades the ratings on five classes and affirms all other outstanding ratings for BSREP 2021-DC, a CMBS single-borrower transaction. The ratings of the downgraded classes are simultaneously removed from Watch Downgrade (DN) where they were placed on May 21, 2024. The rating actions follow a surveillance review of the transaction and are driven by a decline in expected collateral performance stemming from weaker office fundamentals in the respective property submarkets. In addition, higher interest rates and a more challenging financing market for office properties, will likely have a negative impact on the loan’s refinancing prospects in the absence of the infusion of additional equity.

The transaction was originally secured by a $443.1 million first-lien mortgage loan collateralized by eight properties, including the borrower’s fee simple interests in seven office properties and the leasehold interest in one office property, all of which are located in the Washington, D.C. MSA. Since last review, one property, Courthouse Square ($22.1 million ALA, 5.0% of the original loan balance), was sold and released from the trust, resulting in a current loan balance of $419.9 million as of the July 2024 remittance period. The floating-rate, interest-only loan had an initial term of two years and allows for three one-year extension options. The borrower exercised its first extension option, and the loan matures in August 2024. The borrower has indicated that it intends to exercise its next one-year extension option. However, no formal notice has been received by the servicer.

KBRA analyzed the cash flow for the properties utilizing information from the trustee and servicer to determine KNCF. The analysis produced a KNCF of $29.1 million and a KBRA value of $318.5 million ($234 per sf). The resulting in-trust KLTV is 131.9%, compared to 110.4% at last review and 112.2% at securitization. Due to the portfolio’s low occupancy and DSC, as well as weakening office sector demand, KBRA identified the loan as a K-LOC and maintains its KPO of Underperform.

Details for the classes with ratings changes are as follows:

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