DBRS Morningstar Takes Rating Actions on CSAIL 2016-C5 Commercial Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2016-C5 issued by CSAIL 2016-C5 Commercial Mortgage Trust as follows:

-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class X-D at BBB (sf)
-- Class D at BBB (low) (sf)
-- Class X-E at BB (sf)
-- Class E at BB (low) (sf)
-- Class X-F at B (sf)
-- Class F at B (low) (sf)

DBRS Morningstar discontinued the ratings on Classes A-2 and A-3 as both were repaid in full with the November 2020 remittance.

DBRS Morningstar removed the ratings on Classes E, F, X-E, and X-F from Under Review with Negative Implications, where it placed them on August 6, 2020. The trends on these classes are Negative. DBRS Morningstar changed the trends on Classes D and X-D to Negative from Stable. All other trends are Stable.

The Negative trends reflect the continued performance challenges for the underlying collateral, mainly driven by the impacts of the Coronavirus Disease (COVID-19) global pandemic. As of the November 2020 remittance, there were eight loans in special servicing, representing 13.3% of the pool. The concentration of loans in special servicing fell significantly with the successful repayment of the Starwood Capital Extended Stay Portfolio loan, which previously represented 9.0% of the pool balance. The pool continues to have a moderate concentration of loans secured by hospitality properties, representing 16.4% of the outstanding pool balance as of the November 2020 remittance. Hotel properties have been the most severely affected by the initial effects of the pandemic and, as such, the relatively high concentration of loans backed by that property type in this pool suggests increased risks, particularly at the lower rating categories, since issuance.

As of the November 2020 remittance, 54 of the original 59 loans remain in the pool, representing a collateral reduction of 23.4% since issuance. Three loans, representing 3.8% of the current pool balance, are fully defeased. Based on the YE2019 financials, the pool reported a weighted-average debt service coverage ratio (DSCR) of 1.81x, compared with the issuer’s underwritten DSCR of 1.80x.

There are eight loans, representing 13.3% of the pool, in special servicing; however, since the October remittance, the second-largest loan, Starwood Capital Extended Stay Portfolio (Prospectus ID#3, 9.0% of the pool), has successfully been repaid. The second- and third-largest loans remaining in special servicing are Embassy Suites and Claypool Court (Embassy Suites; Prospectus ID#7, 4.0% of the pool) and University Plains (Prospectus ID#17, 2.3% of the pool), which are secured by a full-service hotel and a student housing property, respectively.

The Embassy Suites loan is secured by a 360-key full-service hotel with an attached 77,121-sf office and retail portion, located in the central business district of Indianapolis. The loan transferred to special servicing in September 2020 following the borrower’s coronavirus relief request. As of the October 2020 remittance, the loan was 30 to 59 days delinquent, and the special servicer most recently calculated a DSCR of 1.81x as of the trailing 12 months ended March 2020, down from 2.28x at YE2019. As of the October 2020 remittance, the loan was 30 days delinquent, and the servicer commentary indicated the workout negotiations are in the initial stages for this loan. Given the sharp performance decline since issuance, DBRS Morningstar applied a probability of default penalty to increase the expected loss in the analysis for this review.

The University Plains loan is secured by a 540-unit student housing property in Ames, Iowa, approximately three miles from Iowa State University. The loan was transferred to special servicing in November 2018 and is real estate owned. Performance declined shortly after issuance, with the borrower citing increased supply and declining enrollment as contributing factors. A new appraisal from February 2020 valued the collateral at $13.9 million, down from the issuance appraised value of $22.9 million. Given the increased stress in recent months on student housing properties, particularly those struggling prior to the pandemic, DBRS Morningstar believes the value for this property could have fallen even further since the February 2020 appraisal date. For this review, DBRS Morningstar liquidated the loan from the pool with a 30% haircut to the February 2020 value, for a loss severity exceeding 55.0%.

According to the November 2020 remittance, there are 12 loans on the servicer’s watchlist, representing 16.5% of the current pool balance. The servicer is monitoring these loans for a variety of reasons including low DSCR, occupancy, and deferred maintenance issues; however, many loans have recently been added to the servicer’s watchlist for coronavirus related reasons.

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.

Classes X-A, X-B, X-D, X-E, and X-F 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 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#7 – Embassy Suites and Claypool Court (4.0% of the pool)
-- Prospectus ID#11 – DoubleTree Commerce (2.3% of the pool)
-- Prospectus ID#21 – Holiday Inn Austin (1.8% 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.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

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@dbrsmorningstar.com.

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.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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