DBRS Morningstar Changes Trends to Stable from Negative on Two Classes of CSAIL 2016-C6 Commercial Mortgage Trust; All Classes Confirmed

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

-- 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 X-A at AAA (sf)
-- Class X-B at AA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class X-D at BBB (sf)
-- Class D at BBB (low) (sf)
-- Class X-E at BB (sf)
-- Class E at BB (low) (sf)
-- Class X-F at B (sf)
-- Class F at B (low) (sf)

DBRS Morningstar changed the trends on the Class F and Class X-F certificates to Stable from Negative. All other trends are Stable.

The rating confirmations and Stable trends reflect the generally improved performance of loans on the servicer’s watchlist since DBRS Morningstar’s last review of this transaction in November 2022. The loans on the servicer’s watchlist currently represent just more than 18% of the pool, and there are no loans in special servicing or reporting delinquent as of the July 2023 remittance. Of the original 50 loans, 31 remain in the pool, with an aggregate principal balance of $530.8 million, representing a collateral reduction of 30.8% since issuance. There are 12 loans, representing 15.8% of the pool, which are fully defeased. DBRS Morningstar does note that the pool is concentrated by property type, with office and retail properties representing 43.0% and 23.6% of the pool, respectively. In the case of loans backed by these and other property types that were showing performance declines from issuance, DBRS Morningstar analyzed a stressed scenario to account for the increased risks to the pool.

The office concentration for this transaction is particularly noteworthy given the challenges for that property type in the current environment. However, DBRS Morningstar notes that, overall, the office loans in this pool are generally performing as expected, with the exceptions generally contained to smaller loans outside of the top 15. There are four office-backed loans in the top 10, representing the bulk of the office exposure, at 35.9% of the pool. The largest of these is 200 Forest Street (Prospectus ID#2, 16.4% of the pool), which is secured by an office building in Marlborough, Massachusetts. The largest two tenants represent just more than 90% of the net rentable area (NRA) and have leases through 2029 and 2030. The loan most recently reported a Q1 2023 debt service coverage ratio (DSCR) of 2.12 times (x). The second-largest office loan, Laurel Corporate Center (Prospectus ID#4, 8.4% of the pool), is secured by a Class B office complex within the Philadelphia area. The total occupancy rate across the six buildings has dipped from issuance (87% at YE2022 compared with 97% in 2016), but the DSCR remains healthy at 2.07x and the granular rent roll across the portfolio suggests limited exposure to significant occupancy swings over the near to moderate term.

The largest loan on the servicer’s watchlist is Jay Scutti Plaza (Prospectus ID#8, 4.4% of the pool), which is secured by a shadow-anchored retail property in Rochester, New York. The DSCR has lagged issuance expectations for several years, with the servicer most recently reporting a Q1 2023 DSCR of 1.08x, down from 1.25x at issuance. Occupancy has fallen by approximately 10% from the issuer’s underwritten figure of 96%, but the remaining tenant mix includes many national chains including Burlington, HomeGoods, Petco, and Value City Furniture. The shadow anchor is Wegmans, a popular grocery chain in the Northeastern United States. The desirable tenant mix is a mitigating factor for the cash flow declines since issuance, but if sustained, they could increase the risks at maturity in 2026.

The second-largest loan in the pool, Quaker Bridge Mall (Prospectus ID#3, 12.6% of the current pool balance), is secured by the in-line and outparcel space of a 1.1 million-square-foot two-story regional mall in the Trenton, New Jersey, suburb of Lawrenceville. The mall’s owner and operator is Simon Property Group. The loan was previously in special servicing because of performance challenges amid the Coronavirus Disease (COVID-19) pandemic, but it was ultimately returned to the master servicer in late 2021. The mall has exhibited performance declines since issuance, as two of the non-collateral anchors in place at issuance closed (Lord & Taylor and Sears), leaving Macy’s and JCPenney. The servicer most recently reported a collateral occupancy rate of 93% as of YE2022, which is in line with the past few years and up compared with the issuance occupancy rate of 84%.

Despite the stable occupancy rate over the past several years, the in-place cash flows continue to decline from the issuance figures. According to the most recent financials, the loan reported a YE2022 net cash flow of $12.1 million, an 11.0% decrease from the YE2021 figure of $13.6 million and 17.1% decline from $14.6 million at issuance. The decline in cash flows was a result of a year-over-year increase in operating expenses, which pushed the operating expense ratio to 44% at YE2022 from 41% at YE2021. The DSCR remains generally healthy, at 1.48x for YE2022, compared with the issuer’s issuance DSCR of 1.78x. The March 2023 rent roll showed 14 leases representing 15% of the collateral NRA scheduled to roll in the next 12 months; none of these individually represent more than 3% of the collateral NRA. Victoria’s Secret, Forever 21, and Old Navy have all signed lease extensions in the last year or so, but all three notably only extended for shorter terms, ranging between two and three years each, suggesting the long-term commitment to the property could be in question. Sales are generally unimpressive. The tenant sales report for the trailing 12 months ended November 30, 2022, showed in-line sales of $442 per square foot (psf), with that figure dropping to $360 psf when excluding Apple. Given the cash flow trends and the dark anchor spaces, the overall risks for this loan have increased significantly from issuance, supporting the stressed approach to increase the expected loss in the analysis for this review.

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 (July 4, 2023) https://www.dbrsmorningstar.com/research/416784.

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 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
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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 analyzes 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].