DBRS Morningstar Confirms Ratings on Morgan Stanley Bank of America Merrill Lynch Trust 2016-C28

DBRS Limited (DBRS Morningstar) confirmed the ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2016-C28 issued by Morgan Stanley Bank of America Merrill Lynch Trust 2016-C28:

-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AA (high) (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class X-D at BBB (high) (sf)
-- Class D at BBB (sf)
-- Class E-1 at BB (high) (sf)
-- Class E at B (high) (sf)
-- Class E-2 at B (high) (sf)
-- Class EF at B (sf)
-- Class F at B (sf)
-- Class F-1 at B (high) (sf)
-- Class F-2 at B (sf)
-- Class G-1 at B (low) (sf)
-- Class EFG at CCC (sf)
-- Class G at CCC (sf)
-- Class G-2 at CCC (sf)

The trends on Classes E-1, E-2, E, F-1, F-2, F, EF, and G-1 are Negative, given the performance declines for some loans in the transaction and the reduced credit enhancement levels that are expected based on DBRS Morningstar’s liquidation scenario for the DoubleTree by Hilton – Cleveland, OH loan (Prospectus ID#13; 3.3% of trust balance). Classes EFG, G, and G-2 do not carry trends given the CCC (sf) rating. The trends on the remaining classes remain Stable. Classes G and G-2 continue to carry the Interest in Arrears designation, with interest shortfalls still outstanding as of the December 2021 remittance.

At issuance, the trust consisted of 42 fixed-rate loans secured by 161 commercial and multifamily properties with a trust balance of $955.6 million. According to the December 2021 remittance report, there were 38 loans remaining in the trust with a total trust balance of $803.4 million, representing a 15.9% collateral reduction since issuance. Most of the collateral reduction was attributed to the repayment of the GLP Industrial Portfolio A and Le Meridien Cambridge MIT loans. The trust is concentrated by loan size with the largest 15 loans representing 76.3% of the trust balance and by property type with 16 loans secured by retail properties, totalling 41.3% of the trust balance. The largest loan, Penn Square Mall (Prospectus ID#1; 11.2% of the trust balance), has investment-grade credit characteristics and two loans, representing 5.8% of the trust balance, are fully defeased.

Two hotel loans, representing 7.5% of the trust balance, are in special servicing. The DoubleTree by Hilton – Cleveland, OH loan transferred to the special servicer prior to the Coronavirus Disease (COVID-19) pandemic and the borrower has agreed to a voluntary foreclosure, which was scheduled to occur in May 2020 but was delayed after Cuyahoga County placed a moratorium on sheriff sales amid the pandemic. The moratorium expired in October 2020, but the special servicer must resolve legal issues prior to completing the foreclosure process, which is expected to occur in the near term. The loan was liquidated from the trust as part of this review, with a scenario based on the October 2020 appraised value of $13.2 million, resulting in an implied loss severity in excess of 90.0% to the trust. The projected loss would eliminate the unrated Class H-2 and would result in a partial loss to the unrated Class H-1, reducing credit support for the lowest-rated bonds, supporting the CCC (sf) ratings for some and Negative trends for others, as outlined above.

An additional 11 loans, representing 29.7% of the trust balance, are on the servicer’s watchlist. These loans are generally being monitored for lease rollover concerns, occupancy declines, and/or a low debt service coverage ratio (DSCR), the last of which has generally been driven by the continued impact of the pandemic. The most noteworthy of the watchlisted loans is the Greenville Mall loan (Prospectus ID#7; 5.1% of the pool). The loan is on the servicer’s watchlist because of the previous bankruptcy filings for two anchor tenants, JCPenney and Belk. Both companies have since exited bankruptcy and the cash flow sweep triggers have been cured with that development. However, DBRS Morningstar notes that the mall, located in the small city of Greenville, North Carolina, was reporting cash flow declines before the onset of the pandemic, with precipitous drops in the DSCR as a result. The most recent coverage of 1.40 times as of Q3 2021 is still considered healthy, as is the 93% occupancy rate reported for the period; however, the tenant roster on the mall’s website shows many local and regional tenants, and the mall’s tertiary location could be a challenge if the concentration of national brands is further reduced for the property. The mall is owned and operated by an affiliate of Brookfield Asset Management Inc. (rated A (low) with a Stable trend by DBRS Morningstar), which acquired the sponsor at issuance, Rouse Properties, LP, in 2016.

At issuance, DBRS Morningstar assigned an investment-grade shadow rating to Penn Square Mall. With this review, DBRS Morningstar confirmed that the performance of this loan remains consistent with investment-grade loan 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, and X-D 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#1 – Penn Square Mall (11.2% of the pool)
-- Prospectus ID#7 – Greenville Mall (5.1% of the pool)
-- Prospectus ID#13 – DoubleTree by Hilton – Cleveland, OH (3.3% 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 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. 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.

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].

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