DBRS Morningstar Confirms Ratings on All Classes of CD 2017-CD6 Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed the credit ratings on all classes of Commercial Mortgage Pass-Through Certificates issued by CD 2017-CD6 Mortgage Trust as follows:

-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-5 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 AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at A (high) (sf)
-- Class X-D at A (high) (sf)
-- Class D at A (sf)
-- Class E-RR at BBB (sf)
-- Class F-RR at BB (low) (sf)
-- Class G-RR at B (sf)

All trends are Stable.

The credit rating confirmations reflect DBRS Morningstar’s outlook and loss expectations for the transaction, which remain relatively unchanged from the last review. However, there is a high concentration of loans secured by office properties that represent 32.2% of the current pool balance. In general, the office sector continues to face challenges given the shifts in workplace dynamics and end-user demand. While select office loans in the transaction continue to perform as expected, several others are exhibiting increased risk, including the largest loan in the pool, Headquarters Plaza (Prospectus ID#1; 8.1% of the pool), as further detailed below. Mitigating factors include a sizable unrated first loss piece totalling $39.8 million with no losses incurred to the trust to date. In addition, these loans benefit from low to moderate going-in loan-to-value (LTV) ratios and/or established leasing reserves. Furthermore, the majority of office loans in the pool have a maturity date in 2027, providing borrowers with an adequate amount of time to work toward stabilization, if required. In its analysis for this review, DBRS Morningstar applied stressed loan-to-value (LTV) ratios or increased probability of default (POD) assumptions to four loans secured by office properties, resulting in a weighted-average expected loss that was more than double the pool average.

As of the September 2023 remittance, 54 of the original 58 loans remain in the pool with an aggregate principal balance of $928.9 million, reflecting collateral reduction of 12.5% since issuance. There are five fully defeased loans, representing 5.8% of the pool. There is only one loan in special servicing, representing 3.4% of the pool, and nine loans on the servicer’s watchlist, representing 22.4% of the pool. These loans are primarily being monitored for declines in occupancy and/or debt service coverage ratios (DSCR).

The Hotel Mela Times Square (Prospectus ID#9) loan is secured by a 234-key, full-service hotel located in the Times Square submarket of New York. The loan initially transferred to the special servicer in May 2022 and returned to the master servicer in August 2022 following a loan modification that extended the maturity date from November 2022 to November 2023. Subsequently, in June 2023, the loan transferred back to the special servicer for maturity default after the borrower requested an additional 24-month term on the loan, which would extend the maturity date to November 2025. The servicer noted that the extension request is currently being considered. The hotel operated as a homeless shelter between July 2020 and July 2021, returning to the market between August 2021 and December 2022. Since that time, the hotel has been under a month-to-month migrant contract with the United States Department of Homeland Security. Rooms at the subject property are 100.0% occupied with the city paying the borrower $185.00 per day, per room. No updated appraisal has been provided since issuance, when the property was valued at $81.0 million; however, given the general volatility in operating performance evidenced over the last few reporting periods, DBRS Morningstar notes that the collateral’s as-is value has likely declined significantly, elevating the credit risk to the trust. As such, DBRS Morningstar analyzed this loan with a stressed LTV ratio and POD assumption, with the resulting expected loss almost double the pool average.

The largest loan on the servicer’s watchlist, Headquarters Plaza, is secured by a mixed-use property in Morristown, New Jersey. The collateral comprises three office towers totalling 562,242 square feet (sf), which includes 167,274 sf of ground-floor retail space and a 256-key Hyatt Regency hotel. The loan sponsors are the property’s original developers and, at issuance, DBRS Morningstar noted approximately $45.7 million of capital improvements had been invested since 2005. The property’s retail component features interior and outdoor-facing retail suites, an AMC theatre, and a Crunch Fitness.

As a result of the impact of the Coronavirus Disease (COVID-19) pandemic, the loan transferred to the special servicer in June 2020 for payment default and a forbearance agreement was subsequently executed in April 2021 that required the borrower to carry out a $15.0 million property improvement plan (PIP) for the hotel and a $4.8 million renovation for the commercial component of the collateral, both of which were completed in January 2022. At that time, the loan was transferred back to the master servicer. The property was most recently appraised in June 2021 for $172.6 million, up from the August 2020 appraisal value of $158.6 million, but a decline from the issuance valuation of $239.0 million. As of June 2023, the office and retail components of the property were 88.7% occupied. The tenant mix is relatively granular, with the largest tenant, Riker Danzig Sherer, occupying 9.1% of the net rentable area (NRA) on a lease through July 2025. The largest retail tenant, AMC Theatres, occupies 5.5% of the NRA on a lease that runs through April 2029. Based on the trailing-six (T-6) month period ended June 30, 2023, financials, the loan reported an annualized DSCR of 1.34 times (x), an improvement from the last few years when the loan was reporting DSCRs below break-even, although the servicer noted that the reporting from the prior year may not be reflective of all operations at the subject. Although the subject has exhibited an improvement in performance and the borrower continues to be committed to the property as evidence by the PIP and renovation, considering the value decline from issuance, DBRS Morningstar analyzed the loan with a POD penalty and stressed LTV, resulting in an expected loss approximately 2.5x greater than the pool average.

At issuance, DBRS Morningstar shadow-rated three loans – Burbank Office Portfolio (Prospectus ID#3; 5.4% of the pool), Moffett Place Building 4 (Prospectus ID#15; 2.7% of the pool), and Colorado Center (Prospectus ID#23; 2.2% of the pool), as investment grade. Considering the loans’ strong credit metrics, strong sponsorship strength, and historically stable collateral performance, 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 and X-D are interest-only (IO) certificates that reference a single rated tranche or multiple rated tranches. The IO credit 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
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 version 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 (September 22, 2023; https://www.dbrsmorningstar.com/research/420982)

North American Commercial Mortgage Servicer Rankings (August 23, 2023; https://www.dbrsmorningstar.com/research/419592)

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].