Morningstar DBRS Downgrades Six Classes of CSAIL 2016-C5 Commercial Mortgage Trust

DBRS, Inc. (Morningstar DBRS) downgraded the credit ratings on six classes of Commercial Mortgage Pass-Through Certificates, Series 2016-C5 issued by CSAIL 2016-C5 Commercial Mortgage Trust as follows:

-- Class D to BB (high) (sf) from BBB (low) (sf)
-- Class E to CCC (sf) from BB (low) (sf)
-- Class F to C (sf) from B (low) (sf)
-- Class X-D to BBB (low) (sf) from BBB (sf)
-- Class X-E to CCC (sf) from BB (sf)
-- Class X-F to C (sf) from B (sf)

In addition, Morningstar DBRS confirmed the credit ratings on the following classes:

-- 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 (sf)
-- Class C at AA (low) (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AA (high) (sf)

Morningstar DBRS maintained the Negative trends on Classes X-D and D. Classes X-E, E, X-F, and F have credit ratings that do not typically carry a trend in commercial mortgage-backed securities (CMBS) credit ratings. All other trends remain Stable. The credit rating downgrades to Classes E and F and the Negative trends on Classes D and X-D reflect Morningstar DBRS' liquidated loss expectations for the two specially serviced loans in the pool. Based on haircuts to the most recent appraised values for the collateral properties, a total of $38.4 million in loss expected to be realized, fully eroding the remaining Class NR balance of $31.9 million and most of the Class F certificate balance.

The credit rating confirmations and Stable trends reflect the otherwise overall stable performance of the transaction, which remains in line with Morningstar DBRS' expectations since the last credit rating action. While the transaction benefits from a relatively moderate concentration of loans backed by office property types (17.2% of the pool), Morningstar DBRS notes that several of those loans have exposure to locations within challenged markets and near-term rollover risk. Mitigating factors include the eight years of amortization since issuance as well as significant defeasance and loan repayments as further described below.

As of the December 2024 reporting, 46 of the original 59 loans remain in the pool with an aggregate principal balance of $585.8 million, reflecting a collateral reduction of 37.4% since issuance. Since the last credit rating action in February 2024, one additional loan has fully defeased, bringing the total defeased collateral to 21 loans, representing 27.9% of the pool. The pool is most concentrated by office properties, representing 17.2% of the pool, followed by multifamily and industrial, representing 14.8% and 16.4% of the pool, respectively. Four loans (5.0% of the pool) are on the servicer's watchlist, being monitored predominantly for significant near-term tenant rollover or low debt service coverage ratios (DSCRs), and two loans (12.3% of the pool) are in special servicing. For this review, Morningstar DBRS analyzed both loans in special servicing, 401 Market (Prospectus ID #5; 8.9% of the pool) and Sheraton Lincoln Harbor Hotel (Prospectus ID#12; 3.4% of the pool), with liquidation scenarios as further described below.

The 401 Market loan is collateralized by a 484,643 square foot (sf), Class A office building in the Center City submarket of Philadelphia. Since issuance, the property had been fully leased to two tenants, Wells Fargo (66.8% of the net rentable area (NRA)) and American Bible Society (28.1% of the NRA). The loan transferred to special servicing in October 2024 when Wells Fargo vacated the property at lease expiration in September 2024. Wells Fargo (34.7% of the gross rent) last paid a rental rate of only $6.22 per square foot (psf), well below the submarket's effective rental rate of $25.20 psf and asking rental rate of $33.90 psf in Q3 2024 according to Reis, indicating that future leasing could lead to potential upside. The vacancy rate in the subject's Center City submarket has nearly doubled, rising to 13.9% as of Q3 2024 from 7.3% as of Q1 2020, with significant negative absorption during that period. Given the soft market conditions and the low in-place occupancy rate, Morningstar DBRS expects the as-is value is likely sharply below the issuance figure. Given that, and the proximity of the October 2025 maturity date, Morningstar DBRS liquidated the loan from the trust based on a 65.0% haircut to the appraised value at issuance in July 2015, resulting in a value of $27.3 million and an implied loss approaching $30.8 million, or a loss severity of approximately 60%. While Morningstar DBRS acknowledges the as-is value could ultimately be even lower, the liquidation scenario does not give credit to the existing reserves of $7.4 million, as of the January 2025 reporting, which are allocated to re-leasing costs.

The Sheraton Lincoln Harbor Hotel loan is secured by a 343-room full-service hotel in Weehawken, New Jersey. The loan transferred to special servicing in January 2021 and, after an unsuccessful attempt by the receiver to sell the property in late 2022 and early 2023, the special servicer has since initiated foreclosure proceedings. Property operations have declined since the YE2023 DSCR of 1.22 times (x) with a below breakeven DSCR of 0.93x for the trailing 12 months (T-12) ended September 30, 2024. As of the September 2024 STR report, the property reported an occupancy rate of 89.4%, with average daily revenue of $198.30 and revenue per available room (RevPAR) of $177.10, with demand segmentation led by corporate travel and the airline business. Despite the improvement in performance, with RevPAR approaching pre-pandemic and issuance levels, an appraisal dated June 2024 valued the property at $82.6 million, a marginal improvement over the July 2023 value of $80.5 million, but still a 35.5% decline from the issuance value of $128.0 million. Morningstar DBRS liquidated the loan from the trust based on a 20% haircut to the most recent appraised value, resulting in an implied loss approaching $8.0 million, or a loss severity of approximately 40%.

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), at https://dbrs.morningstar.com/research/437781.

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 (December 13, 2024) at https://dbrs.morningstar.com/research/444617.

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

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. 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.

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, Inc.
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Tel. +1 312 332-3429

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 (December 13, 2024), https://dbrs.morningstar.com/research/444616
-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (September 19, 2024), https://dbrs.morningstar.com/research/439702
-- Legal Criteria for U.S. Structured Finance (December 3, 2024),
https://dbrs.morningstar.com/research/444064
-- North American Commercial Mortgage Servicer Rankings (August 23, 2024), https://dbrs.morningstar.com/research/438283
-- North American CMBS Insight Model v 1.2.0.0 (December 13, 2024),
https://dbrs.morningstar.com/research/444616)

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