DBRS Morningstar Downgraded Seven Classes of DBJPM 2016-C1 Mortgage Trust

DBRS, Inc. (DBRS Morningstar) downgraded the following ratings on the Commercial Mortgage Pass-Through Certificates, Series 2016-C1 issued by DBJPM 2016-C1 Mortgage Trust:

-- Class X-C downgraded to BB (high) (sf) from BBB (sf)
-- Class D downgraded to BB (sf) from BBB (low) (sf)
-- Class X-D downgraded to B (high) (sf) from BB (sf)
-- Class E downgraded to B (sf) from BB (low) (sf)
-- Class F downgraded to B (low) (sf) from B (sf)
-- Class X-E downgraded to B (low) (sf) from B (sf)
-- Class G downgraded to CCC (sf) from B (low) (sf)

DBRS Morningstar also confirmed the ratings on the following classes:

-- Class A-2 at AAA (sf)
-- Class A-3A at AAA (sf)
-- Class A-3B 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 (low) (sf)
-- Class X-B at A (sf)
-- Class C at A (low) (sf)

DBRS Morningstar also discontinued the rating on Class A-1 as the class has been repaid in full.

Classes D, E, F, G, X-C, X-D, and X-E were removed from Under Review with Negative Implications, where they were placed on August 6, 2020. The trends on Classes D, E, F, X-C, X-D, and X-E are Negative. DBRS Morningstar changed the trends on Classes C and X-B to Negative from Stable. Class G does not currently carry a trend. All other trends are Stable. The downgrades and Negative trends resulted primarily from the anticipated losses to the trust upon the resolution of the specially serviced Sheraton North Houston loan (Prospectus ID#4, 4.8% of the pool). In addition, loans representing 12.5% of the pool were in special servicing as of the January 2021 remittance. DBRS Morningstar also notes that the pool has a significant concentration in retail and hospitality properties, representing 34.5% and 20.9% of the pool balance, respectively. These property types have been the most severely affected by the initial effects of the Coronavirus Disease (COVID-19) pandemic and, as such, those concentrations suggest increased risks for the pool, particularly at the lower rating categories, since issuance.

As of the January 2021 remittance, all original 33 loans remained in the pool, and the pool had a 3.7% reduction of collateral because of amortization. Four loans, representing 12.5% of the pool, are with the special servicer, the largest of which, the Sheraton North Houston loan, is secured by a 419-key full-service hotel in Texas. The hotel has failed to generate cash flow in line with the issuer’s expectations due in part to the decline of the Houston energy sector and more directly due to the loss of a large contract with United Airlines after the airline moved its pilot training facility to Denver in 2017. While the property subsequently signed a contract with a smaller airline, it was for only a small portion of the room nights relative to the United Airlines contract. Additional headwinds now include the devastating impact the coronavirus pandemic has had on the entire lodging industry. While a 2020 appraisal was not yet available, DBRS Morningstar noted that 2020 appraisals for several other troubled Houston hotels reported declines in values of up to 65% when compared with their issuance appraisal values. Given that the struggles at this property extend beyond lost revenue caused by the pandemic, DBRS Morningstar anticipates a similar drop in value at this property and anticipates a sizable loss upon resolution.

There are 10 loans, representing 28.2% of the pool, on the servicer’s watchlist. These loans are being monitored for various reasons including low debt service coverage ratios or occupancy rates, tenant rollover risk, and/or pandemic-related forbearance requests. Three of the loans on the watchlist, collectively representing 11.3% of the pool balance, have been modified with some form of forbearance agreement. These loans include the 600 Broadway loan (Prospectus ID#6, 4.7% of the pool), Hagerstown Premium Outlets loan (Prospectus ID#12, 3.6% of the pool), and the Renaissance Providence Downtown Hotel loan (Prospectus ID#15, 2.9% of the pool).

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 materially deviated from its North American CMBS Insight Model when determining the ratings assigned to Classes B and C, as the quantitative results suggested a higher rating on the Classes. The material deviations are warranted given the uncertain loan-level event risk with the loans in special servicing and on the servicer’s watchlist, in addition to the increased concentration of the pool in terms of the number of loans remaining.

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#4 – Sheraton North Houston (4.8% of the pool)
-- Prospectus ID#12 – Hagerstown Premium Outlet (3.6% 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.

DBRS Morningstar notes that this press release was amended on June 23, 2021, to remove the trend from Class G, as it inadvertently remained due to an administrative error.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology 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 info@dbrsmorningstar.com.

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