DBRS Morningstar Confirms Ratings on All Classes of Real Estate Asset Liquidity Trust, Series 2017

DBRS, Inc. (DBRS Morningstar) confirmed its ratings of the Commercial Mortgage Pass-Through Certificates, Series 2017 issued by Real Estate Asset Liquidity Trust, Series 2017 as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class B at AA (sf)
-- Class X at A (high) (sf)
-- Class C at A (sf)
-- Class D-1 at BBB (sf)
-- Class D-2 at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (sf)
-- Class G at B (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since issuance, when the transaction consisted of 71 loans secured by 111 commercial and multifamily properties, with an aggregate trust balance of $406.8 million. As of the October 2021 remittance, 67 loans remain in the pool, including one loan (Prospectus ID#16; 2.3% of the pool) that has fully defeased. All loans are amortizing, and four small loan repayments, along with scheduled principal paydown, have resulted in a collateral reduction of 12.6% from issuance.

Loans secured by multifamily and retail properties account for the largest concentrations by property type, with each representing approximately 30% of the current pool balance. While these concenttrations are noteworthy given the stress on these property types amid the Coronavirus Disease (COVID-19) pandemic, there have not been any loan defaults or other indicators suggesting significantly increased risks from issuance for any of those loans. At issuance, 38 loans representing 63.9% of the pool were given recourse credit, generally resulting in lower probabilities of default.

While the pool comprised 71 loans at issuance, there were only 37 distinct sponsor or sponsor groups. As of the October 2021 reporting, seven sponsors or sponsor groups are behind 39 loans, representing 58.6% of the current pool. The largest sponsor by current pool balance is AMERCO Real Estate Company, with 17 loans representing 14.8% of the current pool balance. The Skyline Group of Companies sponsors four loans representing 14.3%, Boulevard Real Estate Equities Inc. sponsors eight loans representing 14.3% of the current pool, and the Value Centres REIT Inc. sponsors six loans representing 13.2% of the current pool balance. Only one pair of loans with affiliated borrowers, Drummondville Industrial (Prospectus ID#34, 1.0% of the current pool balance) and Drummondville Industrial II (Prospectus ID#69, 0.3% of the current pool balance) are cross collateralized with each other. Additionally, 21 loans representing 35.0% of the current pool balance have scheduled maturities in the next 12 months, including seven loans in the top 15. While the concentration of scheduled maturities in the near term is noteworthy, DBRS Morningstar does not anticipate any significant difficulty for the respective sponsors in obtaining replacement financing or executing short-term forbearances as needed to allow for more time to close a new loan or execute a sale of the collateral property.

As of the October 2021 reporting, there were three loans on the servicer’s watchlist (representing 10.9% of the current pool). All are backed by retail properties and include the pool’s largest loan, Skyline Thunder Centre (Prospectus ID#1; 7.8% of the current pool), secured by the borrower’s fee interest in a 168,087-square-foot (sf) anchored retail property in Thunder Bay, Ontario. The property is located within a major retail node that features various retail centers as well as retail plazas and free-standing big-box retailers. The loan was added to the servicer's watchlist in September 2020 after tenants Home Outfitters, Marks Work Warehouse, and Pier 1 Imports vacated at lease expirations between 2018 and 2020. Tenant Old Navy had a co-tenancy clause in its lease that was triggered by the vacancies and had been paying reduced rent, further affecting the rent collections, but servicer commentary indicates that the borrower is of the opinion that the co-tenancy requirement has been met as of April 2021 after Giant Tiger agreed to a short-term expansion of its space. The borrower is hoping to negotitate an extension of the Giant Tiger expansion.

The rent roll provided with the YE2020 reporting showed that the property was 74% occupied, compared with 98% at issuance, but an increase from 65% at YE2019. The servicer calculated a YE2020 debt service coverage ratio (DSCR) of 0.40 times (x), down from 0.79x at YE2019. The loan remains current, and, to date, the borrower has not requested relief. The loan is full recourse to the sponsor, Skyline Commercial REIT.

The second-largest loan on the servicer’s watchlist is the Yonge St Retail loan (Prospectus ID#19, 2.1% of current pool balance), which is secured by the borrower’s fee interest in a 42,726-sf unanchored retail property in Newmarket, Ontario (50 miles north of Toronto). The property is located along a primary retail corridor and is across the street from the Hudson's Bay-anchored Upper Canada Mall. The loan was added to the servicer's watchlist in June 2021 for a low DSCR after the second-largest tenant from issuance, Pier 1 Imports (formerly 21.9% of NRA), declared bankruptcy in May 2020 and ultimately vacated. A rent roll received in 2021 showed the property was again 100% occupied with a new grocery tenant, Paeez Fine Foods, back-filling the former Pier 1 Imports space on a five-year lease expiring in January 2026. The new tenant pays rent at a base rate of $12.00 per square foot (psf), which is slightly lower than Pier 1 Imports’s $14.00 psf. Other tenants at the property include largest tenant Indigo Books and Music (doing business as Chapter’s, expiring April 2024), and Montana’s BBQ and Bar (expiring November 2028).

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.

Class X is an interest-only (IO) certificate 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 – Skyline Thunder Centre (7.8% of the pool)
-- Prospectus ID#19 – Yonge St Retail (2.1% 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 Canadian 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 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.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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