DBRS Morningstar Confirms Ratings on Morgan Stanley Capital I Trust 2017-CLS

DBRS Limited (DBRS Morningstar) confirmed its ratings on the following classes of the Commercial Mortgage Pass-Through Certificates, Series 2017-CLS issued by Morgan Stanley Capital I Trust 2017-CLS as follows:

-- Class A at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AA (sf)
-- Class D at A (low) (sf)
-- Class E at BBB (low) (sf)
-- Class F at B (high) (sf)
-- Class HRR at B (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which remains in line with DBRS Morningstar’s expectations. The loan is secured by the Center for Life Science, an office and laboratory building in Boston’s Longwood Medical Area. The property was constructed in 2008 by BioMed Realty Trust, Inc. (BioMed Realty), and the property was acquired by The Blackstone Group (Blackstone) in January 2016 through Blackstone’s $8.0 billion acquisition of BioMed Realty. The trust amount of $700 million, along with $70.0 million of junior mezzanine debt and $70.0 million of senior mezzanine debt, refinanced existing debt, covered closing costs, and returned over $104.6 million of equity to the sponsor. The loan is interest only and has an initial term of two years and three one-year extension options.

The property has been 100% occupied since issuance, with the tenant roster composed of eight tenants as of April 2021, five of which are investment grade, including Beth Israel Deaconess Medical Center (Beth Israel) and Boston Children’s Hospital, representing 51.5% of the net rentable area (NRA) and 22.4% of NRA, respectively. Beth Israel and Boston Children’s Hospital have lease expirations of June 2023 and April 2023, respectively, both beyond the fully extended loan term. Both have extension options remaining and are required to provide notice of the intent to renew or vacate to the borrower at least 18 months prior to the respective initial lease expiration dates. The loan is structured with a cash trap to be triggered in the event the tenants do not renew their leases. There is minimal near-term tenant rollover risk as only one tenant, Pfizer (2.4% of the NRA), has a lease scheduled to expire in 2021. The property is considered a research hub, and many of the tenants have demonstrated long-term commitment to the property by investing significant capital into their units.

According to Reis, the office properties located in the Back Bay/Fenway submarket of Boston reported a YE2020 vacancy rate of 7.3%, compared with the YE2019 vacancy rate of 7.2%. The submarket asking rent was $61.91 per square foot (psf), compared with the subject’s average rental rate of $81.39 psf.

Based on the trailing 12 months ended September 30, 2020, financials, the loan reported a net cash flow (NCF) of $55.9 million, compared with the YE2019 NCF of $54.9 million and DBRS Morningstar NCF of $50.0 million.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

The DBRS Viewpoint platform provides additional information on this transaction and underlying loan including DBRS Morningstar metrics, commentary, servicer-reported cash flows, and other performance-related data.
For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com The platform includes loan-level 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 26, 2021), 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 related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at [email protected].

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 [email protected].

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