DBRS Morningstar Confirms Ratings on All Classes of BANK 2017-BNK6

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2017-BNK6 issued by BANK 2017-BNK6 as follows:

-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class B at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AA (high) (sf)
-- Class C at AA (sf)
-- Class X-D at A (low) (sf)
-- Class D at BBB (high) (sf)
-- Class X-E at BB (high) (sf)
-- Class E at BB (sf)
-- Class X-F at B (high) (sf)
-- Class F at B (sf)

All trends are Stable.

The rating confirmations and Stable trends reflect DBRS Morningstar’s current outlook and loss expectations for the transaction, which remains relatively unchanged from the last rating action in November 2022. There is a high concentration of loans secured by retail and office properties, which represent 27.7% and 17.7% of the current pool balance, respectively. The majority of these loans exhibit healthy credit metrics, with operating performance seeing improvements from the lows reported during the Coronavirus Disease (COVID-19) pandemic, as evidenced by the historical occupancy rate and/or cash flow trends demonstrated over the last few reporting periods. In addition, the transaction, as a whole, continues to benefit from increased credit support to the bonds as a result of scheduled amortization, loan repayments, and defeasance. Overall, the pool’s performance has been stable since the last rating action.

At issuance, the transaction consisted of 72 fixed-rate loans secured by 189 commercial and multifamily properties, with an aggregate trust balance of $933.3 million. As of the July 2023 remittance, 66 loans remain outstanding with a trust balance of $848.7 million, reflecting collateral reduction of 9.1% since issuance. Seven loans, representing 5.5% of the pool, have been fully defeased. In addition, 11 loans, representing 18.6% of the pool, are on the servicer’s watchlist and one loan, representing 2.3% of the pool, is in special servicing.

The specially serviced loan, Trumbull Marriott (Prospectus ID#12; 2.3% of the pool), is secured by a 325-key, full-service hotel in Trumbull, Connecticut. The hotel is managed by Marriott International with no formal franchise agreement. Historically, 50 to 70 rooms were used as dormitory-style housing for students of nearby Sacred Heart University, approximately six miles away. The loan transferred to special servicing in May 2020 for imminent default. A friendly foreclosure agreement was filed, at which time GF Hotels & Resorts was appointed receiver.

The property was most recently appraised in January 2023 with an as-is value of $11.5 million, a significant decline from the December 2021 and issuance values of $21.0 million and $35.1 million, respectively. The property was underperforming prior to the pandemic and was in need of significant upgrades that were estimated to cost in excess of $20.0 million—further contributing to the collateral’s decline in value. According to the YE2022 financial reporting, the property was 51.6% occupied and reporting net cash flow (NCF) of -$1.7 million with a below breakeven debt service coverage ratio (DSCR) of -1.2 times (x). The property is currently being marketed for sale by Jones Lang LaSalle. Based on a haircut to the most recent appraisal, DBRS Morningstar projects a loss severity in excess of 80.0% will be realized at disposition.

The largest loan on the servicer’s watchlist, Starwood Capital Group Hotel Portfolio (Prospectus ID#4; 7.0% of the pool), is secured by a portfolio of 65 hotels totalling 6,366 keys, spread across 21 states. The majority of the rooms (59%) are limited service while 35% are extended stay and the remaining 6% are full service. The portfolio is granular with no property representing more than 2.6% of the allocated loan balance. The loan was originally added to the servicer’s watchlist in July 2020 when the underlying collateral saw contractions in operating performance, caused primarily by pandemic-related travel restrictions. Forbearance was granted in the form of deferment of non-tax, non-insurance, and non-ground rent reserves for a period of three months to allow for those amounts to be applied to the monthly debt service obligations. Repayment of the deferred amounts was carried out over a 12-month period that began in February 2021. The loan has remained current since the modification request was granted. Although the loan is no longer being monitored on the servicer’s watchlist for performance-related declines, the servicer did note potential life safety issues at multiple properties across the portfolio, resulting in the loan remaining on the watchlist.

Operating performance has improved from the lows reported during the pandemic with the portfolio reporting YE2022 occupancy rate, NCF, and DSCR metrics of 72.7%, $44.5 million, and 1.7x, respectively, which compare favourably with the prior year’s figures of 66.1%, $36.3 million, and 1.4x. In addition, the portfolio’s average daily rate and revenue per available room are nearing stabilization with the YE2022 figures of $116.8 and $81.9 approaching the issuance figures (trailing 12 months ended March 2017) of $119.1 and $88.8. Despite these improvements, NCF remains approximately 38.0% below the issuance figure $71.3 million. Franchise agreements for 33 hotels, representing 40.2% of the allocated loan balance, are scheduled to expire prior to loan expiration; however, the sponsor, Starwood Capital Group, will reportedly begin renegotiating the franchise renewals two years prior to expiration and will assess the profitability of each expiring agreement to determine if each property is appropriately flagged. DBRS Morningstar analysed this loan with a stressed probability of default penalty, resulting in an expected loss approximately 2.7x the pool average.

Although the majority of loans collateralized by office properties are performing well, DBRS Morningstar has a cautious outlook for this asset type, as sustained upward pressure on vacancy rates in the broader office market may challenge landlords’ efforts to backfill vacant space and, in certain instances, contribute to value declines, particularly for assets in noncore markets and/or with disadvantages in location, building quality, or amenities offered. DBRS Morningstar identified four office loans, representing 10.7% of the pool, as having increased credit risk, which is likely to persist in the near to moderate term, given the continued uncertainty related to end-user demand and current macroeconomic headwinds. DBRS Morningstar applied stressed loan-to-value ratios and, where applicable, increased the probability of default penalties for these loans.

At issuance, DBRS Morningstar shadow-rated three loans—General Motors Building (Prospectus ID#1; 10.6% of the pool), Gateway Net Lease Portfolio (Prospectus ID#2; 7.2% of the pool), and Del Amo Fashion Center (Prospectus ID#3; 7.0% of the pool)—investment grade. This assessment was supported by the loans’ strong credit metrics, strong sponsorship strength, and the underlying collaterals’ historically stable performance. With this review, DBRS Morningstar confirms that the characteristics of these loans remain consistent with the investment-grade shadow rating.

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/416784 (July 4, 2023).

Classes X-A, X-B, X-D, 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 credit ratings are subject to surveillance, which could result in credit 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 credit ratings assigned to Classes C and D materially deviated from the credit ratings implied by the predictive model. DBRS Morningstar typically expects there to be a substantial likelihood that a reasonable investor or other user of the credit ratings would consider a three-notch or more deviation from the credit rating stress(es) implied by the predictive model to be a significant factor in evaluating the credit ratings. The rationale for the material deviations is the uncertain loan-level event risk primarily associated with the pool’s high concentration of loans secured by retail and office collateral.

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 credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit 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 credit rating action.

This is a solicited credit rating.

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

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

The credit 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 v 1.1.0.0 (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 (June 9, 2023; https://www.dbrsmorningstar.com/research/415687)

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

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/417279.

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