DBRS Morningstar Confirms All Classes of CD 2016-CD1 Mortgage Trust with Stable Trends

DBRS, Inc. (DBRS Morningstar) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2016-CD1 issued by CD 2016-CD1 Mortgage Trust as follows:

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

All trends are Stable. Additionally, DBRS Morningstar assigned the Interest in Arrears designation to Class F, for which interest shortfalls were first reported with the December 2021 remittance. DBRS Morningstar is monitoring resolutions for two large specially serviced loans contributing to the shortfalls, which could result in some amounts being repaid in the near to medium term, but will continue to monitor the shortfall amount and servicer’s expected resolution for the loans in question for further impact on the Class F certificate.

The rating confirmations reflect the overall stable performance of the transaction in the last 12 months. At issuance, the trust consisted of 32 fixed-rate loans secured by 58 commercial properties with a total trust balance of $703.2 million. As of the December 2021 remittance, the trust balance was $629.4 million, with 31 loans remaining in the pool, representing a collateral reduction of 10.5% since issuance. One loan, the $40.0 million Gas Company Tower & World Trade Center Parking Garage (Prospectus ID #8) repaid in August 2021 at its scheduled maturity, and there are currently no defeased loans. The pool is concentrated in retail- and office-backed loans, which represent 19.2% and 44.4% of the pool, respectively.

According to the December 2021 remittance report, five loans, representing 11.9% of the current pool balance, were in special servicing, including three of the top 15 loans. Each of the five specially serviced loans transferred to the special servicer during the Coronavirus Disease (COVID-19) pandemic and were with the special servicer at the time of the last review. The loans vary by property type and geographic location, but have generally all been affected by the ongoing coronavirus pandemic. There are also eight loans, representing 25.6% of the current pool balance, being monitored on the servicer’s watchlist.

The stories surrounding the largest specially serviced loans remain generally static from last review and, of the five loans in special servicing, DBRS Morningstar liquidated just one in the analysis for this review, with a loss of $5.0 million projected. The largest loan in special servicing, 60 East 55th Street (Prospectus ID#10; 3.6% of the trust balance), is secured by the fee interest in a mixed-use property in the Plaza District of Midtown Manhattan. Loan payments were last made in September 2020 and the special servicer continues to evaluate all options as the borrower has been unresponsive, which may be due to the foreclosure moratorium in place until January 15, 2022, after an extension was approved by the State of New York in September 2021. A September 2021 appraisal value of $33.0 million suggests value outside the trust exposure for the loan.

The second-largest specially serviced loan, Embassy Suites Columbus (Prospectus ID#11; 3.4% of the trust balance), is secured by a 198-key, full-service hotel near the John Glenn Columbus International Airport in Columbus, Ohio. The loan transferred to the special servicer in June 2020 for imminent monetary default as a result of the coronavirus pandemic. Loan payments were last remitted in June 2021 and the borrower, while initially uncooperative, has more recently expressed a desire to bring the loan current. The June 2021 STR report indicates property performance is trending upward, but remains below pre-pandemic levels. The report shows the trailing three months ended June 2021 occupancy, average daily rate, and revenue per available room of 55.1%, $126.32, and $69.58, respectively, outperforming the competitive set’s averages of 51.5%, $88.27, and $45.49, respectively. An updated appraisal dated August 2021 valued the property on an as-is basis at $28.6 million, which is up from $25 million a year earlier and above the trust exposure.

The third-largest specially serviced loan, 401 South State Street (Prospectus ID#15; 2.3% of the trust balance), is a pari passu participation in a $47.7 million whole loan secured by a historic office building and a small commercial building located in the South Loop of Chicago. Debt service payments were last made in March 2020 and the borrower has suggested the possibility of handing over the properties to the trust. Negotiations remain ongoing but given the significantly increased risks for the loan that include the loss of the sole tenant for the office building in April 2020 and the sponsor’s possibly tenuous commitment to the properties and loan, a liquidation scenario was assumed for this review. The loss was based on a haircut to the dark value of $46.5 million derived for the properties with the issuance appraisal, with a loss of approximately $5.0 million (loss severity in excess of 30%) contained to the unrated certificate.

At issuance, DBRS Morningstar shadow rated the following loans investment grade: 10 Hudson Yards (Prospectus ID#1; 10.3% of the pool balance), Westfield San Francisco Centre (Prospectus ID#3; 9.5% of the pool balance), and Vertex Pharmaceuticals HQ (Prospectus ID#9; 4.8% of the pool balance). DBRS Morningstar maintains that the performance of these loans remains consistent with 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.

Classes X-A, X-B, X-C, X-D, and X-E 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 loan in the transaction:

-- Prospectus ID#15 – 401 South State Street (2.3% 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 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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