DBRS Assigns Provisional Ratings to CSAIL 2016-C7 Commercial Mortgage Trust

DBRS, Inc. (DBRS) has today assigned provisional ratings to the following classes of Commercial Mortgage Pass-Through Certificates, Series 2016-C7 (the Certificates) to be issued by CSAIL 2016-C7 Commercial Mortgage Trust:

-- 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-5 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)
-- Class X-E at AAA (sf)
-- Class X-F at AAA (sf)
-- Class X-NR at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AA (low) (sf)
-- Class D at BBB (high) (sf)
-- Class E at BB (high) (sf)
-- Class F at BB (low) (sf)

All trends are Stable.

Classes X-E, X-F, X-NR, D, E and F will be privately placed.

The X-A, X-B, X-E, X-F, and X-NR 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 53 fixed-rate loans secuted by 199 commercial properties, comprising a total transation balance of $767,627,582. The transaction has sequential-pay pass-through structure. The conduit pool was analyzed to determine the provisional ratings, reflecting the long-term probability of loan default within the term, as well as liquidity at maturity. When the cut-off loan balances were measured against the DBRS Stabilized NCF and their respective actual constants, two loans, representing 4.7% of the total pool, had a DBRS Term DSCR below 1.15x, 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 17 loans, representing 43.6% of the pool, having refinance DSCRs below 1.00x.

Two loans exhibit credit characteristics consistent with an investment-grade shadow rating: 9 West 57 Street and GLP Industrial Portfolio Pool B. Nine West 57th Street is the third-largest loan representing 6.5% of the pool and has credit characteristics consistent with a AAA shadow rating. GLP Industrial Portfolio Pool B, the 16th largest loan, representing 2.1% of the pool, has credit characteristics consistent with an A (high) shadow rating. Additionally, three of the largest 15 loans that comprise 31.8% of the DBRS sample exhibit strong sponsorship: Coconut Point, Gurnee Mills, and Peachtree Mall. All three loans are in the top ten and comprise 26.0% of the total transaction. The sponsors of all three loans not only have extensive experience in the commercial real estate sector, but they also exhibit significant financial wherewithal. The pool exhibits a strong DBRS Term DSCR of 1.48x based on the whole loan balances, which indicates moderate term default risk. Eleven loans representing 19.8% of the pool, three of which are in the top ten, have a DBRS Term DSCR in excess of 1.50x. Furthermore, only two loans are secured by properties that are fully leased to a single tenant. Both loans, encompassing 6.3% of the total pool, are in the top 15 and include CVS Office Centre Building (#6), which comprises 3.7% of the transaction, and BJ’s Wholesale Club – Miami (#11), which comprises 2.6% of the total transaction. Loans secured by properties occupied by single tenants have been found to suffer from higher loss severities in the event of default.

The pool is concentrated based on loan size, with a concentration profile equivalent to that of a pool of 22 equal-sized loans. The largest five and ten loans total 37.0% and 52.8% of the pool, respectively. The transaction has a notable above average concentration of loans surffering from elevated refinance risk. The transaction’s WA DBRS Refi DSCR is 1.04x, with 17 loans, representing 43.6% of the pool, demonstrating DBRS Refi DSCRs less than 1.00x. Additionally, five loans, representing 26.8% of the pool, demonstrate DBRS Refi DSCRs less than 0.90x. Lastly, the pool has a high concentration of properties that are securitized by assets that are fully or primarily used as retail, representing 40.7% of the pool. The retail sector has generally underperformed since the Great Recession because of a general decline in consumer spending power, store closures, chain bankruptcies and the rapidly growing popularity of ecommerce. According to the U.S. Census Bureau, ecommerce sales represented 7.0% of total retail sales in 2015 compared with 3.9% in 2009. As the ecommerce share of sales is expected to continue to grow significantly in the coming years, the retail real estate sector may continue to be relatively weak.

The DBRS sample included 31 of the 53 loans in the pool. Site inspections were performed on 56 of the 199 properties in the portfolio (75.8% of the pool by allocated loan balance). DBRS conducted meetings with the on-site property manager, leasing agent or a representative of the borrowing entity for 54.4% of the pool. The DBRs sample had an average NCF variance of –10.0%, ranging from -30.3% to 1.8%.

The rating assigned to Class F differs from the higher rating 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.