DBRS Morningstar Confirms All Classes of CD 2016-CD1 Mortgage Trust, Removes Two Classes from UR-Neg.

DBRS, Inc. (DBRS Morningstar) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2016-CD1 issued by CD 2016-CD1 Mortgage Trust as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-M at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (sf)
-- Class X-B at A (high) (sf)
-- Class C at A (sf)
-- Class X-C at BBB (sf)
-- Class D at BBB (low) (sf)
-- Class X-D at BB (sf)
-- Class E at BB (low) (sf)
-- Class X-E at B (high) (sf)
-- Class F at B (sf)

All trends are Stable. With this rating action, Classes X-E and F were removed from the Under Review with Negative Implications, where they were placed on August 6, 2020.

The rating confirmations reflect the overall stable performance of the transaction over the last 12 months. At issuance, the trust consisted of 32 fixed-rate loans secured by 58 commercial properties with a total trust balance of $703.2 million. Per the December 2020 remittance report, all loans and properties remained in the trust with a total balance of $678.2 million, representing a 3.6% collateral reduction since issuance. DBRS Morningstar is monitoring the anticipated payoff of the Gas Company Tower & World Trade Centre Parking Garage loan (Prospectus ID#8; 5.9% of the trust balance) as the loan maturity date is scheduled for August 2021. DBRS Morningstar forecasts full loan repayment as the loan continues to exhibit strong credit metrics.
The pool is concentrated as the largest 15 loans represent 80.9% of the trust balance. Additionally, five loans, representing 35.2% of the trust balance, are full-term interest-only (IO) loans; however, four of those loans were shadow-rated investment grade by DBRS Morningstar at issuance. The trust is relatively concentrated by property type as loans secured by office properties represent 41.7% of the trust balance. The concentration risk is mitigated by office properties generally being more resilient throughout the Coronavirus Disease (COVID-19) pandemic and the subject office properties exhibiting a strong weighted-average year-end 2019 debt service coverage ratio of 2.61 times.

Per the December 2020 remittance report, there were five loans, representing 11.3% of the trust balance, that have transferred to the special servicer. All of these loans transferred to the special servicer during the coronavirus pandemic and vary by property type and geographic location. The largest specially serviced loan, 60 East 55th Street (Prospectus ID#10; 3.4% of the trust balance), is secured by the fee-interest in a 36,928 square foot (sf) mixed-use property in the Plaza District of Midtown Manhattan. The loan transferred to the special servicer in July 2020 for monetary default because of the coronavirus pandemic. The property is primarily occupied by the Core Club, an exclusive members-only organization that caters to affluent members of society. Loan payments were last made in August 2020 and the special servicer continues to evaluate all options as the borrower has been unresponsive. The special servicer has been unable to commence the foreclosure process as New York State extended its moratorium on commercial evictions and foreclosures through January 31, 2021. The probability of default and the loss given default for the subject loan were increased for the subject review to reflect the increased risk since issuance.

The second-largest specially serviced loan, Embassy Suites Columbus (Prospectus ID#11; 3.3% of the trust balance), is secured by a seven-story, 198-key, full-service hotel near the Port Columbus International Airport in Columbus, Ohio. The loan transferred to the special servicer in June 2020 for imminent monetary default as a result of the coronavirus pandemic. Loan payments were last remitted in July 2020 and the borrower has rejected all debt-relief proposals. The special servicer is pursuing all legal remedies, including the appointment of a receiver and foreclosure actions. The September 2020 Smith Travel Research report indicates hotel operations have continued throughout the coronavirus pandemic, although the main demand driver for lodging in the area is the airport. The August 2020 site inspection report performed for the special servicer reported a major $2.5 million brand renovation was completed in 2018, which included upgrades to the guestrooms and common areas. The collateral was later acquired by United Capital Corporation in November 2019 for $31.9 million and the subject loan was assumed by the new sponsor. The loss given default was increased for the subject review to reflect the collateral value decline driven by the coronavirus pandemic.

The third-largest specially serviced loan, 401 South State Street (Prospectus ID#15; 2.2% of the trust balance), is secured by a historic 479,522 sf office building and a 7,500 sf commercial building located in the South Loop of Chicago. The loan transferred to the special servicer in June 2020 for payment default as the single tenant, Robert Morris University (lease expiration of June 2024), unexpectedly vacated and stopped paying rent in April 2020. Loan payments were last made in March 2020 and a receiver was appointed in September 2020. The controlling $32.0 million pari-passu note was securitized in the CGCMT 2016-P4 transaction (not rated by DBRS Morningstar). A “Crain’s Chicago Business” article dated August 2020 noted the borrower acknowledged the loan default and planned to hand the keys over to the property as soon as possible. The article also noted a lawsuit filed by the borrower against Robert Morris University is pending. The property was listed for sale and marketed by Jones Lang LaSalle with one offer received. The loan was liquidated from the trust as part of the subject review given the borrower’s intention to transfer title to the trust and the vacant status of the collateral. At issuance, the appraisal report provided an as-dark value of $46.5 million, well below the as-is value of $76.5 million. The loan was liquidated based on the as-dark value, resulting in an implied loss severity in excess of 15.0% to the trust.

At issuance, DBRS Morningstar shadow rated the following loans as investment grade: 10 Hudson Yards (Prospectus ID#1; 9.6% of the pool balance), Westfield San Francisco Centre (Prospectus ID#3; 8.9% of the pool balance), Gas Company Tower & World Trade Center Parking Garage (Prospectus ID#8; 5.9% of the pool balance) and Vertex Pharmaceuticals HQ (Prospectus ID#9; 4.4% of the pool balance). DBRS Morningstar confirmed that the performance of these loans 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: https://www.dbrsmorningstar.com/research/357792.
Classes X-A, X-B, X-C, X-D, and X-E 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#1 – 10 Hudson Yards (9.6% of the pool)
-- Prospectus ID#3 – Westfield San Francisco Centre (8.9% of the pool)
-- Prospectus ID#9 – Vertex Pharmaceuticals HQ (4.4% of the pool)
-- Prospectus ID#10 – 60 East 55th Street (3.4% of the pool)
-- Prospectus ID#11 – Embassy Suites Columbus (3.3% of the pool)
-- Prospectus ID#15 – 401 South State Street (2.2% 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 the 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. 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 info@dbrsmorningstar.com.

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