DBRS Confirms all Classes of Bank of America Merrill Lynch Commercial Mortgage Trust 2017-BNK3

DBRS Limited (DBRS) confirmed all classes of Bank of America Merrill Lynch Commercial Mortgage Trust 2017-BNK3 as follows:

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

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since issuance. The collateral consists of 63 fixed-rate loans secured by 94 commercial and multifamily properties. As at the January 2018 remittance, there has been a collateral reduction of 0.4% as a result of scheduled loan amortization. Loans representing 93.5% of the pool balance reported Q3 2017 financials and reported a weighted-average (WA) debt service coverage ratio (DSCR) and debt yield of 2.04 times (x) and 10.6%, respectively, compared with the DBRS Term DSCR and DBRS Debt Yield derived at issuance of 1.82x and 9.6%, respectively. Sixteen loans, representing 54.0% of the pool balance, including 14 of the top 15 loans, are structured with full-term interest-only (IO) payments. An additional 19 loans, representing 20.7% of the pool, were structured with partial-term IO payments. As at the January 2018 remittance, 18 loans have partial-term IO payments remaining and five loans representing 7.3% of the pool balance will begin amortizing within the upcoming 12 months. The largest 15 loans reported a WA DSCR and WA debt yield of 2.21x and 11.0%, respectively, representing a WA cash flow improvement of 14.7% over the DBRS net cash flow figures derived at issuance.

The pool has a high concentration of retail properties, as loans comprising 34.9% of the pool are secured by this property type. Given the current environment for the retail sector in the volume of recent store closures and chain bankruptcies, this is a particularly noteworthy characteristic. Six of the top 15 loans in the pool secured by retail properties, representing 21.3% of the pool balance, are reporting Q3 2017 cash flows with a WA annualized DSCR and WA occupancy rate of 1.97x and 98.0%, respectively. At issuance, DBRS noted that the majority of the retail loans in the overall pool are secured by anchored retail or regional mall properties, which are generally more desirable as compared with unanchored retail. In addition, DBRS noted the bulk of the pool’s retail exposure includes collateral properties located in established suburban markets with strong sales figures reported for retail loans in the top ten.

As at the January 2018 remittance, there is one loan, Harwood Hills (Prospectus ID #29; 1.0% of the pool balance), being monitored on the servicer’s watchlist. The loan is being monitored for the collateral’s loss of the grocery anchor in place at issuance, Fiesta Mart, which represented 41.6% of the net rentable area. For details on this loan, please see the DBRS loan commentary for this deal on the DBRS Viewpoint platform, for which information has been provided below.

At issuance, DBRS shadow-rated the 85th Tenth Avenue loan (Prospectus ID#4; 5.1% of the pool balance) and the Potomac Mills loan (Prospectus ID#14; 2.1% of the pool balance) as investment grade. With this review, DBRS confirms that the performance of these loans remains consistent with investment-grade characteristics.

Classes X-A, X-B and X-D are IO certificates that reference a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated reference tranche adjusted upward by one notch if senior in the waterfall.

All ratings will be subject to ongoing surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed or discontinued by DBRS.

As part of this review, DBRS has provided updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:
-- Prospectus ID#4 – 85th Tenth Avenue
-- Prospectus ID#14 – Potomac Mills
-- Prospectus ID#29 – Harwood Hills

For complimentary access to this content, please register for the DBRS Viewpoint platform at viewpoint.dbrs.com. The platform includes issuer and servicer data for the entire commercial mortgage-backed securities universe, as well as deal and loan-level commentary for all DBRS-rated transactions.

The ratings assigned to Classes C and F materially deviate 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 sustainability of loan performance trends not demonstrated.

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

The principal methodology is CMBS North American Surveillance, which can be found on dbrs.com under Methodologies. For a list of the Structured Finance related methodologies that may be used during the rating process, please see the DBRS Global Structured Finance Related Methodologies document on www.dbrs.com. Please note that not every related methodology listed under a principal Structured Finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

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 under Related Documents or by contacting us at info@dbrs.com.

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 for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

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