DBRS Morningstar Confirms Ratings on All Classes of Real Estate Asset Liquidity Trust, Series 2016-1

DBRS Limited (DBRS Morningstar) confirmed the ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2016-1, issued by Real Estate Asset Liquidity Trust, Series 2016-1 as follows:

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

All trends are Stable.

The transaction’s performance remains in line with DBRS Morningstar’s expectations at issuance. As of the November 2021 remittance, 43 of the original 55 loans remain in the pool, representing a collateral reduction of 24.1% since issuance, due to loan repayments and scheduled loan amortization. There is one loan that is fully defeased, representing 0.5% of the pool. There are no loans in special servicing and nine loans on the servicer’s watchlist, representing 28.1% of the pool.

One loan was shadow rated investment grade at issuance: Toronto Congress Centre (Prospectus ID#2, 6.3% of the pool balance), which is secured by a 471,268 square-foot convention and trade show centre near Toronto Pearson International Airport. The loan was added to the servicer’s watchlist in July 2020 following the sponsor’s Coronavirus Disease (COVID-19) relief request and it’s also being monitored for a low debt service coverage ratio (DSCR). The servicer granted a forbearance agreement that initially allowed for a three-month deferral of principal and interest payments from July 2020 to September 2020 to be repaid over a 12-month period. The forbearance was modified to allow for a second 12-month interest-only (IO) period that would run through October 2021, with the option to extend for an additional six months. According to the servicer, the extension was exercised and all deferred principal is expected to be repaid at maturity. Based on the most recent financials, the loan reported a YE2020 DSCR at 0.15 times (x), compared with the YE2019 DSCR of 1.78x and DBRS Morningstar DSCR of 1.52x. While the subject continues to battle the ongoing challenges arising from the pandemic with capacity restrictions and the general uncertainty surrounding the recovery of the convention and event sector, DBRS Morningstar notes mitigating factors such as the property’s desirable location, the loan’s experienced sponsorship, and the loan’s full recourse to the sponsor, who has owned an interest in the property since 1994. With this review, DBRS Morningstar confirms that the loan characteristics remain in line with investment-grade shadow rating.

The Sainte Catherine Street Retail Montreal loan (Prospectus ID#4, 5.6% of the pool balance), which is secured by an unanchored retail property in Montréal, has been on the DBRS Morningstar Hotlist because of occupancy concerns since the departure of both tenants in place at issuance. A short-term lease has been signed for the larger of the two spaces, but the sponsor continues to market the full property for lease. A relief request was processed in response to coronavirus hardships and the sponsor is in compliance with the terms of the modification approved by the servicer. DBRS Morningstar notes the loan does benefit from the collateral property’s location within a prominent retail corridor, but given the increased risks in the occupancy decline from issuance, the loan was analyzed with an increased expected loss for this review.

ESG CONSIDERATIONS
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 IO certificate that references 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#2 – Toronto Congress Centre (6.3% of the pool)
-- Prospectus ID#4 – Sainte Catherine Street Retail Montreal (5.6% of the pool)
-- Prospectus ID#11 – The Opus Hotel (2.9% 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 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.

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

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577