DBRS Confirms All Classes of BBCMS 2017-DELC Mortgage Trust

DBRS Limited (DBRS) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2017-DELC issued by BBCMS 2017-DELC Mortgage Trust as follows:

-- Class A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class X-CP at AA (low) (sf)
-- Class X-NCP at AA (low) (sf)
-- Class C at A (high) (sf)
-- Class D at A (low) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class HRR at B (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since issuance. This transaction closed in August 2017, at an original trust balance of $507.6 million, with three mezzanine loans totaling $204.4 million held outside of the trust. The collateral for this transaction is the Hotel del Coronado located on Coronado Island in the greater San Diego area. The underlying trust loan is interest-only (IO) throughout the term, structured with a two-year initial term with five one-year extension options. The loan is sponsored by Blackstone Real Estate Partners, an affiliate of The Blackstone Group, the world’s largest alternative asset manager and real estate advisory firm. The hotel previously operated as an independent hotel,but is now managed by Hilton Worldwide Holdings Inc. (Hilton) under the Curio Collection flag, which is one of Hilton’s upscale brands. The hotel management agreement with Hilton began in July 2017, and runs through July 2027, containing two five-year extension options.

It was noted at issuance that the sponsor planned to develop the parcel located south of the Ocean Tower building, currently used for surface parking for the hotel. According to recent news articles, this development, which had been in the pipeline since 2010, is scheduled to commence in Q1 2019, with an expected completion date in Q4 2022. The $200 million project will include parking upgrades, a new conference center and 144 additional guestrooms. As noted by DBRS at issuance, although disruptions to property operations are likely, the sponsor is highly incentivized to keep disruptions to a minimum and must replace any lost parking with an amount equal to or greater than the current amount associated with the parcel.

Per the trailing 12 months ending April 2018 STR report, the subject reported an occupancy rate, average daily rate and revenue per available room (RevPAR) of 71.3%, $422.80 and $301.66, respectively. The subject is outperforming its competitive set, with occupancy rate and RevPAR increases of 5.2% and 4.6% year over year, respectively. At issuance, DBRS noted that the new affiliation with Hilton could improve overall performance as guests loyal to the brand could be attracted to the property and rooms could be booked within the Hilton system. In addition, with its unique historic status and highly desirable location with over 1,400 linear feet of ocean frontage and a relatively substantial meeting and event space footprint of over 135,000 square feet, the hotel has no true direct competition in the vicinity or even in the larger Southern California market.

According to the trailing 12 months Q1 2018 financials, the debt service coverage ratio (DSCR) for the trust portion of the loan was 1.69 times (x), compared to the YE2017 DSCR of 1.73x and DBRS Term DSCR at issuance of 1.63x. Although an in-place DSCR for the whole loan was not reported, DBRS derived an estimate based on a stressed interest rate scenario that implied a whole-loan DSCR of 1.10x as at Q1 2018 and 1.25x as at YE2017.

Classes X-CP and X-NCP are IO certificates that reference a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation 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 this transaction.

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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.

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.

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