Morningstar DBRS Downgrades Credit Ratings on Two Classes of CD 2016-CD1 Mortgage Trust; Changes Trends on Two Classes to Stable From Negative

DBRS, Inc. (Morningstar DBRS) downgraded the credit ratings on two classes of Commercial Mortgage Pass-Through Certificates, Series 2016-CD1 issued by CD 2016-CD1 Mortgage Trust, as follows:

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

In addition, Morningstar DBRS confirmed the following credit ratings:

-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-M at AA (low) (sf)
-- Class X-A at AA (sf)
-- Class B at A (low) (sf)
-- Class X-C at CCC (sf)
-- Class X-D at C (sf)
-- Class D at CCC (sf)
-- Class E at C (sf)
-- Class F at C (sf)

Morningstar DBRS also changed the trends on Class A-M and Class X-A to Stable from Negative. Class B continues to carry a Negative trend while Classes X-B, X-C, X-D, C, D, E, and F are assigned credit ratings that typically do not carry a trend in commercial mortgage-backed securities transactions. All other trends are Stable.

At the prior credit rating action in May 2024, Morningstar DBRS downgraded 10 classes to reflect increased liquidated loss projections for two of the three loans in special servicing. Negative trends were also placed on five classes because of concerns surrounding the possibility of further value deterioration for the distressed collateral in the pool, as well as susceptibility to additional interest shortfalls. In the analysis for the subject credit rating action, Morningstar DBRS' loss expectations have only increased marginally from the prior year's analysis; however, interest shortfalls have more than doubled since the previous credit rating action, with a cumulative balance of $3.6 million shorted across Classes C through G, as of the April 2025 remittance. Class C has been accruing interest since March 2025 and will likely reach the Morningstar DBRS shortfall tolerance ceiling of six months for the BB (sf) and B (sf) credit rating category in the next few reporting periods, supporting the credit rating downgrade with this review. Further, the classes higher than Class C have a higher propensity for additional shortfalls, which is a major driver for maintaining the Negative trend for Class B with this credit rating action.

In the analysis for this review, Morningstar DBRS liquidated both of the specially serviced loans, resulting in an aggregate loss of $43.7 million, which would partially erode the Class D balance and fully erode the balance of Class E, Class F, and nonrated Class G. Morningstar DBRS also stressed several other loans exhibiting signs of distress because of sustained or expected performance declines, resulting in elevated credit risk for Classes B, C, and D. Morningstar DBRS recognizes that the vast majority of outstanding loans in the pool have an upcoming maturity date in 2026, several of which will likely face difficulty obtaining takeout financing, further supporting the credit rating downgrades and Negative trends.

The credit rating confirmations and Stable trends for Classes A-3, A-4, A-SB, X-A, and A-M reflect the overall stable performance of the remaining loans in the pool, as exhibited by the healthy weighted-average (WA) debt service coverage ratio (DSCR) of 2.38 times (x), based on the most recent year-end financials. As of the April 2025 remittance, 29 of the original 32 loans remain in the pool, representing a collateral reduction of 19.0% since issuance. Defeasance collateral represents 7.0% of the pool balance. Two loans (13.0% of the pool) are in special servicing and 11 loans (42.8% of the pool) are on the servicer's watchlist. Loans secured by office properties represent the greatest property type concentration, accounting for 45.3% of the pool balance. Aside from one specially serviced loan secured by office collateral, the office loans in the pool have generally performed as expected, reporting a WA DSCR and debt yield of 2.89x and 12.5%, respectively, according to the most recent servicer reported figures. This includes two shadow-rated loans described later in this press release.

The largest loan in special servicing is secured by Westfield San Francisco Centre (Prospectus ID#3, 10.5% of the pool), which is composed of approximately 553,000 square feet (sf) of retail space and 241,000 sf of office space within a regional mall in San Francisco. The loan transferred to special servicing in June 2023 for imminent monetary default and the loan was last paid through September 2023. Foreclosure was filed in September 2023 and a receiver was appointed in October 2023. The mall was rebranded as Emporium Centre San Francisco, with Jones Lang LaSalle acting as the property manager to stabilize the subject. The occupancy rate was 18.0% as of September 2024, a significant decline from 40.0% as of YE2023 and 53.0% as of YE2022. The only remaining anchor, a noncollateral Bloomingdale's, recently announced the store would close in April 2025 prior to its September 2046 scheduled lease expiration. In the analysis for this review, the loan was liquidated from the trust based on a 15.0% haircut to the most recent appraised value of $290.0 million, resulting in a trust loss of about $30.0 million and a loss severity of nearly 50.0%. Given the very low in-place occupancy rate, Morningstar DBRS expects investor appetite will be low, a factor in the conservative liquidation scenario considered with this review.

The other specially serviced loan, 401 South State Street (Prospectus ID#9, 2.5% of the pool), is secured by two Class A office buildings in the East Loop submarket of Chicago. The property has been vacant since its former sole tenant, Robert Morris University, departed and stopped paying rent in April 2020. The asset has been real estate owned since April 2023 and was recently reappraised in May 2024 for $9.2 million, a drastic decline from the issuance appraised value of $76.5 million. In the analysis for this review, the loan was liquidated based on a 15.0% haircut to the most recent value, resulting in a full loss to the trust.

At issuance, Morningstar DBRS shadow rated 10 Hudson Yards (Prospectus ID#1, 11.4% of the trust balance) and Vertex Pharmaceuticals HQ (Prospectus ID#9, 5.3% of the trust balance) investment grade, because of investment-grade tenancy, strong sponsorship, and favorable property quality given the high quality finishes. The 10 Hudson Yards loan, which is secured by a Class A office property in the Penn Station submarket of New York, is pari passu to a loan secured in Hudson Yards 2016-10HY Mortgage Trust, which is also rated by Morningstar DBRS. Morningstar DBRS recently reviewed that transaction, with the credit rating actions detailed in a press release dated March 4, 2025. For more information, please see the press release titled "Morningstar DBRS Upgrades Credit Ratings on Three Classes of Hudson Yards 2016-10HY Mortgage Trust" on the Morningstar DBRS website. During the March 4, 2024, review, Morningstar DBRS derived an updated Morningstar DBRS Value for the property and Morningstar DBRS loan-to-value ratio. The updated approach continued to support the investment-grade shadow rating on the loan.

Vertex Pharmaceuticals HQ is secured by an office and lab property in Boston and serves as the global headquarters for Vertex Pharmaceuticals as it occupies the majority of the space. According to recent news articles, the tenant recently completed an early renewal of its lease, extending the expiration date by approximately 15 years to June 2044, from its previous expiration date in December 2028. Based on the YE2024 financials, the loan reported a DSCR of 5.38x. With this review, Morningstar DBRS confirmed that the performance of the loan remains consistent with investment-grade loan characteristics.

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 factor(s) 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-C, 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 (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 ratings were initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for these credit rating actions.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with these credit rating actions.

These are solicited credit ratings.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

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.
22 West Washington Street
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 (April 9, 2025)/North American CMBS Insight Model v 1.3.0.0, https://dbrs.morningstar.com/research/451739
-- 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.