DBRS Changes Trends on Two Classes of The Bancorp Commercial Mortgage 2016-CRE1 Trust to Positive

DBRS Limited (DBRS) changed the trends on Class B and Class C of the Commercial Mortgage Pass-Through Certificates, Series 2016-CRE1 (the Certificates) issued by The Bancorp Commercial Mortgage 2016-CRE1 Trust to Positive from Stable.

DBRS also confirmed the ratings on all classes of the Certificates as follows:

-- Class A at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)

With the exception of Classes B and C, all trends remain Stable.

The Positive trends for Classes B and C reflect the increased credit support to the bonds as a result of successful loan repayment since issuance while the rating confirmations reflect the overall stable performance exhibited since issuance. As of the November 2018 remittance, 13 of the original 22 floating-rate loans remain in the trust with an aggregate principal balance of $149.8 million, representing a collateral reduction of 46.5% since issuance. Two of the remaining loans (23.3% of the current cut-off trust balance) were structured with future funding notes to be used for property renovations and future leasing costs to aid in property stabilization, while two loans (26.6% of the current cut-off trust balance) were structured with mezzanine debt held outside of the trust. Three loans (27.5% of the current cut-off trust balance) are currently amortizing, according to the respective loan terms as the individual loan sponsors decided to execute extension options to extend the loans.

In comparison to DBRS’s expectations at issuance, only one loan has shown a recent decline in performance not in line with its original businesses plan, while other select loans have displayed recent improvements. Based on the most recent financial reporting for the remaining loans, the pool has a weighted-average (WA) debt yield of 7.5%, which is relatively healthy for a pool of transitional assets. The pool is concentrated by both loan size and property type, as the largest loan and largest ten loans represent 20.4% and 91.7% of the current cut-off trust balance, respectively, while six loans are secured by office properties, representing 35.5% of the current cut-off trust balance. All loans remaining in the pool are secured by properties located urban or suburban markets, representing 23.4% and 76.6% of the current cut-off trust balance, respectively.

Within the next three months, two loans (17.4% of current cut-off trust balance) have upcoming initial loan maturities. Although neither borrower has confirmed if it will extend its loan or repay its loan, the two loans had a WA debt yield of 8.7% based on the most recently reported financials. Additionally, the 942 Flushing Avenue loan (3.1% of the current cut-off trust balance) had an initial maturity on November 8, 2018, and has been flagged for maturity default; however, the servicer reports that the borrower is finalizing a refinance loan, which is expected to close shortly.

As of the November 2018 remittance, there is one loan in special servicing (6.3% of the current cut-off trust balance) and eight loans (82.7% of the current cut-off trust balance) are on the servicer’s watchlist. All of the loans on the servicer watchlist were flagged according to Commerical Real Estate Financial Council guidelines for either upcoming initial loan maturity or performance related reasons; however, these guidelines are suited for performing loans and not transitional assets. As all of the loans are operating in line with their original business plans with expected improvements in performance, DBRS does not consider these loans to carry material risk at this time. Based on the most recent financial reporting, the eight loans had a WA debt yield of 6.8%, which is not irregular for stabilizing properties

The Four Echelon Plaza loan (6.35% of the current cut-off trust balance) was transferred to special servicing in July 2018 for payment default and as of November 2018 was over 90 days delinquent. The loan is secured by a 184,640 square foot (sf) Class B office property in Voorhees, New Jersey. At issuance, the borrower’s initial business plan was to reduce operating expenses and aggressively market the 58,633 sf of vacant space by utilizing a $1.1 million future funding component (to be funded from a $2.0 million subordinate mezzanine debt balance) to offer attractive tenant improvement packages. As of July 2018, however, the property had an occupancy rate of 54.5%, down from 68.2% at issuance, and the property was negatively cash flowing. At this time, the special servicer is in discussions with the borrower to determine a workout strategy.

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:

-- Holiday Inn Express Brooklyn (Prospectus ID#2, 20.4% of current cut-off trust balance)
-- Valley Forge Park Place (Prospectus ID#4, 16.0% of the current cut-off trust balance)
-- Four Echelon Plaza (Prospectus ID#13, 6.3% of the current cut-off trust 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 U.S. dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance, which can be found on dbrs.com under Methodologies & Criteria. 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.