DBRS Morningstar Confirms All Classes of Citigroup Commercial Mortgage Trust 2016-C2

DBRS, Inc. (DBRS Morningstar) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2016-C2 issued by Citigroup Commercial Mortgage Trust 2016-C2 (CGCMT 2016-C2) 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-AB at AAA (sf)
-- Class A-S 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 D at BBB (sf)
-- Class X-D at BBB (sf)
-- Class E-1 at BB (high) (sf)
-- Class E at BB (sf)
-- Class E-2 at BB (sf)
-- Class F-1 at BB (low) (sf)
-- Class EF at B (high) (sf)
-- Class F at B (high) (sf)
-- Class F-2 at B (high) (sf)
-- Class G-1 at B (sf)
-- Class EFG at B (low) (sf)
-- Class G at B (low) (sf)
-- Class G-2 at B (low) (sf)

With this review, DBRS Morningstar removed Classes E, E-2, EF, F, F-1, F-2, G, G-1, G-2, and EFG from Under Review with Negative Implications where they were placed on August 6, 2020. The trends on all classes are Stable .

The rating confirmations and Stable trends reflect the overall stable performance of the transaction from issuance, albeit with select loans currently showing signs of increased stress from issuance, including the loans in special servicing and those secured by hotel and retail properties, which have been disproportionately affected by the ongoing Coronavirus Disease (COVID-19) pandemic. In total, 19 loans in the transaction, representing 43.9% of the outstanding transaction balance, are backed by hotel and retail properties. As of the January 2021 reporting, five loans, representing 14.2% of the current pool balance, are in special servicing and nine loans, representing 20.4% of the current pool balance, are on the servicer’s watchlist.

Four of the five loans in special servicing are secured by either hotel or retail properties, including Hyatt Regency Huntington Beach Resort & Spa (Prospectus ID#7; 4.4% of the pool) and Welcome Hospitality Portfolio (Prospectus ID#8; 4.0% of the pool). Additionally, the third-largest loan in the transaction, Crocker Park Phase I and II (Prospectus ID#3; 10.1% of the pool), is secured by an outdoor, life-style center. The borrower received a 12-month forbearance in July 2020 allowing it to defer debt service payments until loan maturity in August 2026 in order to be able to fund the $7.0 million of estimated leasing costs necessary to backfill current and projected future vacancy across the property.

As of January 2021, the transaction is composed of 44 loans, totaling $591.8 million, with all of the original loans remaining in the trust. To date, there has been a collateral reduction of 2.8% as a result of loan amortization. The transaction benefits from the largest loan being secured by an office property in the Seaport District of Boston (Vertex Pharmaceuticals HQ; 10.1% of the pool). Additionally, three loans, representing 6.2% of the pool, have been defeased.

The largest loan in special servicing, Hyatt Regency Huntington Beach Resort & Spa, transferred to special servicing in July 2020 due to imminent monetary default as a result of the pandemic. The loan was modified in November 2020, with terms including the deferral of the July 2020 through September 2020 amortizing debt service payments followed by a six-month interest-only debt service period through March 2021. The modification also allows for a deferment of monthly furniture, fixtures and equipment (FF&E) deposits from March 2020 to March 2021 and allows the borrower to access outstanding FF&E reserves to fund operating costs and/or debt service payments shortfalls. The repayment of all deferred funds will be made over a period of 30 months starting in April 2021. According to the updated October 2020 appraisal, the as-is value was reported at $316.3 million, with a stabilized value of $403.0 million, compared with the issuance value of $367.9 million. Although the value has dropped since issuance, the loan remains above water. The increased risks from issuance in the higher as-is loan-to-value and the deferment of payments due are mitigated by the historically strong performance of the property, the irreplaceable and highly desirable location of the subject property, and the sponsor’s historical commitment to the loan.

At issuance, DBRS Morningstar assigned an investment-grade shadow rating on the Vertex Pharmaceuticals HQ loan (Prospectus ID#1; 10.1% of the pool). With this review, DBRS Morningstar confirmed that the performance of this loan remains consistent with investment-grade loan characteristics.

ESG CONSIDERATIONS
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, 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 the following loans in the transaction:
-- Prospectus ID#1 – Vertex Pharmaceuticals HQ (10.1% of the pool)
-- Prospectus ID#3 – Crocker Park Phase I and II (10.1% of the pool)
-- Prospectus ID#6 – Staybridge Suites Times Square (4.9% of the pool)
-- Prospectus ID#7 – Hyatt Regency Huntington Beach Resort & Spa (4.4% of the pool)
-- Prospectus ID#8 – Welcome Hospitality Portfolio (4.0% of the pool)
-- Prospectus ID#17 – Marriott – Laurel at Livonia Park (2.5% 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.

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