DBRS Morningstar Confirms Ratings on CD 2017-CD4 Mortgage Trust

DBRS, Inc. (DBRS Morningstar) confirmed all classes of the Commercial Mortgage Pass-Through Certificates, Series 2017-CD4 issued by CD 2017-CD4 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 V-A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class X-B at AA (low) (sf)
-- Class C at A (high) (sf)
-- Class V-BC at A (high) (sf)
-- Class X-D at BBB (high) (sf)
-- Class D at BBB (sf)
-- Class V-D 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)

DBRS Morningstar also removed the ratings on Classes D, E, F, X-D, X-E, X-F, and V-D from Under Review with Negative Implications, where they were placed on August 6, 2020. The trends on these classes are Negative, reflecting the continued performance challenges to the underlying collateral, many of which the Coronavirus Disease (COVID-19) pandemic has driven. 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 at issuance. The pool’s collateral is unchanged since issuance, still consisting of 47 loans secured by 53 properties. As of the January 2021 remittance, the pool had an aggregate principal balance of $881.4 million, representing a collateral reduction of 2.1% since issuance.

Four loans, representing 9.0% of the pool, are in special servicing. Two of these loans, Marriott Spartanburg (Prospectus ID#9, 2.6% of the current pool balance) and Roslyn Hotel (Prospectus ID#29, 1.1% of the current pool balance) are 90+ days delinquent, while the remaining two loans, Key Center Cleveland (Prospectus ID#7, 3.3% of the current pool balance) and Hamilton Crossing (Prospectus ID#12, 2.1% of the current pool balance) remain current.

Key Center Cleveland is secured by a mixed-use property in downtown Cleveland, comprising two interconnected office buildings, a 400-key Marriott hotel, and a 985-space underground parking garage. The loan was transferred to special servicing in November 2020 for imminent default. As noted above, the loan remains current as of the January 2021 reporting and negotiations for temporary relief are underway. As of June 2020, the loan reported an annualized net cash flow (NCF) of $17.8 million, representing a 38.5% decline when compared with the year-end 2019 figure of $28.9 million. While cash flow had been trending positive since issuance prior to the most recent reporting, the decline comes primarily as a result of lost revenue from the hotel and parking portions of the collateral amid the pandemic, which is likely to remain depressed during the short term. Additionally, the property’s largest tenant, KeyBank (31.8% of the net rentable area (NRA), expiring June 2030), downsized by 44,000 square feet (3.2% of the NRA) in July 2020 after giving the required 12 months’ notice; a $2.1 million termination fee was collected upon notice in 2019 and held in reserves. While there is a three-year lockout before the tenant can contract its footprint further, KeyBank retains two more identical options, allowing the tenant to downsize by an additional 59,000 square feet in total. While it appears likely that a coronavirus-related forbearance may be granted, the uncertainty caused by the pandemic and the additional contraction options for the largest tenant increase the loan’s risk profile.

Marriott Spartanburg is secured by a nine-story, 247-room full-service hotel located in downtown Spartanburg, South Carolina. The loan was transferred to special servicing in July 2020 for payment default as a result of the pandemic. According to the servicer, the borrower and special servicer are in active discussions for coronavirus relief. DBRS Morningstar’s concerns are also heightened because the transaction’s performance had been trending downward prior to the coronavirus pandemic, with the YE2019 NCF reported at 67% below issuance levels with a corresponding debt service coverage ratio (DSCR) of 0.65 times (x). The decline in performance is likely the result of new supply, as four new hotels opened in the immediate area since issuance. An updated appraisal completed in September 2020 valued the property at $25.5 million ($103,239/key), which implies a loan-to-value of 88.9%. The updated appraised value reflects a 36.4% decrease from the at-issuance appraisal of $40.1 million.

Thirteen loans, representing 35.2% of the pool, are on the servicer’s watchlist as of the January 2021 remittance, highlighted by the pool’s largest loan, 95 Morton Street (Prospectus ID#1, 10.8% of the pool). The loan, which is secured by a Class A, 217,084-square-foot office building in New York City’s West Village neighborhood, is being monitored on the servicer’s watchlist for a cash trap trigger after the June 2020 DSCR fell below 1.10x. The loan has maintained stable performance to date that has been consistent with issuance levels. While the loan had a trust debt DSCR of 2.30x as of Q3 2020, the cash trap provision is based on the total debt inclusive of the $77 million mezzanine loan held outside the trust. Given the loan’s stable occupancy and cash flow along with minimal rollover concerns, DBRS Morningstar did not increase the probability of default on the loan but will continue to monitor the loan for further updates from the servicer.

At issuance, DBRS Morningstar assigned an investment-grade shadow rating on two loans, 95 Morton Street and Hilton Hawaiian Village Waikiki Beach Resort (Prospectus ID#5, 6.3% of the pool balance). With this review, DBRS Morningstar confirmed that the performance of these loans remains consistent with investment-grade loan 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-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 loan in the transaction:

-- Prospectus ID#7 – Key Center Cleveland (3.3% 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].

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