DBRS Finalizes Provisional Ratings on CSAIL 2017-C8 Commercial Mortgage Trust

DBRS, Inc. (DBRS) has today finalized the provisional ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2017-C8 (the Certificates) issued by CSAIL 2017-C8 Commercial Mortgage Trust (CSAIL 2017-C8):

-- 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 X-A at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (sf)
-- Class X-B at A (high) (sf)
-- Class C at A (sf)
-- Class D at BBB (sf)
-- Class E at BB (sf)
-- Class F at B (high) (sf)
-- Class 85BD-A at AA (low) (sf)
-- Class 85BD-B at A (low) (sf)
-- Class 85BD-C at BBB (low) (sf)

DBRS has also today assigned new ratings to the following Certificates issued by CSAIL 2017-C8:

-- Class V1-A at AAA (sf)
-- Class V1-B at A (sf)
-- Class V1-D at BBB (sf)
-- Class V1-85A at AA (low) (sf)
-- Class V1-85B at A (low) (sf)
-- Class V1-85C at BBB (low) (sf)
-- Class V2-85 at BBB (low) (sf)

Additionally, DBRS has withdrawn the rating on the following Certificate issued by CSAIL 2017-C8 as the class has been discontinued:

-- Class 85BD-X at BBB (sf)

All trends are Stable.

Classes D, E, F, NR, 85BD-A, 85BD-B, 85BD-X and 85BD-C will be privately placed. The Class X-A, X-B and 85BD-X balances are notional.

Classes 85BD-A, 85BD-B, 85BD-X and 85BD-C are non-pooled rake bonds backed by the non-pooled $72.0 million 85 Broad Street A-B note. The loan's non-pooled $58.8 million B-A note and $58.8 million B-B note are subordinate to both the rake bonds and the $169.0 million pooled A-note.

The Class V certificates are grouped into separate groups of exchangeable certificates. Balances shown represent the maximum balance of each class that could be issued in exchanges. Any uniform tranche percentage interest in an exchangeable group of certificates may be exchanged for the same tranche percentage interest in the other exchangeable group of certificates. This process may occur repeatedly.

The collateral consists of 32 fixed-rate loans secured by 55 commercial and multifamily properties. The transaction is a sequential-pay pass-through structure. Trust assets contributed from four loans, representing 27.6% of the pool, are shadow-rated investment-grade by DBRS. Proceeds for each shadow-rated loan are floored at their respective rating within the pool. When 27.6% of the pool has no proceeds assigned below the rated floor, the resulting pool subordination is diluted or reduced below the rated floor. 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 4.9% 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 15 loans, representing 59.1% of the pool, having refinance DSCRs below 1.00x, and ten loans totaling 47.3% of the pool with refinance DSCRs below 0.90x.

Four loans, representing 27.6% of the transaction balance, exhibit credit characteristics consistent with an investment-grade shadow rating: 85 Broad Street (AA (low)), Apple Sunnyvale (“A”), Urban Union Amazon (AAA) and 71 Fifth Avenue (AAA). Additionally, 14 loans, totaling 61.0% of the pool, have a DBRS Term DSCR in excess of 1.50x. This includes seven of the largest ten loans. Based solely on A-note balances, the DBRS Term DSCR significantly increases to a robust 1.93x. Even when excluding the four loans shadow-rated investment-grade, the majority of which have large pieces of subordinate mortgage debt held outside the trust, the deal continues to display a favorable DBRS Term DSCR of 1.59x. Eight loans, representing 44.9% of the pool, are located in urban markets that benefit from consistent investor demand and increased liquidity even in times of stress. Furthermore, five of these loans, totaling 32.6% of the transaction balance, are considered to be located in super dense urban markets that DBRS defines as gateway locations with extremely high liquidity and low cap rates. Urban markets represented in the deal include New York, Los Angeles, Seattle and Portland. Only four loans, comprising 3.6% of the pool, are considered to be located in tertiary/rural markets.

The pool is concentrated based on loan size, property type and geography. The largest five and ten loans total 41.3% and 62.9% of the pool, respectively, and the pool has a concentration profile equivalent to that of 18.7 equal-sized loans. Furthermore, 52.4% of the properties (by allocated loan balance) are concentrated in just two states: New York and California. Lastly, the pool is highly concentrated by property type, as the office concentration is high at 47.8% of the pool, based on DBRS classification, which does not break out mixed-use assets. A concentration penalty was applied given the pool’s lack of diversity, increasing each loan’s probability of default. While the transaction is concentrated in the largest ten loans, three of these loans (85 Broad Street, Apple Sunnyvale and Urban Union Amazon), totaling 24.5% of the pool and just over half of the office concentration, are shadow-rated investment-grade by DBRS. In addition, six of the top ten loans, or 39.3% of the pool, are located in urban or super dense urban markets that benefit from steep investor demand.

The transaction’s weighted-average (WA) DBRS Refi DSCR of 0.97x indicates higher refinance risk at an overall pool level. There is an elevated concentration of loans that exhibit refinance risk. Fifteen loans, representing 59.1% of the pool, have DBRS Refi DSCRs below 1.00x. Ten of these loans, comprising 47.3% of the pool, have DBRS Refi DSCRs below 0.90x. However, these credit metrics are based on whole loan balances. Four of the loans with a DBRS Refi DSCR below 0.90x (85 Broad Street, 245 Park Avenue, Apple Sunnyvale and Urban Union Amazon), representing 34.3% of the pool, have large pieces of subordinate mortgage debt outside the trust. Based on A-note balances only, the deal’s WA DBRS Refi DSCR increases drastically to 1.15x and the concentration of loans with DBRS Refi DSCRs below 1.00x and 0.90x reduces to 34.7% and 22.8%, respectively. The DBRS Refi DSCRs for these loans are based on a WA stressed refinance constant of 9.67%, which implies an interest rate of 9.09% amortizing on a 30-year schedule. This represents a significant stress of 4.60% and is more than double the WA contractual interest rate of the loans in the pool.

The DBRS sample included 22 of the 32 loans in the pool. Site inspections were performed on 32 of the 55 properties in the portfolio (85.9% of the pool by allocated loan balance). The DBRS sample had an average NCF variance of -8.7% and ranged from -18.6% (245 Park Avenue) to +14.1% (71 Fifth Avenue).

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.

For more information on this transaction and supporting data, please log into www.ireports.dbrs.com. DBRS will continue to monitor this transaction with periodic updates provided in the DBRS CMBS IReports platform.

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

The principal methodology is North American CMBS Multi-Borrower Rating Methodology, which can be found on dbrs.com under Methodologies.

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

With regard to due diligence services, DBRS was provided with the Form ABS Due Diligence-15E (Form 15-E), which contains a 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.