DBRS Morningstar Confirms Ratings on All Classes of CFCRE Commercial Mortgage Trust 2016-C6

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2016-C6 issued by CFCRE Commercial Mortgage Trust 2016-C6 as follows:

-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-M at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AA (high) (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class D at BBB (low) (sf)
-- Class X-E at BB (high) (sf)
-- Class E at BB (sf)
-- Class X-F at B (sf)
-- Class F at B (low) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of this transaction, which has remained in line with DBRS Morningstar’s expectations since the last review. Per the April 2023 remittance, 42 of the original 45 loans remain in the trust, with an aggregate balance of $724.2 million, representing a collateral reduction of 8.0% since issuance. The pool benefits from nine loans that are fully defeased, representing 11.7% of the pool. There are seven loans on the servicer’s watchlist, representing 16.7% of the pool, which are primarily being monitored for declines in occupancy and/or debt service coverage ratios (DSCRs). There are three loans in special servicing, representing 6.1% of the pool. Since the last review, the Marriott Saddle Brook loan (Prospectus ID#36, formerly 0.7% of the pool balance) was liquidated from the trust via a receivership sale in March 2023 with a loss of $2.2 million contained to the nonrated Class G Certificate. Class G has been reduced by nearly 20% with a balance of $24.6 million remaining.

The transaction is concentrated by property type with approximately 28.0% of the pool secured by office properties. Loans backed by office properties were generally stressed given unfavorable conditions of the current office landscape and generally low investor appetite for this property type. Where applicable, DBRS Morningstar applied probability of default (POD) and/or loan-to-value ratio (LTV) stresses in the analysis to increase the expected loss of these loans. The resulting weighted-average expected loss of office loans was approximately 50.0% above the weighted-average pool expected loss.

The largest loan in special servicing, Waterstone 7 Portfolio (Prospectus ID#8, 3.0% of the current pool balance), is secured by a portfolio of seven retail properties totaling 279,937 square feet (sf) across New Hampshire (six properties) and Massachusetts (one property). The loan has been in special servicing since 2018 because of a nonpermitted equity transfer. The issue was supposed to be resolved sooner, but challenges arising from the Coronavirus Disease (COVID-19) pandemic, along with issues surrounding a liquor store lease, prolonged the loan’s stay with the special servicer. However, the special servicer and borrower executed a settlement agreement curing the events of default and are working toward returning the loan to the master servicer.

According to the December 2022 rent rolls, the portfolio’s occupancy was 96.4%, generally in line with the YE2021 and YE2020 occupancy rates of 94.2% and 96.1%, respectively. According to the most recent financial reporting, the loan had a trailing six-month ended June 30, 2022, DSCR of 1.13 times (x), compared with the YE2021 and YE2020 DSCRs of 1.30x and 1.22x, respectively. The loan has been cash managed since November 2017 because of an event of default trigger. As part of the settlement agreement executed, the loan will continue to be cash managed for the remaining term of the loan. DBRS Morningstar has requested an update from the servicer regarding the balance of the cash management account. Based on the November 2022 appraisal, the property’s value was $24.2 million, below the March 2022 value of $26.3 million and the issuance value of $34.9 million but slightly above the outstanding loan balance of $21.8 million. Given the value decline and the challenges that the portfolio has encountered, leading to a prolonged stay with the special servicer, DBRS Morningstar applied a stressed LTV and an elevated POD, resulting in an expected loss that is approximately 200% above the expected loss of the pool.

The largest loan on the servicer’s watchlist is the 7th & Pine Seattle Retail & Parking loan (Prospectus ID#4, 8.3% of the current pool balance), which is secured by a 950-stall parking garage and ground-level retail space within the Seattle central business district. The loan was added to watchlist in November 2020 because of a low DSCR, which was most recently reported at 0.84x as of YE2022, compared with the YE2021 and YE2020 DSCRs of 0.57x and 0.47x, respectively. The decline in net cash flow was primarily driven by a decrease in occupancy, which was 83.2% at YE2022, compared with pre-pandemic and issuance levels of 100.0%. The YE2020 base rental revenue decreased by approximately 30.0% from YE2019. The loan is currently cash managed, although it’s unlikely any meaningful amounts would be trapped considering the DSCR has fallen below breakeven in the past several years. According to the April 2023 loan-level reserve report, there is $1.2 million held across reserves, including approximately $994,000 held in other reserves. Given the sustained low performance, DBRS Morningstar analyzed this loan with an elevated POD, resulting in an expected loss that is 25% above the expected loss of the pool.

ENVIRONMENTAL, SOCIAL, AND 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, X-B, X-E, and X-F 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 the 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 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.

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

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.

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

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].