DBRS Morningstar Confirms Ratings on CD 2017-CD6 Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed its ratings on the following classes of Commercial Mortgage Pass-Through Certificates issued by CD 2017-CD6 Mortgage Trust:

-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-M at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at A (high) (sf)
-- Class X-D at A (high) (sf)
-- Class D at A (sf)
-- Class E-RR at BBB (sf)
-- Class F-RR at BB (low) (sf)
-- Class G-RR at B (sf)

Classes E-RR, F-RR, and G-RR continue to have Negative trends, which reflect the continued performance challenges facing the underlying collateral largely driven by the Coronavirus Disease (COVID-19) global pandemic. All other trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which remains in line with DBRS Morningstar’s expectations. As of the October 2021 remittance, there has been collateral reduction of 5.2% as a result of loan repayment and scheduled amortization. DBRS Morningstar notes that the pool has a relatively high concentration of hospitality properties, representing 18.2% of the pool. The retail concentration is also high, with 16 loans secured by regional malls, and anchored and unanchored retail properties, collectively representing 16.8% of the pool. As of the October 2021 remittance, two loans, representing 11.4% of the pool, are in special servicing and nine loans, representing 15.5% of the pool, are on the servicer’s watchlist. For the two loans in special servicing, DBRS Morningstar applied a probability of default penalty to increase the expected loss in the analysis. In general, the resulting expected loss figures were well above the pool average, supported by the value declines and other increased risks associated with these loans.

The largest loan in special servicing, Headquarters Plaza (Prospectus ID#1; 7.5% of the pool), is secured by the borrower’s fee and leasehold interests in a mixed-use property in Morristown, New Jersey. The collateral comprises three office towers totalling 562,242 square feet (sf), which includes 167,274 sf of ground-floor retail space and a 256-key Hyatt Regency hotel that are connected via enclosed corridors. Such improvements sit atop a multistorey above- and below-grade 2,900-space parking garage that does not serve as collateral for the loan. The loan sponsors are the property’s original developers and, at issuance, DBRS Morningstar noted that the loan sponsors had invested approximately $45.7 million in capital improvements for the property since 2005. The property’s retail component features interior and outdoor-facing retail suites, an AMC theatre, and a fitness facility known as The Club at Headquarters Plaza. The collateral’s hotel portion was added to the subject complex in 1993 and includes 31,000 sf of meeting and banquet space; a 4,984-sf conference centre; a small indoor pool; a fitness and business centre; and three food and beverage outlets.

Prior to the coronavirus pandemic, the hotel was outperforming its competitive set and was the dominant hotel in the market; however, the pandemic has caused significant declines in hotel demand at the property and most others across the United States. As a result, the loan transferred to special servicing in June 2020 for coronavirus-related payment default. As of April 2021, a forbearance agreement was executed which required borrower to carry out a $15.0 million property improvement plan (PIP) for the hotel and a $4.8 million renovation for the commercial component of the collateral. As of October 2021, the servicer noted that the borrower has nearly completed the PIP for the hotel and the commercial component renovations. According to the servicer, the loan is expected to return to the master servicer upon completion of the PIP by the end of October 2021.The property was appraised in August 2020 for $158.6 million, a 33.6% decline from the issuance valuation of $239.0 million, largely because of the sharp decline in the hospitality portion’s assigned value. Using the most recent value, the current implied loan-to-value ratio is 94.6%, up from 62.8% at issuance. Overall, DBRS Morningstar believes that the long-term ownership, implied value exceeding the loan balance, and upcoming completion of the PIP and renovations are positives. However, the value decline since issuance is a noteworthy increased risk for the pool from issuance and as such, DBRS Morningstar applied an elevated probably of default in its analysis.

DBRS Morningstar shadow-rated three loans (Burbank Office Portfolio (Prospectus ID#3), Moffett Place Building 4 (Prospectus ID#15), and Colorado Center (Prospectus ID#23)), totalling 9.5% of the trust balance, as investment grade at issuance. With this review, DBRS Morningstar confirmed that the loans continue to perform in line with the investment-grade characteristics.

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.

DBRS Morningstar materially deviated from the North American CMBS Insight Model when determining the ratings assigned to Classes B and C by assigning ratings that were higher than the implied results. The material deviations are warranted given uncertain loan-level event risk.

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 ratings mirror 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.

The DBRS Viewpoint platform provides additional information on this transaction and underlying loans 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 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 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.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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.

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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