DBRS Finalizes Provisional Ratings on CD 2016-CD1 Mortgage Trust

DBRS, Inc. (DBRS) has today finalized its provisional ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2016-CD1 (the Certificates) issued by CD 2016-CD1 Mortgage Trust. All trends are Stable.

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-M at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)
-- Class X-C at AAA (sf)
-- Class X-D at AAA (sf)
-- Class X-E at AAA (sf)
-- Class X-F at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class F at B (sf)

Classes X-B, X-C, X-D, X-E, X-F, D, E and F have been privately placed.

The Class X-A, X-B, X-C, X-D, X-E and X-F balances are notional. DBRS ratings on interest-only (IO) certificates address the likelihood of receiving interest based on the notional amount outstanding. DBRS considers the IO certificates’ position within the transaction payment waterfall when determining the appropriate rating.

The collateral consists of 32 fixed-rate loans secured by 58 commercial properties, comprising a total transaction balance of $703,219,986. The conduit pool was analyzed to determine the ratings, reflecting the long-term probability of loan default within the term and its liquidity at maturity. When the cut-off loan balances were measured against the DBRS Stabilized net cash flow (NCF) and their respective actual constants, three loans, representing 17.0% of the total pool, had a DBRS Term debt service coverage ratio (DSCR) below 1.15 times (x), a threshold indicative of a higher likelihood of mid-term default. Additionally, to assess refinance risk given the current low interest rate environment, DBRS applied its refinance constants to the balloon amounts. This resulted in 19 loans, representing 66.0% of the pool, having refinance (Refi) DSCRs below 1.00x. The loan’s probability of default (POD) is based on the more constraining of the DBRS Term or Refi DSCR.

Seven of the largest 15 loans that comprise 52.0% of the DBRS sample have favorable property quality. Three loans (10 Hudson Yards, Fiserv 2900 at Westside and Vertex Pharmaceutical Headquarters (HQ)), representing 25.4% of the sample, were considered to be of Excellent property quality and four loans (Westfield San Francisco Centre, Hall Office Park 16, Gas Company Tower & World Trade Center Parking Garage and 60 East 55th Street), representing 26.6% of the sample, received Above Average property quality grade. Higher-quality properties are more likely to retain existing tenants/guests and more easily attract new tenants/guests, resulting in a more stable performance.

Six of the largest 15 loans that comprise 35.1% of the pool were modeled with strong sponsorship: Westfield San Francisco Centre, U-Haul AREC Portfolio, Birch Run Premium Outlets, Gas Company Tower & World Trade Center Parking Garage, Vertex Pharmaceuticals HQ and 60 East 55th Street. In addition, seven loans, representing 40.6% of the pool, are located in urban markets, which benefit from consistent investor demand and increased liquidity even in times of stress. Urban markets represented in the deal include San Francisco, New York, Chicago, Los Angeles and Boston. Only four loans, representing 9.6% of the pool, are located in tertiary/rural markets. Four of the largest eight loans, Westfield San Francisco Centre, 10 Hudson Yards, Gas Company Tower & World Trade Center Parking Garage and Vertex Pharmaceuticals HQ, exhibit credit characteristics consistent with investment-grade shadow ratings. Combined, these loans represent 27.7% of the pool.

The pool is concentrated based on loan size as the largest five and ten loans total 41.0% and 66.6% of the pool, respectively, and the pool has a concentration profile equivalent to that of 18 equal-sized loans. A concentration penalty was applied given the pool’s lack of diversity, which increases each loan’s POD. While the transaction is concentrated in the largest ten loans, four of these loans, totaling 27.7% of the pool, and the majority of the office concentration are shadow-rated investment grade by DBRS. Additionally, six of the top ten loans, or 38.4% of the pool, are located in urban markets.

The ratings assigned to classes E and F differ from the higher ratings implied by the quantitative model. DBRS considers this difference to be a material deviation, and in this case, the ratings reflect the dispersion of loan-level cash flows expected to occur post-issuance.

The ratings assigned to the Certificates by DBRS are based exclusively on the credit provided by the transaction structure and underlying trust assets. All classes will be subject to ongoing surveillance, which could result in upgrades or downgrades by DBRS after the date of issuance.

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

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodology is North American CMBS Rating Methodology, which can be found on our website under Methodologies.

With regard to due diligence services, DBRS was provided with the Form ABS Due Diligence-15E (Form 15-E) which contains the description of the information that the third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While DBRS did not rely on the due diligence services outlined in Form 15-E, DBRS did use the Data File outlined in the Independent Accountant’s Report in its analysis to determine the ratings.

The full report providing additional analytical detail is available by clicking on the link below or by contacting us at info@dbrs.com.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.