DBRS Morningstar Confirms Ratings on All Classes of COMM 2016-667M Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2016-667M issued by COMM 2016-667M Mortgage Trust as follows:

-- Class A at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at A (high) (sf)
-- Class D at BBB (high) (sf)
-- Class E at BBB (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which has remained in line with DBRS Morningstar's expectations since issuance. The loan is secured by a Class A trophy office property in Midtown Manhattan at the corner of Madison Avenue and 61st Street, one block east of Central Park. The property was constructed by a sponsor-affiliate in 1985 and consists of 248,667 square feet (sf) of office space and 16,681 sf of retail space. The $254.0 million whole loan is interest only (IO) for the entirety of its 10-year term and served to refinance existing debt. This transaction consists of a $214.0 million trust loan, part of a $254.0 million whole loan that also consists of an additional senior $40.0 million A-2 pari passu note that was contributed to the CD 2016-CD2 transaction, not rated by DBRS Morningstar. The loan is sponsored by Hartz Financial, a subsidiary of Hartz Group, Inc., one of the largest privately held, full-service real estate companies in the U.S.

The loan was placed on the servicer's watchlist in October 2019 because of a large water main break that damaged the property's electrical and elevator systems and resulted in all tenants receiving rent abatements. According to the servicer, restoration was completed with all the tenants resuming full rents by mid-2020. According to the September 2022 rent roll, the property reported an occupancy rate of 96.7%, compared with the YE2021, YE2020, and YE2019 occupancy rates of 93.7%, 85.3%, and 84.5%, respectively. The property has a diverse rent roll with the largest tenant, Loews Corporation (Loews), representing 15.5% of the net rentable area (NRA) with a lease expiry in May 2024 and the second-largest tenant, Servcorp Madison (Servcorp), occupying 11.5% of the NRA with a lease expiry in June 2024. Servcorp is a coworking company under a management and service agreement, which allows the borrower to collect a portion of the company’s operations depending on their performance. According to Q3 2022 Reis data, the Plaza submarket reported an average vacancy rate of 11.5%, compared with the YE2021, YE2020, and YE2019 vacancy rates of 11.1%, 10.0%, and 8.9%, respectively. The asking rental rates for these periods were reported at $101.50 per square foot (psf), $99.98 psf, $102.13 psf, and $101.34 psf, respectively. Over the past two years, seven new leases have been executed at the subject with an average rental rate of $137.49 psf, well above the submarket asking rental rate.

The servicer reported a debt service coverage ratio (DSCR) of 3.35 times (x) for the trailing nine months (T-9) ended September 30, 2022, up from 2.40x at YE2021 and 1.93x at YE2020. This improvement in DSCR can be attributed to the increase in effective gross income reflective of the recently executed leases coupled with a decrease in operating expenses, particularly the real estate taxes and repairs and maintenance expenses. On an annualized basis, the T-9 net cash flow (NCF) of $27.6 million was above the DBRS Morningstar-derived NCF of $21.0 million. Despite the increasing submarket vacancy, mitigating factors include the property's trophy status and recently executed leases above the submarket asking rents, as well as the strong sponsorship

Environmental, Social, and Governance Considerations
There were no environmental, social, or 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 (May 17, 2022).

Classes 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 the 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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