DBRS Confirms All Classes of CSMC Trust 2017-CHOP

DBRS, Inc. (DBRS) confirmed the ratings on all classes of the Commercial Mortgage Pass-Through Certificates, Series 2017-CHOP issued by CSMC Trust 2017-CHOP as follows:

--Class A at AAA (sf)
--Class X-CP at AAA (sf)
--Class X-EXT at AAA (sf)
--Class B at AA (low) (sf)
--Class C at A (sf)
--Class D at BBB (low) (sf)
--Class E at BB (low) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction. The $780.0 million mortgage loan closed in June 2017 and is secured by the fee and leasehold interests in a portfolio of 48 select-service, limited-service and extended-stay hotels, totaling 6,401 keys, located in 21 different states across the United States. The hotels operate under eight different flags across three hotel brands that include Marriott, Hilton and Hyatt. The sponsors, Colony NorthStar, Inc. and Chatham Lodging Trust, acquired the collateral assets in 2014 as part of a larger $1.1 billion hotel portfolio, which included four additional hotel assets that do not serve as collateral.

Each individual property serving as collateral has been renovated at some point since acquisition or is currently undergoing a capital expenditure plan, as at issuance the sponsor planned to invest an additional $68.4 million across the portfolio during the fully extended five-year loan term. Loan proceeds, along with $79.1 million of equity, were used to refinance $817.0 million of existing portfolio debt, fund $16.0 million of upfront property improvement plan (PIP) reserves across the portfolio and cover closing costs, as well as $4.7 million in other upfront reserves. The interest-only (IO) loan had an initial 24-month term, which expired in June 2019; however, the servicer confirmed that the borrower has exercised the first of three 12-month extension options.

As of the June 2019 remittance report, there have been no property releases since issuance and the PIP reserve account had a remaining balance of $5.4 million. Renovations were recently completed at the Residence Inn Nashville Airport and Residence Inn Dallas DFW Airport North Irving properties. The borrower provided a renovation report dated May 2019 that detailed approximately $16.8 million will be invested into 13 separate properties with a projected completion date in Q4 2020. Renovations averaging $21,481 per key will be completed at the Courtyard Baltimore Fort Meade, Chapel Hill Aloft, Springhill Suites Danbury, Residence Inn Houston Westchase and Residence Inn Tucson Williams Centre properties.

There were 46 properties, representing 96.5% of the trust balance, that provided trailing 12-month (T-12) ending December 31, 2018, Smith Travel Research reports. The portfolio reported overall improvement in 2018 with a weighted-average (WA) occupancy rate, WA average daily rate (ADR) and WA revenue per available room (RevPAR) of 77.0%, $129.54 and $99.88, respectively, compared to the T-12 ending December 31, 2017, WA occupancy rate, WA ADR and WA RevPAR of 75.7%, $124.29 and $94.24, respectively. The portfolio also outperformed the DBRS WA occupancy rate of 71.6%, WA ADR of $124.22 and WA RevPAR of $88.99 assumed at issuance.

The loan reported a year end (YE) 2018 debt service coverage ratio (DSCR) of 1.92x compared to the YE2017 DSCR of 1.82x. The DBRS Term DSCR of 1.19x was calculated based on stressed debt service payments given the variable interest rate component; however, this would be adjusted to 1.68x based on the actual debt service payments. The improvement in 2018 was due to revenue growth, as the portfolio’s WA occupancy rate and WA ADR both increased. Revenue growth is expected to continue as the sponsor continues to complete renovations to properties throughout the portfolio; however, DBRS is also mindful the lodging industry may be in the later stages of the real estate cycle. It should be noted that the loan was placed on the servicer’s watchlist in September 2018 due to major deferred maintenance at one property, defined as a tripping hazard at the Hampton Inn White Plains Tarrytown (2.7% of the loan balance).

Classes X-CP and X-EXT 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 are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed or discontinued by DBRS.

DBRS provides 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 North American CMBS Surveillance Methodology, which can be found on www.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, which can be found on www.dbrs.com in the Commentary tab under Regulatory Affairs. 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 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. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS long-term rating scale definition indicates that ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

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