Morningstar DBRS Confirms Credit Ratings on All Classes of TX Trust 2024-HOU

DBRS Limited (Morningstar DBRS) confirmed the credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2024-HOU issued TX Trust 2024-HOU (TX 2024-HOU or the Trust) as follows:

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

All trends are Stable.

The credit rating confirmations reflect the stable performance of the transaction in the relatively short time since closing in June 2024. The transaction is secured by the borrower's fee-simple interest in the Marriott Marquis Houston, a full-service hotel located in Houston's central business district, built in 2016. The collateral consists of 1,000 keys and offers a wide range of amenities, including a fitness center, a rooftop terrace with cabanas, and a 5,000-square foot (sf) spa, among others. The property is connected to the George R. Brown Convention Center via skybridge, which drives additional demand to the collateral. Additionally, the subject is close to stadiums for three major Houston sports teams, which collectively host nearly 200 sporting events and concerts annually.

The subject transaction comprises an interest-only (IO), floating-rate loan of $325 million that was used to repay approximately $319.9 million of existing debt and fund closing costs of approximately $5 million. The loan has an initial two-year term and three one-year extension options available. To exercise the extension options, the borrower is required to obtain an interest rate cap with a maximum strike rate of 6.0% for the initial loan term and the greater of 6.0% and the rate that results in a debt service coverage ratio (DSCR) of 1.10 times (x). The loan is sponsored by an affiliate of RIDA Development Corporation (RIDA), well known for its extensive experience with convention hotels.

The sponsor has shown its commitment to the property by purchasing its private equity development partner's approximate 45% stake in the hotel in September 2019 as well as carrying the hotel through the pandemic. Additionally, the sponsor invested approximately $1.2 million in capital improvements following the hotel's development in 2016. Morningstar DBRS also noted at issuance the sponsor's elective capital improvement plan in the summer of 2025. The renovations are expected to include upgrades to the soft goods and painting the walls for all 1,000 rooms, based on an anticipated at issuance budget of $13.9 million.

According to YE2024 financial reporting, the collateral reported a net cash flow (NCF) of $44.6 million, resulting in a DSCR of 1.63x compared with the issuer's underwritten figure of $41.5 million (DSCR of 1.61x) and Morningstar DBRS' figure of $34.4 million (DSCR of 1.22x). The increase in NCF above issuance expectations is primarily driven by lower operating expenses compared with the Morningstar DBRS concluded figure at issuance. In particular, Morningstar DBRS did not give credit to the state tax rebate through December 2026 in its NCF, instead opting to add the net present value of the projected payments to the Morningstar DBRS value. Per the February 2025 STR report, the collateral's occupancy rate, average daily rate, and revenue per available room for the trailing 12-month period through February 28, 2025, were 65.5%, $265, and $174, respectively, which are in line with Morningstar DBRS' issuance figures of 67.0%, $252, and $169, respectively.

For the purposes of this credit rating action, Morningstar DBRS maintained the valuation approach from issuance, which was based on a capitalization rate of 8.5% applied to the Morningstar DBRS NCF noted above. To account for the state tax rebate through December 2026, Morningstar DBRS added the net present value of the rebate, totaling $14.8 million, to the derived value, resulting in a Morningstar DBRS Value of $419.5 million. The resulting value represents a variance of -26.1% from the issuance appraised value of $567.3 million and implies a loan-to-value ratio (LTV) of 77.5%. In addition, Morningstar DBRS maintained positive qualitative adjustments of 6.5% to the LTV sizing benchmarks to reflect the high property quality, its strong performance, and its location near several notable demand drivers. Overall, Morningstar DBRS has a favorable outlook on the transaction throughout the fully extended loan term given the property's stable performance and its high-demand location.

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 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, or 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 (August 13, 2024): https://dbrs.morningstar.com/research/437781.

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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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 (July 17, 2023): https://dbrs.morningstar.com/research/417279.

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