DBRS Confirms All Classes of Real Estate Asset Liquidity Trust, Series 2016-2

DBRS Limited (DBRS) confirmed the ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2016-2 (the Certificates) issued by Real Estate Asset Liquidity Trust, Series 2016-2 as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class X at A (sf)
-- Class D at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (sf)
-- Class G at B (sf)

All trends are Stable.

The rating confirmations reflect the stable overall performance of the transaction since issuance. The collateral consists of 47 loans secured by 72 commercial properties for a total issuance balance of $421.0 million. As of the August 2018 remittance, all loans remain in the pool with a total trust balance of $400.6 million, representing a 4.8% collateral reduction since issuance. Most of the loans in the pool show updated reporting as 44 loans, representing 94.6% of the pool, are reporting YE2017 net cash flow (NCF) figures. These loans reported a weighted-average (WA) debt service coverage ratio (DSCR) and WA debt yield of 1.59 times (x) and 10.5%, respectively, compared with the DBRS Term DSCR and DBRS Debt Yield for those loans of 1.38x and 9.2%, respectively. Performance for the largest 15 loans, which collectively represent 56.2% of the pool, has been healthy overall with the most recently reported year-end NCF figures showing a WA DSCR of 1.50x and a WA NCF growth of 10.5% compared with the DBRS figures derived at issuance.

There are two loans, representing 4.5% of the pool balance, on the servicer’s watchlist. Both the Duke of Devonshire (Prospectus ID#17) and 4000 Innovation (Prospectus ID#25) are being monitored due to tenancy issues. Of these two loans, the most noteworthy is 4000 Innovation as the property’s single tenant is BlackBerry Limited (Blackberry) with a lease scheduled to expire in May 2019. Blackberry has vacated the property and part of the space is subleased by Ford Motor Company (Ford); news reports suggest that Ford could sign a direct lease for the property once Blackberry rolls off. For additional information on the two watchlisted loans, please see the loan commentary in the DBRS Viewpoint platform, for which information is provided below.

Class X is an interest-only (IO) certificate that references 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 the following loans in the transaction:

-- Skyline Lauzon Tower (Prospectus ID#9; 3.1% of the pool balance)
-- The Duke of Devonshire (Prospectus ID#17; 2.5% of the pool balance)
-- 4000 Innovation (Prospectus ID#25; 2.0% of the pool balance)

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

Notes:
All figures are in Canadian 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.

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