Morningstar DBRS Downgrades Credit Ratings on 17 Classes of Citigroup Commercial Mortgage Trust 2017-P8, Changes Trends on 15 Classes to Stable from Negative

DBRS Limited (Morningstar DBRS) downgraded its credit ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2017-P8 issued by Citigroup Commercial Mortgage Trust 2017-P8 as follows:

-- Class X-A to AA (sf) from AAA (sf)
-- Class A-S to AA (low) (sf) from AAA (sf)
-- Class V-2A to AA (low) (sf) from AAA (sf)
-- Class X-B to A (sf) from AAA (sf)
-- Class B to A (low) (sf) from AAA (sf)
-- Class V-2B to A (low) (sf) from AAA (sf)
-- Class C to BBB (low) (sf) from A (low) (sf)
-- Class V-3AC to BBB (low) (sf) from A (low) (sf)
-- Class V-2C to BBB (low) (sf) from A (low) (sf)
-- Class X-D to B (high) (sf) from BBB (low) (sf)
-- Class D to B (sf) from BB (high) (sf)
-- Class X-E to B (sf) from BB (sf)
-- Class E to B (low) from BB (low) (sf)
-- Class X-F to CCC (sf) from B (high) (sf)
-- Class F to CCC (sf) from B (sf)
-- Class V-2D to B (sf) from BB (high) (sf)
-- Class V-3D to B (sf) from BB (high) (sf)

In addition, Morningstar DBRS confirmed the following credit ratings:

-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-AB at AAA (sf)

Morningstar DBRS also changed the trends on Classes A-S, B, C, D, E, X-A, X-B, X-D, X-E, V-2A, V-2B, V-3AC, V-2C, V-2D, and V-3D to Stable from Negative. All remaining trends are Stable with the exception of Classes F and X-F which have ratings that typically do not carry a trend in commercial mortgage-backed securities (CMBS) transactions.

The credit rating downgrades are reflective of the loss projections for two of the three loans in special servicing, Bank of America Plaza (Prospectus ID#5, 4.2% of the pool) and Grant Building (Prospectus ID#9, 3.5% of the pool), both secured by office properties and located in secondary office markets of Troy, Michigan, and Pittsburgh, respectively. Morningstar DBRS' liquidation scenarios for these loans (further described below) projected a combined loss of $34.7 million, eroding the majority of the balance of the unrated Class G certificate. All three loans in special servicing as of the September 2024 remittance have transferred since Morningstar DBRS' previous credit rating action for this transaction in October 2023, including the largest loan in the pool, 225 & 233 Park Avenue South (Prospectus ID#1, 5.8% of the pool), which experienced a significant decline in occupancy in Q2 2024. Morningstar DBRS also notes concerns with several loans backed by office collateral that are exhibiting increased risks in sustained performance declines from issuance. To account for these risks, Morningstar DBRS analyzed stressed scenarios for seven of the 13 non-specially serviced office or mixed-use with office-backed loans. Those scenarios considered stressed loan-to-value (LTV) ratios and/or probability of default (PoD) adjustments. The resulting downgrade pressure in the model results supported the credit rating actions with this review.

Morningstar DBRS changed the trends to Stable with these credit rating downgrades as the analysis considered stressed expected losses (ELs) for those loans exhibiting performance declines or other increased risks from issuance. If there are unforeseen circumstances which further increase the risks for the underlying loans, Morningstar DBRS could change the trends and/or subject the credit ratings to further downgrades.

The credit rating confirmations for Classes A-2, A-3, A-4, and A-AB reflect an overall healthy pool of loans, as evidenced by the weighted-average (WA), pool-level debt service coverage ratio (DSCR) of 1.96 times (x) and the sizeable $114.9 million balance insulating the investment-grade credit rated classes. As of the September 2024 remittance, 52 of the original 53 loans remain in the pool, with an aggregate balance of $1.0 billion, representing a collateral reduction of 5.9% since issuance. There are currently 10 loans, representing 20.0% of the current pool balance on the servicer's watchlist, primarily being monitored for low occupancy and DSCR figures, near-term tenant rollover, and cash management triggers. The pool benefits from seven fully defeased loans, representing 9.2% of the current pool balance. Excluding defeasance, the pool is primarily concentrated by office and retail properties, representing 32.7% and 29.3% of the pool balance, respectively.

The largest loan in special servicing, 225 & 233 Park Avenue South, is secured by a 675,756 sf Class A office property with ground-level retail in the Gramercy Park submarket of Manhattan. The loan transferred to special servicing with the March 2024 remittance for imminent default tied to the departure of largest tenant, Meta Platforms Inc. (Meta) (previously 39.0% of net rentable area (NRA)), who vacated after exercising a termination option in March 2024. In addition, the former third-largest tenant at the property, STV Group Inc. (previously 19.7% of NRA), vacated at lease expiration in May 2024. Meta paid a $33.0 million termination fee to end its lease ahead of the original expiration in 2027. When removing these tenants from the occupancy rate reported for September 2023, the implied occupancy rate is approximately 40.0%. At issuance, the LTV based on the appraisal was low, at 31.3%, suggesting there is meaningful cushion against the as-is value decline for the property given the low occupancy rate and increased risks for office property types in the current environment. Given the increased risks as outlined above, the loan was analyzed with a stressed LTV to increase the EL.

The Bank of America Plaza loan is secured by a 438,996-sf Class A office property in Troy, Michigan, approximately 20.0 miles northwest of the Detroit central business district. The loan transferred to special servicing in August 2024 for imminent default after the departure of the former largest tenant, Bank of America (previously 35.2% of NRA), in January 2023. As of the March 2024 reporting, the property was just 52.3% occupied and cash flows were covering debt service at 1.14x. Cash management has been in place since Bank of America's departure, having accrued a balance of just under $7.0 million as of the September 2024 reporting. The LTV implied by the current loan balance and the issuance appraisal is relatively low, at 54.0%. However, given the property's suburban location and prolonged increase in vacancy, the as-is value has likely deteriorated significantly. An updated appraisal has not been provided by the special servicer to date; in the analysis for this review, Morningstar DBRS considered a liquidation scenario based on a significant haircut to the issuance appraised value, resulting in a loss severity of approximately 30.0%.

The Grant Building loan is secured by a Class A office building in Pittsburgh and was transferred to special servicing with the September 2023 remittance for imminent default. The loan is more than 90-days delinquent and a receiver was appointed in March 2024 to oversee foreclosure proceedings. An updated appraisal dated April 2024 valued the property at $23.5 million, a substantial decline from the issuance appraised value of $58.1 million and below the current trust balance of $36.2 million. As a result of ongoing payment delinquency, soft submarket fundamentals, and value decline, Morningstar DBRS analyzed the loan with a liquidation scenario which resulted in a loss severity in excess of 60.0%.

The largest loan on the servicer's watchlist is Corporate Woods Portfolio (Prospectus ID#4, 4.3% of the pool), secured by a collection of 16 office buildings and retail space collectively accounting for more than 2.0 million sf in the Overland Park suburb of Kansas City. The loan was added to the servicer's watchlist for a cash management trigger resulting from a low DSCR, which was reported at just 1.06x as of the June 2024 financials. The drop is attributed to a decline in occupancy from 83.3% at YE2023 to 74.7% as of the June 2024 reporting. While the collateral office portfolio is well located within a desirable suburb on the Kansas side of the Kansas City metro, the submarket has been impacted by declining demand for office space in the post-pandemic environment. Morningstar DBRS believes these factors, along with the in-place performance declines, have contributed to a value decline from the issuance appraisal. As such, Morningstar DBRS analyzed the loan with a stressed LTV and an elevated PoD in its analysis. The resulting EL exceeded the pool average by approximately 200.0%.

At issuance, Morningstar DBRS assigned investment-grade shadow ratings to three loans in General Motors Building (Prospectus ID#2, 5.4% of the pool), The Grove at Shrewsbury (Prospectus ID#7, 4.2% of the pool), and Lakeside Shopping Center (Prospectus ID#13, 3.2% of the pool). With this review, Morningstar DBRS confirms that the performance of these loans remains consistent with investment-grade loan characteristics.

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 at https://dbrs.morningstar.com/research/437781 (August 13, 2024).

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 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 these credit rating actions.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with these credit rating actions.

These are solicited credit ratings.

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 credit 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.

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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), https://dbrs.morningstar.com/research/428797

-- Rating North American CMBS Interest-Only Certificates (June 28, 2024); https://dbrs.morningstar.com/research/435294

-- Morningstar DBRS Commercial Real Estate Property Analysis Criteria (September 19, 2024); https://dbrs.morningstar.com/research/439702

-- 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.