DBRS Morningstar Changes Trend on All Classes of Natixis Commercial Mortgage Securities Trust 2017-75B to Negative

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2017-75B issued by Natixis Commercial Mortgage Securities Trust 2017-75B as follows:

-- Class A at AAA (sf)
-- Class V1A at AAA (sf)
-- Class XA at AAA (sf)
-- Class B at AA (sf)
-- Class V1B at AA (sf)
-- Class V1XB at A (high) (sf)
-- Class XB at A (high) (sf)
-- Class C at A (sf)
-- Class V1C at A (sf)
-- Class D at BBB (low) (sf)
-- Class V1D at BBB (low) (sf)
-- Class E at B (high) (sf)
-- Class V1E at B (high) (sf)
-- Class V2 at B (high) (sf)

In addition, DBRS Morningstar changed the trends on all classes to Negative from Stable as a result of cash flows that have continued to underperform expectations.

The subject loan is secured by the fee-simple interest in a 671,369-square-foot (sf), Class B office tower in the Financial District of New York City. The largest tenants at the property are Board of Education of the City School District of the City of New York (15.2% of net rentable area (NRA), lease through January 2035), AT&T Corporation (4.3% of NRA, lease through February 2034), and Northsouth Production (4.1% of NRA, lease through April 2025). The property was 85.5% occupied at issuance. Occupancy had been in decline prior to the Coronavirus Disease (COVID-19) pandemic, a trend that was exacerbated in 2020 when 10 tenants, representing 9.7% of NRA, vacated or downsized causing occupancy to drop to 77.0% by YE2020. According to the December 2022 reporting, occupancy has risen slightly to 79.0% as a result of new leasing and the fourth-largest tenant, PaeTec Communications, Inc. (3.0% of NRA), extending its lease to December 2027. The servicer indicated in March 2023 that three new tenants, representing 4.5% of NRA, have signed leases, with five additional prospective leases currently in discussion. There are seven tenants, representing 6.3% of the NRA, with leases scheduled to roll within the next 12 months.

The YE2022 net cash flow (NCF) was reported to be $12.8 million (representing a debt service coverage ratio (DSCR) of 1.16 times(x)), in line with the YE2021 figure of $12.8 million (DSCR of 1.14x) but down from prior years and below the DBRS Morningstar NCF of $13.2 million. According to Reis, the New York Metro submarket has seen vacancy rates rise to 14.3% at YE2022 from 11.4% at YE2021. Although the decline in cash flow from the DBRS Morningstar figure has not been substantial, DBRS Morningstar believes increasing vacancy rates both at the subject and within the market will pose challenges in the borrower’s ability to back-fill space, and submarket availability combined with the Class B finishes of the property will limit rent growth. DBRS Morningstar believes it is unlikely the property will be able to recapture lost cash flow in the near to moderate term.

The $250.0 million financing consisted of $59.0 million of pooled trust debt, $84.0 million of a subordinated B note held in the trust, $33.0 million of nonpooled pari passu debt outside the trust, and $54.0 million of a subordinated B note held outside the trust. The 10-year loan pays interest only (IO) for the entire term. The total mortgage debt of $230.0 million was supplemented by $20.0 million of mezzanine debt.

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 (May 17, 2022).

Classes XA, XB, and V1XB are interest-only (IO) certificates that reference 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 (March 16, 2023) https://www.dbrsmorningstar.com/research/410912/north-american-cmbs-surveillance-methodology.

Other methodologies referenced in this transaction are listed at the end of this press release.

The credit ratings assigned to Classes B, C, D, and E are higher than the ratings implied by the LTV Sizing Benchmarks. Although the in place cash flows are below expectations for the collateral property (providing support for the Negative trends placed on all classes with this review), DBRS Morningstar notes mitigating factors in the property’s quality, prime location in Manhattan, and dedicated sponsorship.

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 rating was initiated at the request of the rated entity.
The rated entity or its related entities did participate in the rating process for this rating action.

DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is a solicited credit rating.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected]

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

Rating North American CMBS Interest-Only Certificates (December 19, 2022 https://www.dbrsmorningstar.com/research/407577 )

North American Single-Asset/Single-Borrower Ratings Methodology (February 23, 2023
https://www.dbrsmorningstar.com/research/410191 )

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 12, 2022 https://www.dbrsmorningstar.com/research/402646)

North American Commercial Mortgage Servicer Rankings (September 8, 2022 https://www.dbrsmorningstar.com/research/402499 )

Interest Rate Stresses for U.S. Structured Finance Transactions (August 30, 2022 https://www.dbrsmorningstar.com/research/402153 )

Legal Criteria for U.S. Structured Finance (December 7, 2022
https://www.dbrsmorningstar.com/research/407008 )

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].