Morningstar DBRS Confirms Credit Ratings on All Classes of CFCRE Commercial Mortgage Trust 2016-C6, Changes Trends on Four Classes to Negative From Stable

DBRS, Inc. (Morningstar DBRS) confirmed all credit ratings on the Commercial Mortgage Pass-Through Certificates, Series 2016-C6 issued by CFCRE Commercial Mortgage Trust 2016-C6 (the Trust) as follows:

-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-M at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (sf)
-- Class F at B (low) (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AA (high) (sf)
-- Class X-E at BB (high) (sf)
-- Class X-F at B (sf)

Morningstar DBRS changed the trends on Classes E, F, X-E, and X-F to Negative from Stable. All other trends are Stable.

The credit rating confirmations reflect the minimal changes in the pool's overall performance and Morningstar DBRS' loss expectations since the last review. Since the last credit rating action, there have been no losses or payoffs; however, two loans, previously in special servicing, have been resolved and returned to the master servicer. Two loans remain in special servicing, the largest of which is TEK Park (Prospectus ID#15, 2.1% of the current pool balance), backed by an office property in Breinigsville, Pennsylvania. Although the loan was reported as current with the January 2025 remittance, Morningstar DBRS believes the loan to be at high risk of default given declining occupancy and cash flow.

As of the January 2025 remittance, 41 of the original 45 loans remain in the Trust, with an aggregate balance of $705.9 million, representing a collateral reduction of 10.4% since issuance. There are 10 fully defeased loans, representing 14.3% of the current pool balance. Excluding defeasance, the pool is most concentrated with loans collateralized by retail properties, representing 34.9% of the Trust, followed by loans backed by office and lodging properties, representing 28.1% and 10.4% of the Trust, respectively. Nearly all of the remaining loans are scheduled to mature in 2026, and while Morningstar DBRS expects the vast majority will repay, nine loans, representing 31.7% of the current pool balance, were identified to be at risk of maturity default based on factors such as declined performance and/or significant tenant rollover in the near term. To reflect these concerns, Morningstar DBRS' analysis included additional stresses to the loan-level probability of default (POD) and/or loan-to-value ratio (LTV), to elevate the loan-level expected loss as applicable. This concern was a primary consideration in the trend change for Classes E, F, X-E, and X-F to Negative from Stable.

The TEK Park loan is backed by a 514,033 square foot office property located just outside of Allentown, Pennsylvania. The subject loan has two pari passu companion notes held in MSBAM 2016-C31 and SGCMS 2016-C5, neither of which are rated by Morningstar DBRS. The loan transferred to special servicing in January 2022 for imminent default, though the borrower has continued remitting payments. However, the loan remains in cash management and the workout strategy is unclear. Largest tenants include TierPoint (24% of the net rentable area (NRA), lease expiry March 2028), CyOptics (19% of the NRA, lease expiry October 2027), and Aesculap Implant Systems Inc. (6% of the NRA, lease expiry July 2026). The property was 60.6% occupied as of the June 2024 reporting, which is flat from the prior few years, but down from 82.3% at issuance. Net cash flow (NCF) has also declined year- over year, and the debt service coverage ratio (DSCR) was 1.05 times (x) as of June 2024. Given the high vacancy at the subject and lack of leasing activity, combined with additional upcoming rollover and the loan's schedule maturity in 2026, Morningstar DBRS elevated the loan-level LTV ratio resulting in an expected loss of nearly 15%.

The largest loan in the pool, the Hill7 Office (Prospectus ID#1, 10.1% of the pool), is a $101 million pari passu loan with notes securitized in the subject transaction as well as the Morningstar DBRS-rated CGCMT 2016-C3 transaction. The loan is secured by a Class A office building in Seattle's central business district. Built in 2015, the subject houses headquarter operations for two tenants: HBO Code Labs (HBO; 39.3% of the NRA, lease expiring in May 2025), and Redfin Corporation (39.6% of the NRA, lease expiring in August 2027). The loan has historically performed well, reporting a 99.7% occupancy and a DSCR of 3.79x, based on the September 2024 financial reporting. Two of the top five tenants, HBO and WeWork Inc. (WeWork; 19.0% of the NRA) have lease expiries in the next six months. According to the November 2024 property inspection, WeWork currently subleases all of its space, and one of the sublessees, Moderna, is expected to backfill the space upon lease expiry. Meanwhile HBO is expected to vacate the entirety of its space, which is currently being marketed for lease. The loan has an initial anticipated repayment date of November 2026, though the borrower may instead elect to hyper-amortize the loan through its final maturity in November 2028. Given the near-term lease rollover and weakening market fundamentals, Morningstar DBRS applied a stressed LTV adjustment based on a stressed YE2023 NCF and elevated POD assumption in the analysis for this loan to stress the expected loss in line with the pool average. Mitigating factors include the high in-place coverage, which indicates the loan will still cash flow following the loss of HBO, and extended time to maturity, which gives the borrower an opportunity to re-tenant the vacant space.

With this review, Morningstar DBRS confirmed that the performance of two loans, Vertex Pharmaceuticals HQ (Prospectus ID#2, 9.9% of the pool) and Potomac Mills (Prospectus ID#3; 9.9% of the pool), remains consistent with investment-grade characteristics. This assessment continues to be supported by 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 (August 13, 2024; https://dbrs.morningstar.com/research/437781).

Classes X-A, X-B, 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; 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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Chicago, IL 60602 USA
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
-- Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024), https://dbrs.morningstar.com/research/428623
-- 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.