Press Release

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

CMBS
December 17, 2020

DBRS, Inc. (DBRS Morningstar) confirmed its 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; however, there are continued performance challenges facing the underlying collateral, many of which the Coronavirus Disease (COVID-19) pandemic has driven. In addition to loans representing 5.1% of the pool that are in special servicing as of the November 2020 remittance, DBRS Morningstar also notes that the pool has a moderate concentration of hospitality and retail properties, representing 10.9% and 30.1% of the pool balance, respectively. The initial impact of the coronavirus pandemic has affected these property types most severely and, as such, those concentrations suggest slightly increased risks for the pool, particularly at the lower rating categories, since issuance.

The transaction is concentrated by property type as 12 loans, representing 30.1% of the current trust balance, are secured by retail assets and seven loans, representing 17.0% of the current trust balance, are secured by office assets. Multifamily collateral makes up the third-largest concentration with four loans, representing 13.7% of the current trust balance. According to the November 2020 remittance, two loans, representing 5.1% of the current trust balance, are in special servicing. The two loans—260-272 Meserole (Prospectus ID#12; 2.6% of the current trust balance) and Riverside Boulevard Parking Garage Portfolio (Prospectus ID#13; 2.6% of the current trust balance)—are secured by a mixed-use property and a portfolio of parking garages. Subsequent to the November 2020 remittance, the Eagle Village Apartments loan (Prospectus ID#28; 1.3% of the current trust balance), backed by a student housing property in Evansville, Indiana, transferred to the special servicer after falling delinquent. This transfer did not materially change our credit view of the deal.

260-272 Meserole is secured by a 70,475-square-foot mixed-use industrial/commercial loft space property in Brooklyn, New York. The loan transferred to the special servicer in September 2020, given the ongoing effects of the coronavirus pandemic. The mixed-use property offers 155 individual studio loft spaces for musicians to lease out as recording studio space on an annual basis. Additional tenants at the property include a bar, a recording studio, and an event space on the ground floor. The loan advanced to 121+ days past due in November 2020. As of November 2020, the servicer reported the workout strategy as dual-tracking foreclosure as it negotiates a possible loan modification with the borrower. At issuance, the collateral for the loan had an appraisal value of $33.0 million, equating to a loan-to-value (LTV) ratio of 72.7%. Given the risks surrounding the collateral property, DBRS Morningstar analyzed this loan with an elevated probability of default (POD) for this review.

Riverside Boulevard Parking Garage Portfolio is secured by a collection of five parking garage condominiums totaling 893 parking stalls on Manhattan’s Upper West Side. The loan transferred to the special servicer in August 2020, given the ongoing effects of the coronavirus pandemic. At issuance, all five of the parking garages were 100% occupied by Icon Parking Systems (Icon) through 2035 under three separate cross-defaulted leases, including 80 Riverside, 100-120 Riverside, and 220-240 Riverside. According to the servicer’s commentary, Icon stopped paying rent in April 2020 and has been unresponsive to the sponsor’s attempted communications. With the lender’s consent, the sponsor has terminated the existing lease with Icon and plans to install a third-party operator. The sponsor plans to bring the loan current once the new operator is in place and the sponsor begins collecting rent again. The loan advanced to 121+ days past due in November 2020. DBRS Morningstar notes that the subject recently received an updated appraisal, which reported an August 2020 value of $45.8 million (a -6.7% variance from the issuance value of $49.1 million), implying a current LTV ratio of 52.4%. Given the risks surrounding the collateral property, DBRS Morningstar analyzed this loan with an elevated POD for this review.

As of the November 2020 remittance, all 42 original loans remain in the pool with a collateral reduction of just 0.9% since issuance as a result of loan amortization. No loans have defeased. Additionally, nine loans, representing 11.5% of the current trust balance, are on the servicer’s watchlist. These loans are being monitored for a variety of reasons, including low debt service coverage ratio (DSCR), occupancy, and deferred maintenance issues. At issuance, the pool reported a weighted-average DSCR of 2.29 times.

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 Morningstar confirmed that the performance of this loan remains consistent with investment-grade characteristics.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at:.

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 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 this transaction.

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes loan-level 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 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.

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

DBRS, Inc.
22 West Washington Street
Chicago, IL 60602 USA
Tel. +1 312 696-6293

Ratings

  • Date IssuedDebt RatedRatingTrendActionAttributesi
    17-Dec-20Commercial Mortgage Pass-Through Certificates, Series 2017-HR2, Class A-1AAA (sf)StbConfirmed
    US
    17-Dec-20Commercial Mortgage Pass-Through Certificates, Series 2017-HR2, Class A-2AAA (sf)StbConfirmed
    US
    17-Dec-20Commercial Mortgage Pass-Through Certificates, Series 2017-HR2, Class A-3AAA (sf)StbConfirmed
    US
    17-Dec-20Commercial Mortgage Pass-Through Certificates, Series 2017-HR2, Class A-4AAA (sf)StbConfirmed
    US
    17-Dec-20Commercial Mortgage Pass-Through Certificates, Series 2017-HR2, Class A-SAAA (sf)StbConfirmed
    US
    17-Dec-20Commercial Mortgage Pass-Through Certificates, Series 2017-HR2, Class A-SBAAA (sf)StbConfirmed
    US
    17-Dec-20Commercial Mortgage Pass-Through Certificates, Series 2017-HR2, Class X-AAAA (sf)StbConfirmed
    US
    17-Dec-20Commercial Mortgage Pass-Through Certificates, Series 2017-HR2, Class X-BAA (high) (sf)StbConfirmed
    US
    17-Dec-20Commercial Mortgage Pass-Through Certificates, Series 2017-HR2, Class BAA (sf)StbConfirmed
    US
    17-Dec-20Commercial Mortgage Pass-Through Certificates, Series 2017-HR2, Class CA (low) (sf)StbConfirmed
    US
    17-Dec-20Commercial Mortgage Pass-Through Certificates, Series 2017-HR2, Class X-DA (low) (sf)StbConfirmed
    US
    17-Dec-20Commercial Mortgage Pass-Through Certificates, Series 2017-HR2, Class DBBB (high) (sf)StbConfirmed
    US
    17-Dec-20Commercial Mortgage Pass-Through Certificates, Series 2017-HR2, Class E-RRBBB (low) (sf)StbConfirmed
    US
    17-Dec-20Commercial Mortgage Pass-Through Certificates, Series 2017-HR2, Class F-RRBB (high) (sf)StbConfirmed
    US
    17-Dec-20Commercial Mortgage Pass-Through Certificates, Series 2017-HR2, Class G-RRBB (low) (sf)StbConfirmed
    US
    17-Dec-20Commercial Mortgage Pass-Through Certificates, Series 2017-HR2, Class H-RRB (sf)StbConfirmed
    US
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Morgan Stanley Capital I Trust 2017-HR2
  • US = Lead Analyst based in USA
  • CA = Lead Analyst based in Canada
  • EU = Lead Analyst based in EU
  • UK = Lead Analyst based in UK
  • E = EU endorsed
  • U = UK endorsed
  • Unsolicited Participating With Access
  • Unsolicited Participating Without Access
  • Unsolicited Non-participating

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.