Morningstar DBRS Changes Trends on Three Classes of CD 2017-CD6 Mortgage Trust to Negative From Stable, Confirms Credit Ratings on All Classes

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on the Commercial Mortgage Pass-Through Certificates, Series 2017-CD6 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)

In addition, Morningstar DBRS changed the trends on Classes E-RR, F-RR, and G-RR to Negative from Stable. The trends on all remaining Classes are Stable.

The pool includes a high concentration of loans secured by office properties or mixed-use properties with significant office components, representing approximately 30.0% of the current balance. While a select number of those loans continue to perform as expected, several others, including the largest loan in the pool, Headquarters Plaza (Prospectus ID#1; 8.2% of the pool), which is secured by a mixed-use property in Morristown, New Jersey, and the sole specially serviced loan Cleveland East (Prospectus ID#32; 1.2% of the pool), which is secured by two suburban office properties in Mayfield Heights and Highland Hills, Ohio, are exhibiting increased credit risk, as further outlined below. The Negative trends assigned to the three lowest-rated classes reflect these loan-specific challenges considering those classes are most exposed to loss if the performance of the underlying collateral continues to deteriorate. Where applicable, Morningstar DBRS increased the probability of default (POD) penalties and/or applied stressed loan-to-value ratios (LTV) for loans exhibiting increased credit risk, resulting in expected losses that were between 2.0 times (x) and 3.4x greater than the pool average.

The Cleveland East loan recently transferred to the special servicer in June 2024 for imminent monetary default after the borrower requested approval of the first extension option with a waiver of the required reserve top up provision, as stipulated in the October 2022 loan modification. According to the April 2024 rent roll, the collateral was 53.2% occupied, down from 92.0% at issuance. Likewise, net cash flow (NCF) has trended lower with the YE2023 figure of $1.3 million (a debt service coverage ratio (DSCR) of 0.6x), nearly 70.0% lower than the issuance figure of $4.3 million (a DSCR of 1.6x). The collateral was most recently appraised in August 2022 at a value of $45.9 million, 23.5% below the issuance appraised value of $60.0 million. Morningstar DBRS analyzed the loan with an elevated POD penalty and stressed LTV ratio resulting in an expected loss that was more than 2.5x greater than the pool average.

The Headquarters Plaza loan is secured by a mixed-use property comprising three office towers totaling 562,242 square feet (sf), in addition to 167,274 sf of ground-floor retail space, and a 256-key Hyatt Regency hotel. As of December 2023, the office and retail components of the property were 89.8% 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. According to the YE2023 financial reporting, the property generated $9.5 million of NCF (a DSCR of 1.4x), approximately 35.0% lower than the issuance figure of $14.7 million (a DSCR of 2.2x). The property was most recently appraised in June 2021 for $172.6 million, a considerable decline from the appraised value at issuance of $239.0 million. Although the collateral's historical occupancy rate has been healthy, in-place cash flows have contracted considerably since issuance and the Morristown/Morris Township submarket has been particularly challenged amid the office-sector shifts post-pandemic, as evidenced by the Reis reported Q2 2024 vacancy rate of 19.5%. As such, Morningstar DBRS believes the collateral's as-is value has likely declined further from the figure reported in the June 2021 appraisal. Morningstar DBRS analyzed the loan with a stressed LTV ratio, resulting in an expected loss that was approximately 2.5x greater than the pool average.

Morningstar DBRS also has concerns with the Tustin Center I & II (Prospectus ID#10; 3.4% of the pool) and Corporate Woods Portfolio (Prospectus ID#16; 2.4% of the pool) loans, both of which have exposure to upcoming lease roll-overs, softening office submarket fundamentals, and/or have experienced sustained performance declines. The Tustin Center I & II loan is secured by a portfolio of two Class A, LEED Gold certified office buildings in Santa Ana, California, totaling 282,959 sf. The property's occupancy rate has dropped from 98.9% at issuance to 78.5% as of June 2024 with the YE2023 NCF more than 54.0% below the issuance figure. The Corporate Woods Portfolio loan is secured by 16 office buildings totaling 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 June 2024. The stressed scenarios considered for each resulted in significantly increased loss expectations for both loans, further supporting the Negative trends assigned with this review.

The credit rating confirmations reflect the otherwise overall stable performance of the transaction, which remains in line with Morningstar DBRS' expectations. The pool continues to exhibit healthy credit metrics, as evidenced by the weighted-average (WA) DSCR of 2.0x, based on the most recent financial reporting available. In addition, the transaction benefits from increased credit support to the bonds as a result of scheduled amortization, loan repayments, and defeasance. In addition, Morningstar DBRS notes there is a sizable unrated first-loss piece, totaling $39.8 million, with no losses incurred to the trust to date.

According to the September 2024 remittance, 54 of the original 58 loans remain within the transaction with a trust balance of $916.4 million, reflecting a collateral reduction of 13.7% since issuance. There are nine loans, representing 22.3% of the pool, on the servicer's watchlist; however, only four of those loans, representing 11.0% of the pool, are being monitored for performance-related reasons. Nine loans, representing 9.7% of the pool balance, have fully defeased. Since Morningstar DBRS' prior credit rating action in October 2023, the Hotel Mela Times Square loan (Prospectus ID#9; 3.5% of the pool), which is secured by a 234-key, full-service hotel in the Times Square submarket of New York was returned to the master servicer in March of this year. The loan, which matured in November 2023, was modified, terms of which included a one-year extension to November 2024 with the option for further extension to November 2025.

At issuance, Morningstar DBRS 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. With this review, Morningstar DBRS confirms that the performance of those loans remains consistent with investment-grade characteristics, given the loans' strong credit metrics, experienced sponsorship, and the underlying collateral's historically stable performance.

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, and X-D 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 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.

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
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://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 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 (July 17, 2023).

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.