DBRS Confirms Ratings of Cherrywood SB Commercial Mortgage Loan Trust 2016-1, Stable Trends

DBRS Limited (DBRS) has today confirmed the ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2016-1 (the Certificates) issued by Cherrywood SB Commercial Mortgage Loan Trust 2016-1 as follows:

-- Class A-FL at AAA (sf)
-- Class A-FX at AAA (sf)
-- Class M-1 at AA (sf)
-- Class M-2 at A (sf)
-- Class M-3 at BBB (sf)
-- Class M-4 at BBB (low) (sf)
-- Class B-1 at BB (sf)
-- Class B-2 at B (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance exhibited by the pool since issuance in 2016. At issuance, the collateral consisted of 151 individual loans secured by 205 commercial and multifamily properties. DBRS treated 15 of these loans as six portfolio loans because there were cross-collateralized borrowing groups at issuance. As of the May 2017 remittance report, 127 individual loans and four portfolio loans remain in the pool with an aggregate principal balance of $99.8 million, representing a collateral reduction of 11.2% since issuance as a result of loan prepayment and scheduled loan amortization.

Of the remaining 135 individual loans, 132 loans (98.0% of the pool) have a fixed interest rate for the first five years of the loan term, two loans (0.9% of the pool) have a fixed interest rate for the first seven years of the loan term and one loan (1.1% of the pool) has a fixed interest rate of the first 15 years of the loan term. After the fixed-rate period, the interest rate floats over the six-month LIBOR index and resets every six months. The loans are structured with interest rate floors ranging from 5.75% to 9.25% with a weighted average (WA) of 7.64% and interest rate caps ranging from 11.75% to 15.25% with a WA of 13.64%. DBRS applied a stress to the index (six-month LIBOR) that corresponded to the remaining fully extended term of the loans and added the respective contractual loan spread to determine a stressed interest rate over the loan term. DBRS looked to the greater of the interest rate floor or the DBRS stressed index rate when calculating stressed debt service. The loans all amortize on a 360-month basis with term lengths ranging from 15 to 30 years.

The pool is concentrated by property type, as 53 loans, representing 51.3% of the pool, are secured by multifamily properties, 31 loans (14.9% of the pool) are secured by retail properties, 24 loans (14.1% of the pool) are secured by mixed-use properties and 11 loans (14.1% of the pool) are secured by light industrial properties. The pool also has a fairly high concentration of properties located in urban and suburban markets given the small balance nature of the loans, representing 17.4% and 60.0% of the pool, respectively. By loan size, the pool is relatively diverse, with an average principal balance of $739,916. The sponsors are generally less sophisticated operators of commercial real estate with limited real estate portfolios and experience, but all loans are structured with full recourse to the sponsor.

As of the May 2017 remittance, three loans (1.3% of the pool) are 30 to 59 days delinquent. According to the servicer, each borrower is regularly late on payments, with funds being typically received prior to month’s end. Two of the loans, representing 1.1% of the pool, were transferred to special servicing in early June 2017; the strategy for both has been to continue collection efforts while pursuing all legal remedies available. Both properties were recently listed for sale with asking prices above the respective loan balances. The borrower for the third loan, representing 0.2% of the pool, is currently non-responsive. The servicer is continuing to make collection attempts while pursuing all legal remedies but has noted that if the loan becomes over 60 days past due, the loan will be transferred to the special servicer. DBRS has applied a significant POD penalty to these loans and to other loans with delinquent pay histories.

For more information on these rating actions, please contact us at info@dbrs.com.

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

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 to the right under Related Research or by contacting us at info@dbrs.com.

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

The principal methodologies are the North American CMBS Multi-borrower Rating Methodology (March 2017) and CMBS North American Surveillance (December 2016), which can be found on dbrs.com under Methodologies.

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