DBRS Morningstar Confirms All Ratings on BXP Trust 2017-CC

DBRS Limited (DBRS Morningstar) confirmed its ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2017-CC issued by BXP Trust 2017-CC:

-- Class A at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (sf)
-- Class E at BB (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 at issuance.

The loan is secured by Colorado Center, an office park consisting of six Class A buildings totaling 1.2 million square feet (sf) and a three-level underground parking garage in the Media and Entertainment District of Santa Monica, California. The whole loan of $550.0 million consists of $298.0 million of senior debt and $252.0 million of subordinate debt. The subject transaction represents $98.0 million of the senior debt and the entire subordinate debt amount. The 10-year fixed-rate loan is interest only (IO) for the full loan term with a maturity in August 2027.

According to the September 2022 rent roll, the property was 87.1% occupied, an improvement from 80.0% in March 2021 after the departure of Home Box Office. Hulu moved into the space, which serves as the company’s corporate headquarters. Hulu currently represents 33.9% of the net rentable area (NRA) on a lease through February 2029. Other large tenants at the property include Edmunds.com Inc. (Edmunds; 18.9% of NRA, lease expires in January 2028), Rubin Postaer and Associates (RPA; 18.8% of NRA, lease expires in June 2033), and Kite Pharma (15.5% of NRA, lease expires July 2032). Based on an online article published by The Real Deal on August 3, 2022, Edmunds had given up 128,500 sf (10.8% of NRA) of its total area of 195,594 sf to sublease. Per the terms of its lease, Edmunds must notify and obtain approval from the servicer prior to subleasing its space. According to the servicer, 81,183 sf of RPA’s space (6.8% of NRA) was subleased to Roku, Inc., and the sublease is co-terminous with the direct lease. As of the January 2023 loan-level reserve report, the loan reported $5.3 million in tenant reserves. According to Reis, office properties in the Santa Monica submarket reported a YE2022 vacancy rate of 17.0%, in line with the YE2021 vacancy rate of 16.3%. The vacancy rate is forecast to dip slightly to 15.6% by 2027. The sponsor, Boston Properties, Inc., had completed upgrades to the property since issuance, suggesting its commitment to the subject.

According to the financials for the trailing nine months ended September 30, 2022, the loan reported a net a debt service coverage ratio (DSCR) of 2.62 times (x), compared with the YE2021 net cash flow DSCR of 2.56x and the YE2020 DSCR of 2.84x.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors 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 (May 17, 2022).

Class X-A is an 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.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology (October 3, 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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