DBRS Morningstar Confirms All Classes of CSAIL 2017-C8 Commercial Mortgage Trust

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2017-C8 issued by CSAIL 2017-C8 Commercial Mortgage Trust:

-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class A-S at AAA (sf)
-- Class V1-A at AAA (sf)
-- Class B at AA (sf)
-- Class X-B at A (high) (sf)
-- Class C at A (sf)
-- Class V1-B at A (sf)
-- Class D at BBB (sf)
-- Class V1-D at BBB (sf)
-- Class E at B (high) (sf)
-- Class F at B (low) (sf)

In addition, DBRS Morningstar confirmed its ratings on the following rake bonds, which are secured by the beneficial interest in the subordinate debt placed on the 85 Broad Street loan:

-- Class 85BD-A at AA (low) (sf)
-- Class V1-85A at AA (low) (sf)
-- Class 85BD-B at A (low) (sf)
-- Class V1-85B at A (low) (sf)
-- Class 85BD-C at BBB (low) (sf)
-- Class V1-85C at BBB (low) (sf)
-- Class V2-85 at BBB (low) (sf)

All trends are Stable.

The rating confirmations reflect the stable performance of the transaction, which is in line with DBRS Morningstar’s expectations since its last review. As of the April 2023 remittance, 28 of the original 32 loans remain in the pool, with an aggregate principal balance of $689.0 million, representing a collateral reduction of 22.0% since issuance. An additional four loans, representing 5.3% of the current trust balance, are fully defeased. There is one loan in special servicing and there are six loans on the servicer’s watchlist, representing 2.5% and 21.0% of the current trust balance, respectively. The transaction is concentrated by property type as seven loans, representing 41.0% of the current trust balance, are secured by office properties with a relatively healthy weighted-average debt yield and debt service coverage ratio (DSCR) of 8.2% and 1.62 times (x), respectively, for the whole-loan debt.

The largest loan in the pool, 85 Broad Street (Prospectus ID#1, 14.5% of the pool), is secured by a 1.1 million-square-foot (sf) Class A office property in downtown Manhattan, New York, and is sponsored by Ivanhoé Cambridge, which contributed $308.8 million of equity at closing. The nonpooled rake bonds are backed by the nonpooled $72.0 million 85 Broad Street A-B Note. The loan's nonpooled $58.8 million B-A Note and $58.8 million B-B Note are subordinate to both the rake bonds and the $169.0 million pooled A Note. The property experienced a dip in occupancy after the former largest tenant, WeWork, downsized to 195,704 sf (17.5% of the net rentable area (NRA)) from 370,359 sf (33.1% of NRA) in April 2021, bringing occupancy down to 79.5%; however, this has rebounded slightly to 83.1% as of YE2022. According to the most recent amendment, WeWork was required to deposit $5.0 million to the borrower, equating to 12 months of prepaid rent for January through December 2021, and another $3.9 million stemming from a guaranty, which was to be deposited into the rollover reserve. As of the April 2023 loan-level reserve report, the loan reported $4.9 million in tenant reserves. According to the YE2022 financial reporting, the loan had a net cash flow (NCF) of $18.2 million (a whole-loan DSCR of 1.32x), an improvement from the YE2021 NCF of $16.1 million (whole-loan DSCR of 1.17x) but below the DBRS Morningstar NCF of $21.6 million (whole-loan DSCR of 1.57x). The year-over-year NCF improvement was primarily driven by an increase in base rental revenue and expense reimbursement. At issuance, the senior trust debt was shadow-rated as investment grade because of the property’s high quality, excellent location, and sponsorship strength. These factors continue to be mitigating factors to the dip in NCF from DBRS Morningstar’s expectations, in addition to the significant equity contributed at issuance and the improvement in occupancy. With this review, DBRS Morningstar confirmed that the performance of this loan remains consistent with investment-grade loan characteristics.

The second-largest loan in the pool, 245 Park Avenue (Prospectus ID#2, 13.0% of the pool), is secured by a high-rise Class A office tower in Midtown Manhattan. The loan was recently returned to the master servicer following a loan assumption. It previously transferred to special servicing in November 2021 after the original sponsor (PWM Property Management LLC, an affiliate of HNA Group Co.) filed for Chapter 11 bankruptcy. According to servicer documents, SL Green Realty Corp. purchased the property and assumed the debt in late 2022. There had been occupancy declines prior to this, specifically with major tenant Major League Baseball (MLB; previously 12.7% of NRA) vacating in January 2020 prior to its October 2022 lease expiration and the subsequent challenges in backfilling the space. DBRS Morningstar has requested the most recent rent roll but has not received it yet. The property was 79% occupied as of December 2022, down from 83% at YE2021 and 93% at YE2020, according to servicer reporting. Rollover risk was a primary concern throughout 2022, with J.P. Morgan’s lease (45.4% of NRA) and MLB’s lease (12.7% of NRA) both expiring in October 2022. The sponsor’s website suggests 112,000 sf of space in total is currently available for lease, representing 6.5% of NRA, with approximately 4.0% of NRA scheduled to become available throughout 2023. DBRS Morningstar expects performance to continue improving as the remaining space is backfilled.

Hilton Garden Inn – Fort Washington (Prospectus ID#17, 2.2% of the pool) is secured by a 146-key hotel in Fort Washington, Pennsylvania, that transferred to special servicing in August 2020 because of monetary default. After undergoing $2.0 million in property renovations, the property was severely damaged by Hurricane Ida in September 2021, and DBRS Morningstar confirmed that the property remains closed. The lender is currently working with local counsel to schedule a foreclosure sale date. According to the August 2022 appraisal, the property was valued at $16.4 million, down from the issuance value of $24.4 million. In its analysis, DBRS Morningstar analyzed the loan with a liquidation scenario, resulting in a loss severity in excess of 40% with the projected loss well contained in the first loss piece.

The 71 Fifth Avenue loan (Prospectus ID#12, 4.1% of the pool) was also shadow-rated as investment grade at issuance. With this review, DBRS Morningstar confirmed that the performance of the loan remains consistent with investment-grade loan characteristics.

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 (May 17, 2022).

Classes X-A and X-B 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).

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

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 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.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

DBRS, Inc.
22 West Washington Street
Chicago, IL 60602 USA
Tel. +1 312 332-3429

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

North American CMBS Multi-Borrower Rating Methodology (March 16, 2023)/North American CMBS Insight Model Version 1.1.0.0 (https://www.dbrsmorningstar.com/research/410913)

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

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

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].