Morningstar DBRS Confirms All Credit Ratings of BANK 2017-BNK5

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2017-BNK5 issued by BANK 2017-BNK5 as follows:

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

All trends are Stable.

The credit rating confirmations and Stable trends reflect the overall stable performance of the transaction, which remains in line with Morningstar DBRS' expectations since the last credit rating action. Overall, the pool continues to exhibit healthy credit metrics, as evidenced by the pool's weighted-average (WA) debt service coverage ratio (DSCR) of 2.18 times (x), based on the most recent financial reporting.

As of the August 2024 reporting, 77 of the original 87 loans remain in the pool with an aggregate balance of $1.0 billion, representing a collateral reduction of 15.7% since issuance, as a result of loan amortization and repayment. Four loans, representing 1.6% of the pool balance, have been fully defeased, while eight loans, representing 19.0% of the pool balance, are on the servicer's watchlist, including one loan, 1111 Studewood (Prospectus ID#54; 0.4% of the pool), that is delinquent. Among the pool's eight watchlist loans, four loans, representing 10.9% of the pool balance are being monitored for informational or deferred maintenance and/or life safety issues, including the largest watchlist loan, Starwood Capital Group Hotel Portfolio (Prospectus ID#2; 7.0% of the pool), which Morningstar DBRS does not deem material to the loans' credit profile. There are no loans in special servicing.

The pool is concentrated by property type with loans secured by retail, office, and lodging properties representing 41.4%, 15.7%, and 13.1% of the pool balance, respectively. For loans that are secured by properties exhibiting performance concerns, Morningstar DBRS maintained or further stressed the loan-to-value ratios (LTVs) and/or applied probability of default (POD) penalties. Analytical adjustments were made to nine loans, including three of the six loans secured by office properties, representing 7.8% of the pool balance. The largest of these loans is secured by 200 Center Anaheim (Prospectus ID#10; 4.0% of the pool), a 191,556 square foot (sf), Class A office building in downtown Anaheim, California. The property is solely occupied by St. Joseph Heritage Healthcare (SJH) on a lease through May 2027, with three five-year extension options available. While the prospectus does not specify a termination option for the tenant's lease, the property's entire net rentable area (NRA) is listed as available for sublease on LoopNet. Morningstar DBRS has reached out to the servicer regarding the potential termination of SJH's lease and has yet to receive an update as of the date of this press release. In the analysis for this review, Morningstar DBRS stressed the loan's LTV, resulting in an expected loss (EL) that is 150.0% above the pool's WA EL.

Morningstar DBRS continues to monitor the Capital Bank Plaza loan (Prospectus ID#15; 2.0% of the pool), secured by a 148,142 sf, 15-story, Class A office tower in the central business district of Raleigh, North Carolina. The loan had transferred to special servicing with the February 2024 payment after the borrower requested to modify the loan's payment structure to interest only (IO). According to the servicer, the loan was modified in March 2024, with IO payments extending through September 2026, during which the loan will remain cash managed. Following the modification, the loan was returned to the master servicer in April 2024. The loan continues to be monitored on the servicer's watchlist for low occupancy and DSCR, as the borrower has yet to fully backfill the vacant spaces that were previously occupied by the two former largest tenants, which vacated upon their lease expirations in March 2021 and June 2022.

Per the September 2023 rent roll, the property was 37.4% occupied, with leases representing 15.8% of the NRA scheduled to expire through August 2025. The servicer has confirmed the lease commencement of a new tenant, State of North Carolina (approximately 21.2% of the NRA; lease expiration in November 2026), which would increase the property's occupancy to approximately 58.6%. According to the financial reporting for the trailing nine months ended September 31, 2023, the property generated annualized net cash flow (NCF) of -$0.3 million, in line with the YE2022 NCF, and well below the issuance figure of $2.1 million (DSCR of 1.48x). An updated March 2024 appraisal valued the property at $18.2 million, representing a 43.0% decline from the issuance value of $32.0 million. As a result of the sustained low occupancy rate, and the sharp decline in value and performance, Morningstar DBRS' adjusted the loan's LTV based on the updated appraisal value and increased its POD, resulting in an EL that is nearly five times greater than the pool average.

The second-largest loan on the watchlist, Gateway Net Lease Portfolio (Prospectus ID#9; 3.7% of the pool), is secured by a portfolio of 41 single-tenant office and industrial properties across 20 states, all of which operate under triple-net leases. The loan transferred to special servicing in 2021 for imminent monetary default and a subsequent loan modification included a conversion to IO payments until the loan's maturity date in June 2024. The loan was added to the servicer's watchlist in December 2023 given the impending maturity date. The borrower requested a forbearance in May 2024 that was granted by the lender and has taken effect for the 60-day period between June 5, 2024, and August 5, 2024, during which time the borrower attempted to obtain replacement financing. Morningstar DBRS requested additional information from the servicer; however, as of the date of this press release, a response remains pending. According to the YE2023 financial reporting, the portfolio-level occupancy rate and NCF remain relatively consistent with the prior year at 96.2% and $47.9 million (DSCR of 2.20x), respectively. Although the borrower is actively attempting to obtain replacement financing, the loan is past its maturity date and the portfolio has significant exposure to single-tenant office properties. As a result, Morningstar DBRS removed the BBB (high) (sf) shadow rating assigned to the loan at issuance in addition to applying an elevated POD penalty in its analysis.

At issuance, Morningstar DBRS shadow-rated four loans¿Del Amo Fashion Center (Prospectus ID#1; 8.7% of the pool), Olympic Tower (Prospectus ID#5; 5.4% of the pool), Gateway Net Lease Portfolio, and Stor-It Southern California Portfolio (Prospectus ID#11; 3.2% of the pool)¿as investment grade. With this review, Morningstar DBRS removed the shadow rating from the Gateway Net Lease Portfolio loan, as outlined above. Morningstar DBRS confirms that the characteristics of the other three loans remain consistent with the investment-grade shadow ratings, as supported by the strong credit metrics, strong sponsorship strength, and the historically stable performance of the collateral underlying those loans.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

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 Factors in Credit Ratings (August 13, 2024; https://dbrs.morningstar.com/research/437781).

Classes X-A, X-B, and X-D are 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 Morningstar DBRS.

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

The principal methodology is 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 info-DBRS@morningstar.com.

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.

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.

DBRS Limited
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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://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 (June 28, 2024), https://dbrs.morningstar.com/research/435294
-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (June 28, 2024), https://dbrs.morningstar.com/research/435293
-- North American Commercial Mortgage Servicer Rankings (August 23, 2024), https://dbrs.morningstar.com/research/438283
--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 https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.