DBRS Morningstar Confirms Ratings on Citigroup Commercial Mortgage Trust 2017-P8

DBRS Inc. (DBRS Morningstar) confirmed all classes of Commercial Mortgage Pass-Through Certificates, Series 2017-P8 issued by Citigroup Commercial Mortgage Trust 2017-P8 as listed below.

-- 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-AB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AAA (sf)
-- Class X-B at AAA (sf)
-- Class V-2A at AAA (sf)
-- Class V-2B at AAA (sf)
-- Class C at A (high) (sf)
-- Class V-2C at A (high) (sf)
-- Class V-3AC at A (high) (sf)
-- Class X-D at BBB (high) (sf)
-- Class D at BBB (sf)
-- Class V-2D at BBB (sf)
-- Class V-3D at BBB (sf)
-- Class X-E at BBB (low) (sf)
-- Class E at BB (high) (sf)
-- Class X-F at BB (sf)
-- Class F at BB (low) (sf)

Classes E, X-E, F, and X-F were removed from Under Review with Negative Implications where they were placed on August 6, 2020. The trends on Classes E, X-E, F, and X-F are Negative, reflecting the continuing performance challenges to the underlying collateral, many of which have been driven by the impact of the Coronavirus Disease (COVID-19) pandemic. The trends on all other classes are Stable.

The rating confirmations reflect the stable performance of the transaction, which has remained in line with DBRS Morningstar’s expectations since issuance. The pool is unchanged since issuance, still consisting of 53 loans secured by 167 commercial and multifamily properties. As of the December 2020 remittance, the pool had an aggregate principal balance of $1.07 billion, representing a collateral reduction of 1.5% since issuance. Seventeen loans, representing 30.2% of the current trust balance, are on the servicer’s watchlist. These loans are generally being monitored for lease rollover concerns and/or low debt service coverage ratios (DSCR), factors that have generally been driven by disruptions related to the pandemic. Among the watchlisted loans, DBRS Morningstar’s primary concern is with the Starwood Capital Group Hotel Portfolio loan (Prospectus ID#8, 3.9% of the pool balance), which is secured by the borrower’s fee and leasehold interests in a portfolio comprising 65 select-service and extended-stay hotels across 21 states. The loan received coronavirus relief to allow the borrower the ability to draw upon existing furniture, fixtures, and equipment (FF&E) reserves to cover debt service shortfalls as well as to defer the collection of FF&E reserves for a period of three months. The repayment will occur over 12 months, commencing in February 2021. DBRS Morningstar’s concerns are also heightened because the performance across the portfolio had been trending downward prior to the pandemic as the year-end 2019 net cash flow (NCF) was 11% below issuance.

While it is not on the servicer’s watchlist, DBRS Morningstar maintains a cautious view on the Mall at Louisiana (Prospectus ID#6; 4.4% of the pool). The pari passu loan is secured by the fee interest in a 776,917-square-foot (sf) portion of a 1.6 million-sf regional mall in Baton Rouge, Louisiana. Noncollateral anchors include Dillard’s, Dillard’s Men’s & Home, JCPenney, Macy’s, and Sears. Despite maintaining a stable occupancy of 89% along with a strong DSCR of 1.94 times (x) as of September 2020, the year-end 2019 NCF was down 13.6% since issuance because of a small decline in occupancy as well as increased operating expenses. Further, according to a March 2020 sales report, comparable in-line sales for tenants of less than 10,000 sf, excluding Apple, were $414 per sf (psf) compared with $461 psf in 2018 and $496 psf at issuance.

The Canyon Portal (Prospectus ID#20; 2.0% of the pool) is the only loan in special servicing. The loan is secured by the leasehold interest in a 47,511-sf mixed-use retail center in Sedona, Arizona, specifically by a retail component consisting of local shops catering to the tourist market. The property also includes a portion of the land underneath the Orchards Inn Sedona, a 70-room full-service hotel. The land parcel, which is known as Orchards Annex, represents 44.9% of the property’s net rentable area under a gross lease through 2040. The second-largest tenant, representing 13.7% of the property, is a local restaurant leased through 2072. The loan transferred to special servicing in May 2020 after the borrower requested coronavirus relief. It is unclear if the special servicer is willing to grant relief as the loan has maintained stable performance to date. As of September 2020, the property was 100% occupied while covering a DSCR of 1.19x.

At issuance, four loans, representing 17.9% of the current pool balance, were shadow-rated investment grade. These loans include 225 & 233 Park Avenue South (Prospectus ID #1; 5.6% of the pool); General Motors Building (Prospectus ID#2; 5.2% of the pool); The Grove at Shrewsbury (Prospectus ID# 7; 4.1% of the pool) and Lakeside Shopping Center (Prospectus ID #13; 3.1% of the pool). With this review, DBRS Morningstar confirms that the performance of these loans remains consistent with investment-grade loan characteristics.

Although the overall performance of the pool has remained generally stable from issuance, DBRS Morningstar continues to monitor the impact of the pandemic on the underlying collateral. DBRS Morningstar notes that the subject pool has a relatively moderate concentration (9.9%) of loans backed by hospitality properties. The pool has a higher concentration of loans secured by retail properties, which represent 30.5% of the current balance. Both hotel and retail property types have been among the hardest hit by the effects of the pandemic and, as such, these loans will be monitored closely for developments

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.

DBRS Morningstar did not perform an updated model run as performance was deemed to be generally in line with expectations at the last review. As of the previous actions published on January 31, 2020, the material deviation(s) from the North American CMBS Insight Model was reported on Classes B, C, V-2B, V-2C, and V-3AC, ranging between three and four notices that were lower than the implied results. These material deviations are warranted, given that the sustainability of loan performance trends has not yet been demonstrated.

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#20 – The Canyon Portal (2.0% 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 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 [email protected].

DBRS, Inc.
140 Broadway, 43rd Floor
New York, NY 10005 USA
Tel. +1 212 806-3277