DBRS Finalizes Provisional Ratings on Citigroup Commercial Mortgage Trust 2017-B1

DBRS, Inc. (DBRS) finalized its provisional ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2017-B1 (the Certificates) to be issued by Citigroup Commercial Mortgage Trust 2017-B1:

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

All trends are Stable.

Classes X-D, X-E, X-F, D, E, F and G have been privately placed. The Class X-A, X-B, X-D, X-E and X-F balances are notional.

The collateral consists of 48 fixed-rate loans secured by 69 commercial and multifamily properties. The transaction is a sequential-pay pass-through structure. Trust assets contributed from four loans, representing 23.9% of the pool, are shadow-rated investment grade by DBRS. Proceeds for each shadow-rated loan are floored at their respective ratings within the pool. When 23.9% 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 has been 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, only one loan, comprising 1.0% of the pool balance, 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 26 loans, representing 57.4% of the pool, having refinance DSCRs below 1.00x and 14 loans, representing 31.4% of the pool, having refinance DSCRs below 0.90x.

Four loans, representing 23.9% of the transaction balance, exhibit credit characteristics consistent with an investment-grade shadow rating: General Motors Building, Lakeside Shopping Center, Two Fordham Square and Del Amo Fashion Center. Term default risk is low, as indicated by a strong weighted-average (WA) DBRS Term DSCR of 1.95x. In addition, 30 loans, representing 70.9% of the pool, have a DBRS Term DSCR in excess of 1.50x. Based on A-note balances only, the DBRS Term DSCR increases substantially to a robust 2.10x. 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 exhibit a strong DBRS Term DSCR of 1.77x. Eight loans that comprise 47.3% of the DBRS sample (37.8% of the pool) have favorable property quality based on physical attributes and/or a desirable location within their respective markets. One loan (General Motors Building), representing 12.3% of the DBRS sample, was considered to be of Excellent property quality, and three loans (Chateau Marmont Hotel, 327-331 East Houston Street and Del Amo Fashion Center), totaling 13.8% of the DBRS sample, were considered to be of Above Average property quality. Four additional loans (Lakeside Shopping Center, 411 East Wisconsin Center and the McNeill Hotel Portfolio), representing 21.1% of the DBRS sample, received Average (+) property quality. Higher-quality properties are more likely to retain existing tenants/guests and more easily attract new tenants/guests, resulting in more stable performance.

The pool has a relatively high concentration of loans secured by non-traditional property types, such as self-storage, hospitality and manufactured housing community (MHC) assets, which, on a combined basis, represent 30.0% of the pool across 17 loans. There are five loans totaling 17.7% of the pool secured by hotels, ten loans totaling 10.5% of the transaction balance secured by self-storage properties and two loans comprising 1.7% of the pool secured by MHC properties. Each of these asset types is vulnerable to high NCF volatility because of their relatively short-term leases compared with other commercial properties that can cause the NCF to quickly deteriorate in a declining market. Four of the largest 15 loans, comprising 16.6% of the pool balance, are secured by hospitality or self-storage properties; however, such loans exhibit a WA DBRS Debt Yield and DBRS Exit Debt Yield of 10.0% and 11.4%, respectively, which compare favorably with the overall deal. Twenty loans, representing 58.8% of the pool, including ten of the largest 15 loans, are structured with interest-only (IO) payments for the full term. An additional 16 loans, representing 19.6% of the pool, have partial IO periods ranging from 12 months to 60 months; however, ten of the full- or partial-term IO loans, representing 49.7% of the IO concentration in the transaction, have excellent locations in super-dense urban markets that benefit from steep investor demand. The transaction’s WA DBRS Refinance (Refi) DSCR of 0.99x indicates higher refinance risk at an overall pool level. There is an elevated concentration of loans that exhibit refinance risk. Twenty-six loans, representing 57.4% of the pool, have DBRS Refi DSCRs below 1.00x; however, these credit metrics are based on whole-loan balances. Two of the loans with a DBRS Refi DSCR below 1.00x (General Motors Building and Del Amo Fashion Center), representing 12.0% 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 to 1.05x and the concentration of loans with DBRS Refi DSCRs below 1.00x and 0.90x reduces to 45.4% and 21.5%, respectively.

The DBRS sample included 24 of the 48 loans in the pool. Site inspections were performed on 31 of the 69 properties in the portfolio (61.6% of the pool by allocated loan balance). The DBRS sample had an average NCF variance of -11.0% and ranged from -26.6% (General Motors Building) to -0.9% (327-331 East Houston Street).

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.

The rating assigned to Class F materially deviates from the higher ratings implied by the quantitative results. DBRS considers a material deviation to be a rating differential of three or more notches between the assigned rating and the rating implied by the quantitative results that is a substantial component of a rating methodology. The deviations are warranted given the expected dispersion of loan level cash flows post 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 commercial mortgage-backed securities IReports platform.

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

With regard to due diligence services, DBRS was provided with the Form ABS Due Diligence-15E (Form-15E), 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 require due diligence services outlined in Form-15E, DBRS did use the Data File outlined in the Independent Accountant’s Report in its analysis to determine the ratings.

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.

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.