Morningstar DBRS Downgrades Credit Ratings on 12 Classes of CSAIL 2017-C8 Commercial Mortgage Trust

DBRS Limited (Morningstar DBRS) downgraded its credit ratings on eight pooled classes of Commercial Mortgage Pass-Through Certificates, Series 2017-C8 issued by CSAIL 2017-C8 Commercial Mortgage Trust, and four rake classes, which are secured by the beneficial interest in the subordinate debt placed on the 85 Broad Street loan.

The credit ratings were downgraded as follows:

-- Class B to A (high) (sf) from AA (sf)
-- Class C to BBB (high) (sf) from A (sf)
-- Class D to BB (high) (sf) from BBB (sf)
-- Class E to B (low) (sf) from B (high) (sf)
-- Class F to CCC (sf) from B (low) (sf)
-- Class X-B to A (low) (sf) from A (high) (sf)
-- Class V1-B to BBB (high) (sf) from A (sf)
-- Class V1-D to BB (high) (sf) from BBB (sf)

-- Class 85BD-A to B (sf) from BBB (low) (sf)
-- Class 85BD-B to B (low) (sf) from B (high) (sf)
-- Class V1-85A to B (sf) from BBB (low) (sf)
-- Class V1-85B to B (low) (sf) from B (high) (sf)

In addition, Morningstar DBRS confirmed its credit ratings on the remaining six pooled classes and three rake classes as follows:

-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class V1-A at AAA (sf)

-- Class 85BD-C at CCC (sf)
-- Class V1-85C at CCC (sf)
-- Class V2-85 at CCC (sf)

Morningstar DBRS changed the trends on Classes C, D, E, X-B, V1-B, V1-D, 85BD-A, 85BD-B, V1-85A, and V1-85B to Stable from Negative. The trends on all remaining classes are Stable, with the exception of Classes F, 85BD-C, V1-85C, and V2-85, which are assigned credit ratings that do not typically carry a trend in commercial mortgage-backed securities (CMBS) credit ratings.

Morningstar DBRS had previously downgraded its credit ratings on all the rake classes which are secured by the subordinate debt on the 85 Broad Street property (Prospectus ID#1; 15.3% of the pool). A pari passu portion of the senior debt on the 85 Broad Street property backs the pooled classes. Those credit rating actions were the result of a lower Morningstar DBRS Value for the property which was derived as part of Morningstar DBRS' review of transactions secured by office properties within its North American CMBS Single-Asset/Single-Borrower portfolio (for which the credit rating actions were published on April 15, 2024).

At that time, Morningstar DBRS also assigned Negative trends to Classes 85BD-A, 85BD-B, V1-85A, and V1-85B because of performance challenges for the collateral property as a result of occupancy rate and cash flow declines. Given operating performance at the property remains depressed, a factor which could be exacerbated by upcoming tenant rollover, Morningstar DBRS elected to update its analysis with this review. The resulting Morningstar DBRS stabilized property value of $185.0 million ($165 per square foot), is 23.5% and 71.6% lower than the previously derived Morningstar DBRS value and appraised value at issuance, respectively. The credit rating downgrades on Classes 85BD-A and 85BD-B, and the respective exchangeable certificates, reflect the downward pressure implied by the loan-to-value ratio (LTV) sizing benchmarks as a result of the updated Morningstar DBRS property value noted above.

During the April 24, 2024, credit rating action for the subject transaction, Morningstar DBRS changed the trends on the pooled Classes E and F to Negative from Stable to reflect the potential for further value deterioration of the 85 Broad Street property, which could affect the recoverability of the senior debt that backs those certificates. In addition, Morningstar DBRS placed Negative trends on Classes C, D, XB, V1-B, and V1-D, citing concerns related to the high concentration of loans secured by office properties, which represent 41.4% of the pool balance. Since that time, the performance of the underlying collateral securing several of those loans has remained stagnant or, in some cases, has deteriorated further. The credit rating downgrades on Classes B, C, D, E, and F with this review reflect loan-specific challenges as those classes are the most exposed to loss if the performance of the underlying collateral continues to deteriorate (or does not rebound from the current lows). Morningstar DBRS analyzed loans that have exhibited increased credit risks with elevated probability of default penalties and/or stressed LTVs, resulting in expected losses that were either on par or up to 2.2 times (x) greater than the pool average. As a result, the pool's overall adjusted expected loss has increased by approximately 50 basis points since the previous credit rating action, with the resulting downward pressure implied by the model further supporting the credit rating downgrades taken with this review. Given the current credit rating downgrades and Morningstar DBRS' expectation that the performance of most loans of concern should remain relatively static through the next 12 months, the trends on Classes C, D, E, X-B, V1-B, V1-D, 85BD-A, 85BD-B, V1-85A, and V1-85B were changed to Stable from Negative.

The credit rating confirmations on classes higher in the capital stack reflect Morningstar DBRS' view that most of the loans in the pool are performing generally in line with issuance expectations, with loans secured by retail and multifamily property types representing 15.9% and 12.2% of the pool, respectively. In addition, the pool benefits from six defeased loans, which represent 11.2% of the pool balance. Scheduled loan repayments and amortization have fully repaid the balances of Classes A-1 and A-2 (the top two classes at issuance) with Class A-3 paid down by approximately 10.0% since the February 2025 remittance. Loans representing almost 30.0% of the pool are reporting debt service coverage ratios (DSCRs) in excess of 2.0x. In addition, no loans are currently in special servicing.

As of the March 2025 remittance, 27 of the original 32 loans remain in the trust, with an aggregate balance of $662.7 million, representing a collateral reduction of 25.0% since issuance. Three loans, representing 27.0% of the pool, are on the servicer's watchlist. To date, the trust has incurred a total loss of approximately $7.8 million, which has been contained to the nonrated certificate.

The largest loan in the pool is 85 Broad Street, which is secured by a 1.1 million-square-foot (sf) Class A office property in Manhattan's Financial District. The loan was recently added to the servicer's watchlist because the borrower continues to be late on payments and as of the March 2025 reporting, owes almost $100,000 in late fees. The whole loan encompasses three pari passu senior notes totaling $169.0 million as well as two subordinate notes with a total balance of $189.6 million. The $90.0 million subject loan represents the noncontrolling A-A-1 and A-A-2 notes of the $169.0 million senior component, the remaining balance is secured in transactions not rated by Morningstar DBRS. The nonpooled rake bonds, also rated by Morningstar DBRS are backed by the $72.0 million 85 Broad Street A-B Note. The loan's nonpooled $58.8 million B-A Note and $58.8 million B-B Note are subordinate to both the rake bonds and the $169.0 million pooled A Note.

The subject property originally served as Goldman Sachs' headquarters until it was vacated in 2011 and converted into a multitenant property in 2015. According to the December 2024 rent roll, the property was 71.7% occupied, down from 78.7% at YE2023 and 87.1% at issuance. The property experienced a decline in cash flow and occupancy after the former largest tenant, WeWork, downsized its space by approximately 175,000 sf (15.6% of net rentable area (NRA)). WeWork filed for Chapter 11 bankruptcy in November 2023; however, Morningstar DBRS did not locate any information suggesting the subject property is included among WeWork's active lease rejections. If WeWork decides to terminate its lease, which is not scheduled to expire until August 2033, the implied occupancy rate at the subject property would drop to approximately 60.0%. Other large tenants are Viner Finance Inc. (24.7% of the NRA, lease expiry in February 2028), and TNC US Holdings Inc. (Nielsen;10.5% of the NRA, lease expiry in March 2025). Approximately 11.5% of the NRA is scheduled to roll over in the next 12 months (including Nielsen's lease). Morningstar DBRS requested confirmation of the status of Nielsen's lease; however, as of the date of this press release, a response remains pending.

There has not been any significant leasing activity since WeWork downsized its space, and the subject's current vacancy rate remains above the submarket vacancy rate of 15.2%, as reported by Reis. According to the March 2025 reserve report, there is approximately $9.8 million in tenant reserves, the majority of which was deposited by WeWork as per its lease amendment in 2023. Net cash flow (NCF) has followed a similar downward trajectory: the most recent full year reporting from YE2024 reflected a figure of $16.7 million, a 30.7% decline from the issuance figure of $24.0 million. Morningstar DBRS analyzed the loan with an elevated probability of default (POD) penalty to account for the tenant rollover risk, WeWork exposure, and declining performance metrics since issuance and stressed LTV (to reflect the senior debt LTV based on the updated Morningstar DBRS value of the property as noted above), resulting in an expected loss that was relatively in line with the pool average but more than 40x greater than the base-level loan expected loss.

The second-largest loan in the pool is 245 Park Avenue (Prospectus ID#2; 13.6% of the current pool balance), which is secured by a 1.7 million sf, Class A office tower in Midtown Manhattan. The $1.2 billion whole loan has a pari passu structure with pieces securitized across five Morningstar DBRS-rated transactions. The loan was previously specially serviced in November 2021 after the original sponsor (PWM Property Management LLC, an affiliate of HNA Group Co.) filed for Chapter 11 bankruptcy. According to servicer documents, SL Green Realty Corp. (SL Green) purchased the property and assumed the debt in late 2022; however, SL Green sold its 50% stake to Mori Trust Co Ltd. for $1 billion, which valued the collateral at $2.0 billion. The property was 85.1% occupied as of December 2024, an improvement to the prior year's occupancy rate of 74.7% but below the issuance figure of 91.0%. Recent leasing momentum at the property has been positive with various online sources indicating that several tenants have signed new leases. As such, Morningstar DBRS expects the property's occupancy rate could increase to approximately 90.0% in the near to medium term.

The largest tenants at the property are Société Générale (30.4% of the NRA; lease expiration in 2032) and Ares Management (12.3% of the NRA; lease expiration in 2043). Although the YE2024 NCF of $67.0 million represents a 38.9% decline from the issuance figure, the loan's DSCR has consistently remained above 1.60x since the closing of the transaction and Morningstar DBRS does expect the property's cash flow trends to improve over the subsequent reporting periods, given the recent increase in occupancy and positive leasing momentum. Although there have been a number of positive developments at the property, the collateral's historical occupancy rate has been volatile, resulting in a contraction in cash flows. As such, Morningstar DBRS analyzed the loan with a stressed LTV and elevated POD penalty, resulting in an expected loss that was approximately 15x greater than the base-level loan expected loss.

The second-largest loan on the servicer's watchlist is Hotel Eastlund (Prospectus ID#5; 6.4% of the current pool balance), which is secured by a AAA Three Diamond Luxury, 168-room, full-service hotel in Portland, Oregon. The loan transferred to the special servicer in July 2020 because of pandemic-related hardships and was returned to the master servicer in May 2022 following a loan modification. The loan continues to be monitored on the servicer's watchlist for a low DSCR, which was most recently reported at 0.94x as of YE2024. Per the December 2024 STR report, the subject property reported an occupancy rate of 64.8%, average daily rate of $167.6, and revenue per available room (RevPAR) of $108.6 for the trailing 12 months ended December 31, 2024, outperforming its competitive set with a RevPAR penetration rate of 126.5%. Although performance continues to improve year over year, the NCF in YE2024 was approximately 46% below the issuer's figure. With this review, Morningstar DBRS maintained a conservative approach in the analysis of the loan given cash flow has yet to return to issuance expectations. Morningstar DBRS analyzed the loan with an elevated POD penalty and stressed LTV, resulting in an expected loss that was approximately 30.0% greater than the pool average.

Morningstar DBRS also has concerns with the St. Luke's Office (Prospectus ID#8; 5.1% of the pool balance) and Columbus Office Portfolio I (Prospectus ID#11; 4.6% of the pool balance) loans, both of which have exposure to upcoming lease rollovers, softening office submarket fundamentals, and/or have experienced sustained performance declines. The St. Luke's Office loan is secured by a three-story, 566,622-sf office building in Allentown, Pennsylvania. Although operating performance remains in line with issuance expectations, the second-largest tenant, Intel Corp (19.1% of the NRA), signed a short-term lease extension from March 2025 to March 2026, suggesting the technology company may not be committed to remaining at the property in the long term. The Columbus Office Portfolio loan is secured by four office properties within approximately 0.5 miles of each other in Dublin, Ohio. There has been some volatility in the property's occupancy rate since issuance, with the YE2023 NCF more than 35.0% below the issuance figure. The Allentown and Dublin submarkets currently have vacancy rates of 14.3% and 25.4%, respectively, as of Q4 2024, according to Reis.

At issuance, the 71 Fifth Avenue loan (Prospectus ID#12; 4.2% of the pool balance) was shadow rated as investment grade. With this review, Morningstar DBRS has maintained the shadow rating given the loans' strong credit metrics, experienced sponsorship, and the underlying collateral's historically stable performance.

The credit rating on the Class 85BD-B rake bond is higher than the results implied by the LTV sizing benchmarks by three or more notches. The variance is warranted given the potential for improvement in the overall outlook for the collateral property as a result of the loan's strong sponsorship and the subject's desirable location near the New York Stock Exchange in Lower Manhattan. In addition, the loan's nonpooled $58.8 million B-A Note and $58.8 million B-B Note (which are the most subordinate in loan's capital structure) provide a fair amount of cushion to both the rake bonds and the $169.0 million pooled A Note.

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 and X-B 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 (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 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.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to our Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of our website.

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 (December 13, 2024)/North American CMBS Insight Model v 1.2.0.0
https://dbrs.morningstar.com/research/444616

-- 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 03, 2024)
https://dbrs.morningstar.com/research/444064

-- North American Commercial Mortgage Servicer Rankings (August 23, 2024)
https://dbrs.morningstar.com/research/438283

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.