DBRS Confirms All Classes of Morgan Stanley Capital I Trust 2017-HR2

DBRS Limited (DBRS) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2017-HR2 issued by Morgan Stanley Capital I Trust 2017-HR2 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 X-B at AA (high) (sf)
--Class B at AA (sf)
--Class C at A (low) (sf)
--Class X-D at A (low) (sf)
--Class D at BBB (high) (sf)
--Class E-RR at BBB (low) (sf)
--Class F-RR at BB (high) (sf)
--Class G-RR at BB (low) (sf)
--Class H-RR at B (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which has remained in line with DBRS’s expectations from issuance. This transaction closed in December 2017 with an original trust balance of $942.7 million and consisted of 42 fixed-rate loans secured by 82 commercial and multifamily properties. Per the November 2018 remittance, the current trust balance was $939.2 million with all loans remaining in the pool, representing a collateral reduction of 0.4% due to scheduled loan amortization. Due to the transaction closing in December 2017, year-end (YE) 2017 financials were not provided for the loans, which is not uncommon; however, 34 loans, representing 65.2% of the pool balance, provided partial-year 2018 financials. Ten loans of the largest 15 loans, representing 36.4% of the pool balance, reported partial-year 2018 financials, including the largest two loans. DBRS will continue to monitor for updated financials as the deal continues to season.

As of the November 2018 remittance, there are 19 loans (67.5% of the pool) structured with full-term interest-only (IO) payments; however, seven loans (19.1% of the pool) are backed by collateral in urban markets. There is one loan (Eagle Village Apartments – Prospectus ID#28, 1.0% of the pool) on the servicer’s watchlist, secured by a student-housing property in Evansville, Indiana. The property experienced a decline in occupancy during the first half of 2018 which led to a decrease in cash flow. However, DBRS believes loan performance will rebound as the borrower has implemented 12-month lease structures that will stabilize occupancy over the long term.

At issuance, The Woods (Prospectus ID#2, 9.1% of the pool) was shadow-rated investment grade and in its analysis for this review, DBRS confirmed that the performance of this loan remains consistent with investment-grade characteristics.

Classes X-A, X-B and X-D 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:

-- Prospectus ID#2 - The Woods (9.1% of the pool balance)
-- Prospectus ID#3 - Baybrook Lifestyle and Power Center (8.5% of the pool balance)
-- Prospectus ID#28 - Eagle Village Apartments (1.0% 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 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.