Morningstar DBRS Confirms Credit Ratings on All Classes of BMP Commercial Mortgage Trust 2024-MF23

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2024-MF23 issued by BMP Commercial Mortgage Trust 2024-MF23 as follows:

-- Class A at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class D at BBB (sf)

All trends are Stable.

The credit rating confirmations reflect the overall stable performance since closing in June 2024. The transaction is secured by the borrower's fee-simple interest in 23 multifamily properties totaling 7,300 market-rate units across six states and 11 markets. The loan benefits from the collateral's proximity to many key demand drivers across all markets, as well as strong sponsorship from Brookfield Asset Management (Brookfield), which owns and operates over 650 properties and 500 million square feet (sf) of commercial real estate across the office, retail, alternatives, multifamily, hospitality, and logistics sectors.

The interest-only, floating-rate loan is structured with a two-year initial term and three one-year extension options, with a fully extended maturity date in June 2029. The transaction proceeds of $1.13 billion, along with the transaction sponsor's cash equity of $486.0 million, were used to acquire the portfolio, cover closing costs, and deliver a $30.0 million letter-of-credit to fund future capital expenditures during the initial loan term. The borrower entered into an interest rate cap agreement, which has a strike rate of 5.00% that would result in a minimum debt service coverage ratio (DSCR) of 1.10 times (x) should the borrower exercise the extension options. The borrower has a one-time option to incur additional mezzanine debt, subject to certain conditions including, but not limited to, (1) an aggregate loan-to-value ratio (LTV) no greater than 69.4% and (2) an aggregate debt yield not less than 7.65%. The loan allows for properties in the trust to be released up to 30.0% of the unpaid principal trust balance at a release premium of 105.0%, with the remaining 70.0% of unpaid principal balance subject to a release premium of 110.0%.

Upon acquisition, the sponsor planned to install its in-house management company across the portfolio and spend approximately $105 million ($14,400 per unit) throughout the loan term on value-add renovations to continue the previous ownership's efforts to improve unit interiors and common-area amenities. The goal was to achieve significant rental premiums over unrenovated units. The previously completed renovations resulted in 830 already-renovated units across the portfolio at acquisition, which cost approximately $93.2 million ($13,170 per unit) and began in 2019. Previously renovated units have demonstrated weighted-average (WA) rental premiums of $161 per leased unit per month.

The portfolio has experienced significant rent growth in recent years, commanding 14.0% re-leasing spreads on leases renewed through December 2023. As of the information provided at issuance, as of March 31, 2024, the WA in-place rental rate for the portfolio was $1,663 per unit. Given the softness identified in some of the collateral markets, Morningstar DBRS expects that the sponsor may not be able to achieve those same rental premiums from units over the remainder of the project. A total of 20 properties, representing 86.4% of the allocated loan amount, are situated in areas classified as Morningstar DBRS Market Ranks of 3 and 4, indicating light suburban regions. Some of these markets have newly constructed multifamily properties that are set to become available during the loan term, a factor which may stress performance at the subject properties in those same markets.

According to the YE2024 servicer-provided reporting, the portfolio achieved a trailing six-month (T-6) ended December 31, 2024, occupancy rate of 89.6%, down from the 95.4% rate as of March 31, 2024, and in line with the YE2023 figure of 90.7%. Morningstar DBRS concluded with an economic occupancy rate of 90.7% at issuance. About $90,425 in immediate repairs was identified across the 23 properties in the portfolio, indicating moderate deferred maintenance for older vintage properties (the portfolio has a WA year built of 1993), another factor that could affect demand in certain markets.

With this review, Morningstar DBRS maintained the issuance-derived Morningstar DBRS value of $1.17 billion by applying a 6.75% capitalization rate to the Morningstar DBRS net cash flow (NCF) of $78.8 million, which resulted in a Morningstar DBRS LTV of 96.3% based on the $1.13 billion senior mortgage loan, compared with a 70.7% LTV based on the issuance appraisal portfolio value of $1.59 billion. The Morningstar DBRS Value represents a -26.6% variance to the appraiser's value. The Morningstar DBRS NCF figure compares to the annualized T-6 ended December 31, 2024, NCF figure reported by the servicer of $77.5 million; Morningstar DBRS expects the in-place cash flow and occupancy declines are largely related to the ongoing renovation work. In addition, Morningstar DBRS made positive qualitative adjustments totaling 5.50% to reflect the portfolio's strong market fundamentals and generally low cash flow volatility.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt credit rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS   
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.
 
A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings at https://dbrs.morningstar.com/research/437781 (August 13, 2024).

All credit ratings are subject to surveillance, which could result in credit ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by Morningstar DBRS.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology (February 28, 2025): https://dbrs.morningstar.com/research/448963

Other methodologies referenced in this transaction are listed at the end of this press release.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info-DBRS@morningstar.com.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

DBRS Limited
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Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

-- North American Single-Asset/Single-Borrower Ratings Methodology (February 28, 2025): https://dbrs.morningstar.com/research/448962

-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (September 19, 2024): https://dbrs.morningstar.com/research/439702

-- Legal Criteria for U.S. Structured Finance (December 3, 2024): https://dbrs.morningstar.com/research/444064

-- North American Commercial Mortgage Servicer Rankings (August 23, 2024): https://dbrs.morningstar.com/research/438283

-- Interest Rate Stresses for U.S. Structured Finance Transactions (March 27, 2025): https://dbrs.morningstar.com/research/450750

A description of how Morningstar DBRS analyzes structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/417279 (July 17, 2023)

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.