DBRS Morningstar Confirms All Classes of Hunt Commercial Real Estate Notes 2017-FL1, Ltd.

DBRS Limited (DBRS Morningstar) confirmed the following classes of the secured floating-rate notes issued by Hunt Commercial Real Estate Notes 2017-FL1, Ltd. 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)
-- Class E at B (low) (sf)

All trends are Stable.

The rating confirmations reflect the performance of the transaction, which remains in line with DBRS Morningstar’s expectations at issuance. At issuance, the pool consisted of 23 interest-only floating-rate loans secured by 36 transitional properties totaling $279.4 million, excluding the $15.5 million of future funding and additional ramp-up commitment. The transaction had a Reinvestment Period of 30 months from closing, which is subject to rating agency conditions by DBRS Morningstar. The Reinvestment Period has now expired, and the transaction is paying sequentially. As of the May 2020 remittance, the pool consisted of 28 interest-only floating-rate loans, representing a total aggregate principal balance of $340.6 million. The loans are secured by cash flowing assets, most of which are in a period of transition with plans to stabilize and improve the asset value.

As of the May 2020 remittance, there are no loans on the servicer’s watchlist or in special servicing. The collateral is heavily weighted toward multifamily properties, with 25 of the 28 loans secured by traditional multifamily properties. The majority of these loans’ business plans contemplate interior and exterior renovations to increase rental rates and occupancy. The largest loan in the pool, CRA SH Portfolio (Prospectus ID#38, 9.9% of the pool), is secured by a portfolio of four student housing properties in Texas, Washington, Tennessee, and Georgia. As of March 2020, the loan’s business plan, which entailed $9.3 million of interior and exterior improvements, was 96.8% completed. The portfolio was 39.2% preleased for the fall semester at a rental rate of $587 per bed. The improvements have led to higher rental rates; however, the portfolio may struggle to increase its occupancy from its YE2019 rate of 77.6% during the Coronavirus Disease (COVID-19) pandemic.

The Linc (Prospectus ID#42, 4.9% of the pool) is the only loan in the pool secured by a retail property. The subject is a community retail center in Austin, Texas, which the sponsor originally acquired in 2013 in a real estate owned sale. The sponsor’s vision was to rebrand the property with an emphasis on restaurants, patio dining, and entertainment. The loan’s business plan is focused on leasing up the property to a stabilized occupancy rate of 92.5% through a total tenant improvement reserve of approximately $23 per square foot. As of March 2020, the property was 69.0% occupied with three additional tenants, comprising 4.3% of the net rentable area, signed to leases with future start dates. The property has experienced some decline in collections because of the coronavirus; however, the loan remains current, and Texas has begun to open for business. For additional information on these loans, please see the respective loan commentaries on the DBRS Viewpoint platform.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:

-- Prospectus ID#38 – CRA SH Portfolio (9.9% of the pool)
-- Prospectus ID#32 – Park Ninety Six 90 (9.2% of the pool)
-- Prospectus ID#35 – The Estates at Pikesville Apartments (8.3% of the pool)
-- Prospectus ID#39 – Northwinds Apartments (5.2% of the pool)
-- Prospectus ID#52 – Rock Island (5.0% of the pool)
-- Prospectus ID#42 – The Linc (4.9% of the pool)
-- Prospectus ID#43 – The Flats at James Place (4.8% of the pool)
-- Prospectus ID#53 – Villas at Riverside (3.4% of the pool)

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com The platform includes issuer and servicer data for most outstanding CMBS transactions (including non-DBRS Morningstar rated), as well as loan-level and transaction-level commentary for most DBRS Morningstar-rated and -monitored transactions.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology (March 6, 2020), which can be found on dbrsmorningstar.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 Morningstar Global Structured Finance Related Methodologies document, which can be found on dbrsmorningstar.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.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

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 [email protected].

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar 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 Morningstar 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.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577