Morningstar DBRS Downgrades Six Classes of Morgan Stanley Bank of America Merrill Lynch Trust 2016-C29

DBRS, Inc. (Morningstar DBRS) downgraded credit ratings on six classes of Commercial Mortgage Pass-Through Certificates, Series 2016-C29 issued by Morgan Stanley Bank of America Merrill Lynch Trust 2016-C29 as follows:

-- Class D to B (high) (sf) from BB (low) (sf)
-- Class E to CCC (sf) from B (low) (sf)
-- Class F to C (sf) from CCC (sf)
-- Class X-D to BB (low) (sf) from BB (sf)
-- Class X-E to CCC (sf) from B (sf)
-- Class X-F to C (sf) from CCC (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-S at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at A (high) (sf)
-- Class G at C (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)

Morningstar DBRS changed the trends on Classes B and X-B to Stable from Negative. The trends on Classes C, D, and X-D are Negative. Classes E, F, G, X-E, and X-F have credit ratings that do not typically carry trends in commercial mortgage-backed securities (CMBS) transactions.

The credit rating downgrades reflect an increase in Morningstar DBRS' projected losses for the transaction and deterioration in credit enhancements for junior bonds, stemming from the five loans in special servicing, which collectively represent 9.2% of the current pool balance. With this review, Morningstar DBRS analyzed liquidation scenarios for three loans, representing 5.7% of the pool. The combined losses totaled $28.5 million, eroding the entirety of the balance on the unrated Class H, a majority of the balance on Class G, and considerably deteriorating the credit support to Classes E and F, supporting the credit rating downgrades.

Morningstar DBRS has continued concerns with loans that are exhibiting elevated refinance risk. With this review, nine loans (including two in special servicing) were identified as having increased risk of maturity default given recent performance challenges, weakening submarket fundamentals, and less liquidity for certain property types. For the loans with elevated refinance risk, Morningstar DBRS applied an elevated probability of default penalty and/or a stressed loan-to-value ratio in the analysis to increase the loan-level expected losses (ELs) for this review. Should these or other loans default, or should performance for the specially serviced loans deteriorate further, Morningstar DBRS' projected losses for the pool could increase, further supporting the credit rating downgrade on Class D.

As of the June 2025 remittance, interest shortfalls total $2.4 million with interest being shorted up to Class E. Although Class E is receiving shortfall paybacks as of the June 2025 remittance, Morningstar DBRS expects interest shortfalls to continue to accrue given the two recent transfers to special servicing and the pending delivery of an updated appraisal for the Princeton Pike Corporate Center loan (Prospectus ID#16, 2.3% of the pool), which is expected to come in well below the issuance figure given performance declines. These factors supported the Negative trends on Classes C and D.

As of the June 2025 remittance, 60 of the original 69 loans remained in the trust, with an aggregate balance of $657.3 million, representing a collateral reduction of 18.8% since issuance. There are 23 fully defeased loans, representing 26.0% of the current pool balance. Excluding the defeased loans, the pool is most concentrated by loans backed by retail and office properties, which represent 37.4% and 15.7% of the pool balance, respectively. Outside of the loans in special servicing, Morningstar DBRS' analysis includes an additional stress for two office loans exhibiting weakened performance, which resulted in loan-level weighted-average ELs that are nearly double the pool's average EL.

The largest contributor to Morningstar DBRS' liquidation losses is 696 Centre, which is secured by a 204,552-square-foot (sf) suburban office building in Farmington Hills, Michigan, approximately 20 miles outside of Detroit. The loan transferred to the special servicer in February 2024 for imminent monetary default and as of the June 2025 remittance, the loan remains delinquent. The special servicer is pursuing the appointment of a receiver while evaluating a modification request. The property's performance declined after the departure of its former two largest tenants, Google (which formerly occupied 41.4% of the net rentable area (NRA)), and Botsford General Hospital (which formerly occupied 24.9% of the NRA), in 2022, pushing the occupancy rate down to as low as 10.0% as of the March 2025 rent roll. The property was reappraised in April 2025 at $5.3 million, which represents a 77.9% decline from the issuance appraised value of $24.0 million. Morningstar DBRS analyzed this loan with a liquidation scenario based on a conservative 30% haircut to the most recent value and a consideration of servicer advances and liquidation fees, which resulted in a liquidated loss of $13.2 million and a loss severity of more than 90%.

Another loan in special servicing is Princeton Pike Corporate Center, which is secured by an eight-building suburban office complex in the Trenton suburb of Lawrenceville, New Jersey. The loan is pari passu with the loan in the Morgan Stanley Bank of America Merrill Lynch Trust 2016-C28 transaction, which is also rated by Morningstar DBRS. The loan transferred to special servicing in February 2024 for imminent monetary default and was last paid in Feburary 2025. The consolidated collateral occupancy rate has fallen to 44.8% as of the December 2024 rent rolls, a decline from the already low September 2023 figure of 59.5%. In addition, 11 tenants, representing 11.3% of NRA, are scheduled to roll within the next 12 months, suggesting occupancy could further decline. According to Reis, office properties within the Trenton submarket reported an average vacancy rate of 15.6% as of Q4 2024, with a five-year forecast vacancy rate of 22.4% by Q4 2029. Despite the now extended vacancy, the special servicer has not reported an updated appraisal to date. Morningstar DBRS expects that the property's as-is value has deteriorated considerably given the historical performance trends, lack of leasing activity, and soft submarket fundamentals. As such, Morningstar DBRS liquidated the loan from the pool based on a 75.0% haircut to the issuance value of $199.0 million, resulting in a Morningstar DBRS value of $49.8 million ($61 per sf) and an implied loss of more than $10.0 million.

The Penn Square Mall (Prospectus ID#3, 6.9% of the pool) loan was shadow-rated investment grade at issuance. With this review, Morningstar DBRS notes that the loan continues to exhibit investment-grade loan characteristics as demonstrated by the stable cash flow and occupancy rate.

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 (May 16, 2025), https://dbrs.morningstar.com/research/454196.

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 (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 assigned to Class C materially deviates from the credit rating implied by the predictive model. Morningstar DBRS typically expects there to be a substantial likelihood that a reasonable investor or other user of the credit rating would consider a three-notch or more deviation from the credit rating stress implied by the predictive model to be a significant factor in evaluating the credit rating. The rationale for the material deviation is uncertain loan-level event risk. As previously mentioned, the majority of the remaining loans in the pool are scheduled to mature in the next twelve months; Morningstar DBRS considers the increased maturity risk and the potential for additional value decline as the specially serviced loans and select loans facing challenges will likely have trouble refinancing, supporting the material deviation.

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.