DBRS Morningstar Confirms Ratings on Morgan Stanley Capital I Trust 2017-CLS

DBRS Limited (DBRS Morningstar) confirmed its ratings on the following classes of the Commercial Mortgage Pass-Through Certificates, Series 2017-CLS issued by Morgan Stanley Capital I Trust 2017-CLS as follows:

-- Class A at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AA (sf)
-- Class D at A (low) (sf)
-- Class E at BBB (low) (sf)
-- Class F at B (high) (sf)
-- Class HRR at B (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which remains in line with DBRS Morningstar’s expectations. The loan is secured by the Center for Life Science, an office and laboratory building in Boston’s Longwood Medical Area. The property was constructed in 2008 by BioMed Realty Trust, Inc. (BioMed Realty), and the subject was acquired by The Blackstone Group (Blackstone) in January 2016 through Blackstone’s $8.0 billion acquisition of BioMed Realty. The trust amount of $700.0 million, along with $70.0 million of junior mezzanine debt and $70.0 million of senior mezzanine debt, refinanced existing debt, covered closing costs, and returned more than $104.6 million of equity to the sponsor. The loan is interest only and had an initial term of two years with three one-year extension options. The borrower has exercised its third and final extension option with a final maturity date of November 2022.

The property is a research hub; many of the tenants have demonstrated long-term commitment to the property by investing significant capital into their units and are significantly intertwined with surrounding businesses. As of the September 2021 rent roll, the collateral remains 100.0% occupied by eight tenants, five of which are investment grade, including the largest three tenants: Beth Israel (51.5% of the net rentable area (NRA), lease expiry June 2023), Children’s Hospital Corp. (14.3% of the NRA, lease expiry April 2023), and Dana-Farber Cancer Institute (7.2% of the NRA, lease expiry March 2028). Beth Israel and Children’s Hospital Corp. have lease expirations beyond the fully extended term of the loan, and both tenants have numerous extension options remaining in their leases. The tenants are required to notify the borrower at least 18 months prior to the respective lease expiration dates. The loan includes a cash trap in the event either of the tenants does not renew and gives notice of its departure, and as of the February 2022 remittance, no cash flow sweeps have been triggered.

There is minimal near-term rollover, as only one lease representing 2.4% of the NRA has an expiration date prior to loan maturity. According to Reis, office properties in the Back Bay/Fenway submarket of Boston reported an average YE2021 vacancy rate of 8.3%, an increase from the YE2020 and YE2019 rates of 7.3% and 7.2%, respectively.

The trailing 12 months ended September 2021 net cash flow (NCF) was reported to be $55.6 million, compared with the YE2020 NCF of $53.7 million, YE2019 NCF of $54.9 million, and the DBRS Morningstar NCF figure of $51.8 million. Although there was a slight dip in NCF in YE2020, primarily attributed to a 9.4% increase in operating expenses, specifically in real estate taxes and management fees, the YE2020 NCF is still in line with the DBRS Morningstar NCF. As of the March 2022 reserve report, the loan has a sizable tenant reserve balance of $15.6 million.

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.

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 this transaction.

The DBRS Viewpoint platform provides additional information on this transaction and underlying loans including DBRS Morningstar metrics, commentary, servicer-reported cash flows, and other performance-related data.

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 4, 2022), 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.

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].

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