Morningstar DBRS Changes Trends on Seven Classes to Negative from Stable and Confirms all Classes of CSAIL 2017-C8 Commercial Mortgage Trust

DBRS Limited (Morningstar DBRS) confirmed the credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2017-C8 issued by CSAIL 2017-C8 Commercial Mortgage Trust as follows:

-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A 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, Morningstar DBRS also confirmed its credit ratings on the following rake bonds, which are secured by the beneficial interest in the subordinate debt placed on the 85 Broad Street loan. These classes were assigned credit ratings with the April 15, 2024, credit rating action.

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

Morningstar DBRS changed the trends on Classes C, D, E, F, XB, V1B, and V1D to Negative from Stable. Classes 85BD-A and 85BD-B carry Negative trends from the April 15, 2024, credit rating action. All other classes carry Stable trends with the exception of Classes 85BD-C, V1-85C, and V2-85, which are assigned credit ratings that do not typically carry a trend in commercial mortgage-backed securities (CMBS).

The Negative trends on Classes E and F reflect an increase in Morningstar DBRS' projected losses for the pool, primarily driven by the largest loan in the pool, 85 Broad Street (Prospectus ID#1; 15.1% of the pool) while the Negative trends on Classes C, D, XB, V1B, and V1D reflect ongoing concerns regarding the pool's concentration of office properties, which represent 41.2% of the trust. In the analysis for this review, Morningstar DBRS increased the probability of default (POD) and/or loan-to-value ratio (LTV) to reflect uncertainties surrounding both tenant and investor demand for the asset type in the current environment. The resulting weighted-average (WA) expected loss for office loans was approximately 20.0% above the WA pool expected loss. Should the loans of concern fail to restabilize or their performance worsen, or should future defaults occur, classes with Negative trends may be subject to credit rating downgrades.

As of the April 2024 remittance, 27 of the original 32 loans remain in the trust, with an aggregate balance of $668.1 million, representing a collateral reduction of 24.3% since issuance. There are six fully defeased loans, representing 11.3% of the current pool balance. Four loans, representing 17.4% of the pool, are on the servicer's watchlist. Since the last credit rating action, one loan that was previously in special servicing, Hilton Garden Inn - Fort Washington (Prospectus ID#17), was liquidated from the trust in December 2023 with a slightly higher than expected realized loss. There are currently no loans in special servicing.

The largest loan in the pool is 85 Broad Street, which is secured by a 1.1 million-square-foot (sf) Class A office property in Manhattan's Financial District. The whole-loan encompasses three pari passu senior notes totaling $169.0 million as well as two subordinate notes with a total balance of $189.6 million. The $90.0 million subject loan represents the noncontrolling A-A-1 and A-A-2 notes of the $169.0 million senior component, the remaining balance is secured in transactions not rated by Morningstar DBRS. The nonpooled rake bonds, also rated by Morningstar DBRS, 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. To read more on Morningstar DBRS' recent rating action on these rake bonds, please see the press release titled "Morningstar DBRS Takes Rating Actions on North American Single-Asset/Single-Borrower Transactions Backed by Office Properties," published on April 15, 2024, on the Morningstar DBRS website.

The subject, originally constructed in 1983 to serve as Goldman Sachs' headquarters until it was vacated in 2011, has since been converted into a multitenant property and underwent a $112 million renovation in 2015. As per the rent roll dated December 2023, the building was 78.7% occupied, compared with the issuance occupancy rate of 87.1%. The property experienced a decline in cash flow as well as 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. WeWork filed for Chapter 11 bankruptcy in November 2023; however, media sources indicate that as per WeWork's bankruptcy filing, the subject property is not listed among those for lease rejections. If WeWork decides to terminate its lease, which is not scheduled to expire until August 2033, the implied occupancy rate at the subject would drop to 61.2%. Other large tenants are Viner Finance Inc. (24.7% of the NRA, lease expiry in February 2028), and TNC US Holdings Inc. (Nielsen) (10.5% of the NRA, lease expiry in March 2025). Approximately 11.5% of the NRA is scheduled to rollover in the next 12 months, including the third-largest tenant, Nielsen. Despite the property's below-market rents, per the most recent rent roll, there has not been any significant leasing activity since WeWork downsized, and the subject's current vacancy rate remains above the submarket vacancy rate of 14.4%, as reported by Reis. According to the reserve report from April 2024, there is approximately $8.0 million in tenant reserves, which was deposited by WeWork as per its lease amendment in 2023.

In its analysis, Morningstar DBRS updated the senior debt LTV to reflect the Morningstar DBRS value of the property as concluded with the April 15, 2024, credit rating action, as well as a stressed POD to account for the tenant rollover risk, WeWork exposure, and declining performance metrics since issuance. This results in an expected loss that was more than 20 times (x) the base-level loan expected loss. In addition, Morningstar DBRS downgraded Classes 85BD-A, V1-85A, 85BD-B, V1-85B, 85BD-C, V1-85C, and V2-85 with the April 15, 2024, credit rating action, given the position of the nonpooled rake bonds in the capital stack as well as rollover and performance concerns as previously noted. Morningstar DBRS also maintained the Negative trends on Classes 85BD-A and 85BD-B with this review. Finally, given the aforementioned factors, Morningstar DBRS removed the pooled loan's previously assigned shadow rating as the characteristics of this loan are no longer consistent with an investment-grade shadow rating.

The second-largest loan in the pool is 245 Park Avenue (Prospectus ID#2; 13.5% of the current pool balance), which is secured by a 1.7 million sf, Class A office tower in Midtown Manhattan. The $1.2 billion whole loan has a pari passu structure with pieces securitized across five Morningstar DBRS-rated deals: JPMDB 2017-C7, CGCMT 2017-P8, JPMCC 2017-JP7, JPMCC 2017-JP6, and DBJPM 2017-C6. The loan was previously specially serviced 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. (SL Green) purchased the property and assumed the debt in late 2022; however, per a press release by SL Green in June 2023, SL Green sold its 50% stake to Mori Trust Co Ltd. for $1 billion, which valued the collateral at $2.0 billion. Recent servicer reporting indicates the loan has exhibited declining cash flows and occupancy. According to the most recent financial reporting, the property was 74.7% occupied as of YE2023, steadily declining from the 78.8% occupancy rate in YE2022 and 83.3% occupancy rate in YE2021. The YE2023 cash flow of $70.4 million represents a 24.4% decline from the YE2022 cash flow of $92.2 million. Additionally, there is concentrated near-term rollover risk with leases representing 27% of the net rentable area (NRA), including two of the five largest tenants, scheduled to expire in the next 24 months. To reflect its concerns with declining performance and high rollover risk, Morningstar DBRS analyzed this loan with elevated LTV and POD penalties to increase the expected loss.

The largest loan on the servicer's watchlist is Hotel Eastlund (Prospectus ID#5; 6.4% of the current pool balance), which is secured by an AAA Three Diamond Luxury, 168-room, full-service hotel in Portland, Oregon. The loan transferred to the special servicer in July 2020 because of pandemic -elated hardships and was returned to the master servicer in May 2022 following a loan modification. It continues to be monitored on the servicer's watchlist for low debt service coverage ratio (DSCR), which was most recently reported at 1.06x as of YE2023, an improvement from the YE2022 and YE2021 DSCRs of 0.70x, and 0.31x, respectively. As per the December 2023 STR report, the subject reported a trailing-12-month occupancy rate of 66.5%, average daily rate of $174.01, and revenue per available room (RevPAR) of $115.64, outperforming its competitive set with a RevPAR penetration of 127.5%. Although performance continues to improve year over year, the net cash flow (NCF) in YE2023 was approximately 40% below issuer's NCF. With this review, Morningstar DBRS maintains a conservative approach in the analysis of this loan given cash flow has yet to stabilize to issuance expectations.

At issuance, 71 Fifth Avenue was shadow-rated as investment grade. With this review, Morningstar DBRS has maintained the shadow rating given the historical cash flow stability of the loan and performance that remains consistent with investment-grade characteristics.

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 Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024), https://dbrs.morningstar.com/research/427030.

Classes X-A and X-B 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 ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by Morningstar DBRS.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is the North American CMBS Surveillance Methodology, (March 1, 2024), https://dbrs.morningstar.com/research/428798.

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

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 rating process for this credit rating action.

Morningstar DBRS 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. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The Morningstar DBRS Long-Term Obligation Rating Scale definition indicates that ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS' outlooks and credit ratings are monitored.

DBRS Limited
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Tel. +1 416 593-5577

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

North American CMBS Multi-Borrower Rating Methodology (March 1, 2024)/North American CMBS Insight Model v 1.2.0.0, https://dbrs.morningstar.com/research/428797

Rating North American CMBS Interest-Only Certificates (December 13, 2023), https://dbrs.morningstar.com/research/425261

North American Single-Asset/Single-Borrower Ratings Methodology (March 1, 2024), https://dbrs.morningstar.com/research/428799

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 22, 2023), https://dbrs.morningstar.com/research/420982

North American Commercial Mortgage Servicer Rankings (August 23, 2023), https://dbrs.morningstar.com/research/419592

Legal Criteria for U.S. Structured Finance (April 15, 2024), https://dbrs.morningstar.com/research/431205

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

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