I found the issue with the NXP BSP (11.0.1).
You do need to make sure you set the OUT_DIR env variable in your build. However, in order for the dtbo.mk NXP makefile to use this OUT_DIR, you need to fix the path of the DTBOIMAGE.
This is what the NXP BSP currently has:
BOARD_PREBUILT_DTBOIMAGE := out/target/product/evk_8mn/dtbo-imx8mn.img
Change this to
BOARD_PREBUILT_DTBOIMAGE := $(OUT_DIR)/target/product/evk_8mn/dtbo-imx8mn.img