Morningstar DBRS Confirms Credit Ratings on All Classes of Natixis Commercial Mortgage Securities Trust 2017-75B

DBRS, Inc. (Morningstar DBRS) confirmed all credit ratings on the classes of Commercial Mortgage Pass-Through Certificates, Series 2017-75B issued by Natixis Commercial Mortgage Securities Trust 2017-75B as follows:

-- Class XA at A (low) (sf)
-- Class A at BBB (high) (sf)
-- Class V1A at BBB (high) (sf)
-- Class B at BB (low) (sf)
-- Class V1B at BB (low) (sf)
-- Class V1XB at B (sf)
-- Class XB at B (sf)
-- Class C at B (low) (sf)
-- Class V1C at B (low) (sf)
-- Class D at CCC (sf)
-- Class E at CCC (sf)
-- Class V1D at CCC (sf)
-- Class V1E at CCC (sf)
-- Class V2 at B CCC (sf)

The trends on all credit ratings are Stable.

In the previous credit rating action in April 2024, Morningstar DBRS downgraded its credit ratings on all classes following an update to the Morningstar DBRS Value for the collateral property to $131.3 million, reflective of a loan-to-value ratio (LTV) of 175.2% on the total mortgage debt of $230.0 million and an LTV of 70.1% on the senior mortgage debt amount of $92.0 million. The Morningstar DBRS value was derived based on a 5.7% haircut to the YE2023 net cash flow (NCF) figure, which resulted in a Morningstar DBRS NCF of $11.2 million and a Morningstar DBRS capitalization rate (cap rate) of 8.5%, which was an increase from the 7.0% Morningstar DBRS cap rate applied in 2020 when Morningstar DBRS assigned the credit ratings. The Morningstar DBRS value is 67.4% lower than the issuance appraised value of $403.0 million and an approximately 30.0% decline from the Morningstar DBRS value derived in 2020 of $188.9 million. Morningstar DBRS maintained the LTV Sizing approach for the 2024 credit rating action for this review, with a total qualitative adjustment of 1.0% applied to reflect the relative strength of the market fundamentals. A previous qualitative adjustment of 1.0% for cash flow volatility was removed in 2024; Morningstar DBRS also maintained that approach. The resulting LTV Sizing Benchmarks and the servicer's reported cash flows for the collateral property that show performance remains generally in line with the Morningstar DBRS NCF figure support this review's credit rating confirmations and Stable trends.

The transaction is secured by the mortgage debt backed by a 35-story Class B office tower at 75 Broad Street in Lower Manhattan. The whole loan amount of $250.0 million represents $92.0 million in senior A note debt split pari passu between the transaction and the UBSCM 2017-C1 multi-borrower transaction (not rated by Morningstar DBRS); $138.0 million of subordinate B note debt, $84.0 million of which is in the subject trust and the remainder is unsecuritized; and $20.0 million in mezzanine debt, also unsecuritized. The fixed-rate mortgage loan has a 10-year term and is interest only (IO) throughout. The loan is on the servicer's watchlist because of occupancy declines in recent years that have pushed the debt service coverage ratio (DSCR) below 1.10 times (x). The September 30, 2024, rent roll provided by the servicer shows an occupancy rate of 72.4%, down from approximately 86.0% at issuance. The DSCR was reported at 1.05x for the YE2024 reporting period, generally flat from YE2023, but well below the issuer's DSCR of 2.18x. Occupancy has been falling precipitously in recent years, with slow leasing activity due to the weakened demand for office properties, particularly within the Financial District neighborhood where the property is located. The subject's older, Class B status with limited amenities is also likely a hindrance to the borrower's efforts to achieve leasing momentum in the current environment. The loan sponsor is Joseph Jerome, the cofounder of the privately held JEMB Realty Corporation (JEMB), which provides management services.

The property was developed in 1928 as the headquarters of ITT Inc. (formerly International Telephone & Telegraph) and many architectural details remain from that time, including the large entrance lobby with hanging brass chandeliers, terrazzo and marble floors, fresco-painted vaulted ceilings, brass cab elevators (with modernized controls and mechanics), and a separate domed mosaic entrance on the corner of Broad Street and William Street. The 671,369-square-foot (sf) building was renovated in the years and months leading up to the 2017 loan closing, with upgrades to the lobby, elevator, and mechanical systems. The property is within one block of the New York Stock Exchange and the National Museum of the American Indian and within a short walk to the World Trade Center complex, the New Jersey PATH commuter rail station, the Staten Island Ferry, and Fulton Street Subway Station with access to approximately nine subway lines and several bus lines all converging in lower Manhattan. The property is surrounded by a revitalizing neighborhood with other office buildings, large apartment and condominium buildings, restaurants, sports facilities, entertainment, cultural and tourist attractions, multiple transportation options, and places for outdoor recreation.

The September 2024 rent roll provided by the servicer showed the property's largest tenant is the Board of Education of the City School District of the City of New York (NYC School District), with approximately 15.9% of the net rentable area (NRA). NYC School District's leases expire in 2033 (approximately 11.9% of the NRA) and 2035 (approximately 4.0% of the NRA). The remainder of the property's tenancy is quite granular, with both the second- and third-largest tenants representing approximately 4.0% of the NRA. According to the provided reporting, leases representing approximately 5.0% of the NRA were set to expire by the end of 2024, with scheduled rollover of approximately11.0% of the NRA in 2025 and approximately 4.0% in 2026. The rent roll also shows two lower-floor suites that are not leased and are used to house generators; these spaces represent approximately 3.8% of the NRA. There is also a small data center space listed in the stacking plan, with a listed square footage of 9,212 sf (approximately 1.4% of the listed NRA). The servicer's reported NCF figure for YE2024 of $11.8 million is generally flat from the YE2023 number and slightly above the Morningstar DBRS NCF figure of $11.2 million.

According to Reis, the property is in the Downtown submarket, which reported an overall vacancy rate of 15.2% as of Q4 2024, up from 14.4% at Q4 2023 and 11.4% in Q4 2019, just before the onset of the pandemic and the resulting falloff in demand. Reis forecasts vacancy will peak at 16.3% in the submarket by Q4 2026 before dropping slightly over the next few years, with the vacancy rate for 2029 forecast at 15.4%. These figures suggest there may be some upside for the subject, as the current vacancy rate is above market; however, Morningstar DBRS notes that there remains significant concern about the true demand in this area of Manhattan given the generally older building stock with fewer amenities and upgrades compared with other submarkets such as Midtown and Hudson Yards. These factors contributed to the credit rating downgrades in 2024, with the increased Morningstar DBRS cap rate (and resulting lower Morningstar DBRS value) and removal of the qualitative adjustment for cash flow volatility resulting in negative pressure throughout the capital stack. The loan sponsor appears committed to the property and subject loan, with no relief request or other modification request reported by the servicer to date; however, if the in-place occupancy rate continues to slide and cash flows drop below breakeven, the term commitment could be tested. In addition, the high LTV implied by the Morningstar DBRS value suggests that a successful refinance at the April 2027 maturity date could require a significant capital contribution from the sponsor.

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 XA, XB, and V1XB 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 (February 28, 2025), https://dbrs.morningstar.com/research/448963.

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.

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 Single-Asset/Single-Borrower Ratings Methodology (February 28, 2025), https://dbrs.morningstar.com/research/448962

-- 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

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