DBRS Morningstar Confirms All Ratings on BBCMS Mortgage Trust 2017-C1

DBRS Inc. (DBRS Morningstar) confirmed its ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2017-C1 (the Certificates) issued by BBCMS Mortgage Trust 2017-C1:

-- 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-S 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 (low) (sf)
-- Class X-D at BBB (sf)
-- Class D at BBB (low) (sf)
-- Class X-E at BB (high) (sf)
-- Class E at BB (sf)
-- Class X-F at BB (low) (sf)
-- Class F at B (high) (sf)
-- Class X-G at B (sf)
-- Class G at B (low) (sf)

All trends are Stable.

The confirmations reflect the overall stable performance of the transaction since the last rating action. At issuance, the trust comprised 58 fixed-rate loans secured by 75 commercial and multifamily properties with an original balance of $855.7 million. As of the January 2022 remittance report, there are 54 loans in the pool collateralized by 68 properties, with a collateral reduction of 5.7% as a result of scheduled amortization and payoffs. Two loans, consisting of 0.9% of the outstanding pool balance, are defeased. There is notable concentration by property type in this transaction as nine loans, comprising 41.0% of the outstanding pool, are collateralized by office properties while 24.0% of the pool is backed by retail properties and 15.2% is backed by hospitality properties.

There are three loans in special servicing (4.8% of the current pool balance). The largest loan in special servicing, Anaheim Marriott Suites loan (Prospectus ID#9, 3.2% of the pool), is secured by a hotel located near Disneyland and has been in default since Q2 2020. The servicer’s updates regarding the status of the loan workout have been minimal, but it appears discussions surrounding a loan modification stalled sometime in early 2021 and the servicer is dual-tracking foreclosure options while continuing discussions with the borrower and a third-party consultant engaged by the borrower. Updated appraisals were obtained in both 2020 and 2021; both showed value just below the whole loan balance, and approximately 70% of the issuance valuation. Given the extended delinquency and value decline from issuance, DBRS Morningstar believes a relatively moderate loss could be realized at resolution. In addition, since DBRS Morningstar’s last review of this transaction, two specially serviced loans, Wolfchase Galleria (Prospectus ID#28) and Franklin Village Shopping Center (Prospectus ID#29), returned to the master servicer.

There are 16 loans (32.5% of the current pool balance) on the servicer’s watchlist. These loans are being monitored for a variety of reasons, including debt coverage and performance declines as a result of ongoing difficulties caused by the Coronavirus Disease (COVID-19) pandemic.

The largest loan on the servicer’s watchlist, 1000 Denny Way (Prospectus ID#3, 6.9% of the pool), is secured by a Class B office building totaling 262,565 square feet (sf) in Seattle. The loan is being monitored on the servicer’s watchlist after the property’s former largest tenant, The Seattle Times (59.7% of the net rentable area (NRA)), downsized its space by 108,561 sf as part of its January 2021 renewal, decreasing occupancy to 63% as of the June 2021 rent roll. The tenant now leases 47,424 sf (18.1% of NRA) through 2026. A portion of the space was backfilled by Best Buy, which previously subleased 32,500 sf (12.4% of NRA) of space. Best Buy executed a direct lease through 2026. Mitigating these concerns is the potential for increases in revenue as The Seattle Times’s base rent of $19.71/per (psf) is well below the current asking rents of $44.15/psf, per Reis.

While not on the servicer’s watchlist, DBRS Morningstar is monitoring the pool’s largest loan, Alhambra Towers (Prospectus ID#1, 7.5% of the pool). The loan is secured by a 174,250-sf office property within the central business district (CBD) of Coral Gables, Florida. The property’s occupancy decreased to 74.3% after its former largest tenant, AerSale (15.7% of NRA), vacated upon its November 2021 lease expiration. However, according to the borrower a former subtenant of AerSale, which was subleasing 3.2% of the NRA, executed a direct lease through 2026. In addition, the borrower is negotiating with a potential tenant to backfill the remaining space. Furthermore, there is potential for an uptick in cash flow as AerSale’s base rent of $40.57/psf was slightly lower current asking rents of $43.65/psf, per Reis.

At issuance, an investment-grade shadow rating was assigned to two loans in Prospectus ID#5, Merrill Lynch Drive (5.1% of the current trust balance) and Prospectus ID#11, State Farm Data Center (3.1% of the current trust balance). With this review, DBRS Morningstar confirmed that the performance of these loans remains consistent with the characteristics of an investment-grade loan.

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, X-F, and X-G are interest-only (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#1 – Alhambra Towers (7.6% of the pool)
-- Prospectus ID#3 – 100 Denny Way (6.9% of the pool)
-- Prospectus ID#9 – Anaheim Marriott Suites (3.7% 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 21, 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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