DBRS Morningstar Confirms Ratings on All Classes of BBCMS 2017-DELC

DBRS Limited (DBRS Morningstar) confirmed its ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2017-DELC issued by BBCMS 2017-DELC Mortgage Trust as follows:

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

All trends are Stable.

The rating confirmations reflect the overall stable outlook for the collateral as performance continues to recover from the impact of the Coronavirus Disease (COVID-19) pandemic and trend toward pre-pandemic levels. This loan is secured by a 757-key, full-service luxury beach resort on Coronado Island, California. The transaction closed in August 2017, and the trust comprises $507.6 million in senior mortgage debt with a total of $204.4 million held across three mezzanine loans held outside the trust. The interest-only (IO) loan features a two-year initial term with five one-year extensions. The servicer confirmed the borrower has exercised its fourth extension option, which extended the maturity date to August 2023.

The loan is sponsored by Blackstone Real Estate Partners VIII L.P., an affiliate of The Blackstone Group Inc., the world’s largest alternative asset manager and real estate advisory firm. The hotel previously operated as an independent hotel but is now managed by Hilton Worldwide Holdings, Inc. (Hilton) under the Curio Collection flag, one of Hilton’s upscale brands. The collateral benefits from Hilton’s global brand distribution system, the extensive network of Hilton Honors members, and Hilton’s marketing influence for group bookings. The hotel management agreement with Hilton began in July 2017 and continues through July 2027 with two five-year extension options.

The sponsor used the down time during the height of the pandemic to complete the massive capex project of $400.0 million, which was planned at issuance and is being delivered in various phases. It is expected to be completed before the final loan maturity in August 2024. According to the property's website, completed projects include new guest rooms in The Views, a newly restored front porch and lobby, a new Ice House Museum, a gated beach community known as Beach Village at The Del, and a new main entrance along the south end of the resort. Other projects include the Shore House and Southpointe Event Center, which will be opening in Fall 2022, as well as the full guest room and common area renovation of The Victorian, the property’s main building, and Founders Hall meeting room, which will be completed by 2023.

The loan reported a trailing 12-month (T-12) ended December 2021 net cash flow (NCF) of $49.5 million, compared with a year end (YE) 2020 NCF of $485,500, YE2019 NCF of $45.8 million, and DBRS Morningstar NCF of $49.9 million at issuance. The loan reported debt service coverage ratio (DSCR) for the same period at 2.30 times (x), compared with the YE2020, YE2019, and DBRS Morningstar DSCR of 0.02x, 1.22x, and 1.63x, respectively.

According to the April 2022 STR report, the property reported a T-12 ended April 2022 occupancy rate of 63.2%, average daily rate (ADR) of $624.01, revenue per available room (RevPAR) of $394.21, and a RevPAR penetration rate of 118.1%. This marks an improvement from the T-12 ended May 2021 occupancy rate, ADR, and RevPAR of 32.5%, $528.04, and $171.87, respectively, and a RevPAR penetration rate of 101.1%.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

Class X-NCP is an 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 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.

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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