DBRS Morningstar Confirms Ratings on All Classes of CD 2017-CD4 Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed all classes of the Commercial Mortgage Pass-Through Certificates, Series 2017-CD4 issued by CD 2017-CD4 Mortgage Trust as follows:

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

Classes D, E, F, X-D, X-E, X-F, and V-D continue to carry Negative trends. The trends on all other classes are Stable. The Negative trends are reflective of DBRS Morningstar’s concerns regarding performance declines for select loans, including two top 10 loans currently in special servicing, as further described below.

As of the January 2022 remittance, all of the original 47 loans remain in the pool, with an aggregate principal balance of $872.6 million, representing a collateral reduction of 3.1% since issuance. One loan, representing 0.8% of the current trust balance, is fully defeased. The transaction is concentrated by property type as 14 loans, representing over 40.0% of the current trust balance, are secured by office properties. There are five loans, representing 9.9% of the current trust balance, in special servicing and 13 loans, representing 38.4% of the pool, are being monitored on the servicer’s watchlist.

The largest specially serviced loan, Key Center Cleveland (Prospectus ID#7, 3.2% of the pool), is secured by a mixed-use property in Cleveland. The collateral for the loan totals 2.1 million square feet (sf) and consists of a 400-key hotel, two Class A office buildings, and an underground parking garage. The property was built in 1991 and renovated in 2005. The loan was transferred to special servicing at the borrower’s request in November 2020 because of imminent default as a result of the pandemic. The loan remains current, and negotiations for temporary relief are ongoing. As of September 2021, the hotel was outperforming its competitive set with a trailing three months (T-3) revenue per available room (RevPAR) penetration figure of 105.1%.

The second-largest tenant at Key Center Cleveland, Squire Patton Boggs (11.0% of the NRA), has a lease expiry in April 2022. If the tenant does not renew its lease, the property’s vacancy rate will increase to 21.4%. The property’s largest tenant, KeyBank (31.8% of the net rentable area (NRA), expiring June 2030), downsized by 44,000 sf (3.2% of the NRA) in July 2020 after giving the required 12 months’ notice and paying a $2.1 million fee. While there is a three-year lockout before the tenant can contract its footprint further, KeyBank retains two more identical options, allowing the tenant to downsize by 103,000 sf total. However, the termination fees for the other two options would be approximately $3.0 million combined to be deposited into reserves.

The second-largest specially serviced loan, Marriott Spartanburg (Prospectus ID#9, 2.6% of the pool), is secured by a 247-room, full-service hotel in Spartanburg, South Carolina. The loan transferred to special servicing in July 2020 for payment default and remains delinquent with negotiations between the borrower and servicer ongoing. Per the T-3 ended September 30, 2021 STR report, the property’s occupancy was 52.8%, compared with its competitive set’s average occupancy rate of 65.7%. Overall, the subject was underperforming its competitive set with a T-3 ended September 30, 2021, RevPAR penetration rate of 93.7%. As of June 2021, the property was appraised at a value of $26.2 million, reflecting a 34.7% decline from the issuance value of $40.1 million.

At issuance, DBRS Morningstar assigned an investment-grade shadow rating on two loans, 95 Morton Street (Prospectus ID#1, 10.9% of the pool) and Hilton Hawaiian Village Waikiki Beach Resort (Prospectus ID#5, 6.5% of the pool). With this review, DBRS Morningstar confirmed that the performance of these loans 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, X-D, X-E, and X-F 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 loans in the transaction:

-- Prospectus ID#7 – Key Center Cleveland (3.2% of the pool)
-- Prospectus ID#9 – Marriott Spartanburg (2.6% 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.

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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