DBRS Confirms Ratings on CSAIL 2016-C7 Commercial Mortgage Trust

DBRS Limited (DBRS) confirmed all classes of Commercial Mortgage Pass-Through Certificates, Series 2016-C7 issued by CSAIL 2016-C7 Commercial Mortgage Trust as follows:

-- 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-5 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class B at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)
-- Class C at AA (low) (sf)
-- Class D at BBB (high) (sf)
-- Class X-E at BBB (low) (sf)
-- Class E at BB (high) (sf)
-- Class X-F at BB (sf)
-- Class F at BB (low) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which has remained generally in line with DBRS’s expectations since issuance. This transaction closed in November 2016 with 53 loans secured by 199 commercial properties, and as of the October 2018 remittance, 52 loans remain in the pool with an aggregate principal balance of $747.0 million, representing a collateral reduction of 2.7% since issuance. At issuance, the transaction had a DBRS Term debt service coverage ratio (DSCR) and DBRS Debt Yield of 1.54x and 8.7%, respectively. As of the October 2018 remittance, 51 loans (98.7% of the pool) have reported updated financials since issuance. For those loans reporting, the weighted-average (WA) in-place DSCR and debt yield are 1.64x and 8.7%, respectively. The largest 15 loans represent 65.5% of the pool balance and reported a WA DSCR at YE2017 of 1.74x and WA cash flow growth of 12.8% over the DBRS issuance figures.

It is noteworthy that this pool has a high concentration of retail properties, which make up over 40% of the pool, including three regional malls in the top 15. Overall, these properties are performing in line with DBRS expectations, with only one mall affected by the recent Sears bankruptcy and closing announcements in Gurnee Mills (Prospectus ID #2, 9.8% of the pool). The Sears Grand store at that property was announced to be closed in June 2018, prior to the Sears bankruptcy filing, with the store representing 12.0% of the property net rentable area (NRA). As of October 2018, the space remains vacant, but there have been additions to the property since issuance in The Room Place and Dick’s Sporting Goods, which combine for 4.5% of the NRA and serve to offset some of the Sears vacancy. For additional information on this property, please see the loan commentary in the DBRS Viewpoint platform, for which information has been provided, below.

There are challenges in two loans in special servicing and four loans on the servicer’s watchlist, which represent 1.6% and 4.1% of the current pool balance, respectively. The watchlisted loans are generally performing, with only one loan being monitored for cash flow declines. One of the loans in special servicing, The Registry Apartments (Prospectus ID #33, 0.9% of the pool), was transferred to special servicing for delinquency in June 2018, but has since been brought current and DBRS expects the loan will be returned to the master servicer in the near term. The other specially serviced loan, Holiday Inn Express & Suites Warrenton (Prospectus ID #37, 0.8% of the pool), was transferred after the hotel franchisor issued a default letter to the borrower for missed franchise payments. As of the October 2018 remittance, the loan was 14 months delinquent and the special servicer is pursuing foreclosure. A June 2018 appraisal obtained by the special servicer is reflective of a 26.5% value decline from issuance, and as such, DBRS assumes a loss will be incurred for this loan at resolution. For further information on the pivotal watchlist loans and the loans in special servicing, please see the loan commentary in the DBRS Viewpoint platform.

Classes X-A, X-B, X-E and X-F are interest-only (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 the following loans in the transaction:

-- 9 West 57th Street (Prospectus ID #3, 6.8% of the pool)
-- Gurnee Mills (Prospectus ID #2, 9.8% of the pool)
-- GLP Industrial Portfolio Pool B (Prospectus ID #16, 2.2% of the pool)
-- Douglasville Marketplace (Prospectus ID #28, 1.2% of the pool)
-- 350-360 Fairfield Avenue (Prospectus ID #32, 1.1% of the pool)
-- The Registry Apartments (Prospectus ID #33, 0.9% of the pool)
-- Holiday Inn Express & Suites Warrenton (Prospectus ID #37, 0.8% of the pool)

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 U.S. dollars unless otherwise noted.

The principal methodology is North American CMBS 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.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

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