DBRS Confirms All Classes of BBCMS 2017-DELC Mortgage Trust

DBRS Limited (DBRS) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2017-DELC issued by BBCMS 2017-DELC Mortgage Trust as follows:

-- Class A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class X-CP at AA (low) (sf)
-- Class X-NCP at AA (low) (sf)
-- Class C at A (high) (sf)
-- Class D at A (low) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class HRR at B (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since issuance. This transaction closed in August 2017, at an original trust balance of $507.6 million, with three mezzanine loans totaling $204.4 million held outside of the trust. The collateral for this transaction is the Hotel del Coronado, located on Coronado Island in the greater San Diego area. The underlying trust loan is interest-only (IO) throughout the term, structured with a two-year initial term with five one-year extension options. The servicer has confirmed the sponsor has exercised the first extension option, which will be effective in August 2019. The loan is sponsored by Blackstone Real Estate Partners VIII L.P., an affiliate of The Blackstone Group Inc., the world’s largest alternative asset manager and real estate advisory firm. The hotel previously operated as an independent hotel but is now managed by Hilton Worldwide Holdings Inc. (Hilton) under the Curio Collection flag, which is one of Hilton’s upscale brands. The hotel management agreement with Hilton began in July 2017 and runs through July 2027, containing two five-year extension options.

The sponsor has exhibited a strong commitment to maintaining and upgrading the property since acquiring an ownership interest in 2011. Since 2004, roughly $106.2 million ($156,363 per key on owned rooms) has been invested into the property. As of the servicer’s March 2019 property inspection report, there was reportedly $330.0 million of capex budgeted for improvements through year-end (YE) 2021. The massive project to be completed in two phases over the next few years will include a complete refresh of all guest rooms by 2021. The sponsor also plans to construct additional indoor and outdoor meeting spaces, 149 new guest suites and a three-level parking structure supplying an additional 750 spaces. This project was under consideration at issuance but had not been finalized at the time of the loan’s closing; as such, there are no reserve funds structured for these renovations. DBRS has requested confirmation of the source of funding and is awaiting the servicer’s response.

Per the trailing 12 months (T-12) ending May 31, 2019, the subject reported an occupancy rate, average daily rate and revenue per available room (RevPAR) of 75.0%, $438.78 and $329.22, respectively. The subject is outperforming its competitive set, with occupancy rate and RevPAR increases of 3.6% and 7.9% year over year, respectively. In addition, RevPAR is up substantially from issuance, when it was reported at $262.48 for the T-12 ending June 30, 2017. At issuance, DBRS noted that the new affiliation with Hilton could improve overall performance as guests loyal to the brand could be attracted to the property and rooms could be booked within the Hilton system; given the RevPAR trends for the property over the past few years, the affiliation certainly appears to be contributing to increased bookings. In addition, with its unique historic status and highly desirable location with over 1,400 linear feet of ocean frontage and a relatively substantial meeting and event space footprint of over 135,000 square feet, the hotel has no true direct competition in the vicinity or even in the larger Southern California market overall.

According to the YE2018 financials, the servicer’s calculated DSCR for the trust portion of the loan was 1.80 times (x), compared with the YE2017 DSCR of 1.76x and the DBRS Term DSCR at issuance of 1.63x. Although an in-place DSCR for the whole loan was not reported, DBRS derived an estimate based on a stressed interest rate scenario that implied a whole-loan DSCR of 1.45x as at YE2018 and 1.25x at YE2017.

Classes X-CP and X-NCP 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 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.

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