DBRS Morningstar Assigns Ratings to CSMC Trust 2017-MOON

DBRS Limited (DBRS Morningstar) assigned ratings to the Commercial Mortgage Pass-Through Certificates, Series 2017-MOON issued by CSMC Trust 2017-MOON as follows:

-- Class A at AAA (sf)
-- Class X at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at AA (low) (sf)
-- Class D at A (low) (sf)
-- Class E at BB (high) (sf)
-- Class HRR at BB (high) (sf)

All trends are Stable.

These certificates are currently also rated by DBRS Morningstar’s affiliated rating agency, Morningstar Credit Ratings, LLC (MCR). In connection with the ongoing consolidation of DBRS Morningstar and MCR, MCR previously announced that it had placed its outstanding ratings of these certificates Under Review–Analytical Integration Review and that MCR intended to withdraw its outstanding ratings. As such, in conjunction with these rating actions by DBRS Morningstar for the subject transaction, the MCR ratings will be withdrawn. In accordance with MCR’s engagement letter covering these certificates, upon withdrawal of MCR’s outstanding ratings, the DBRS Morningstar ratings will become the successor ratings to the withdrawn MCR ratings. Information about the MCR ratings, including the history of the MCR ratings, can be found at www.morningstarcreditratings.com.

On March 1, 2020, DBRS Morningstar finalized its “North American Single-Asset/Single-Borrower Ratings Methodology” (the NA SASB Methodology), which presents the criteria for which ratings are assigned to and/or monitored for North American single-asset/single-borrower (NA SASB) transactions, large concentrated pools, rake certificates, ground lease transactions, and credit tenant lease transactions. For further information on the NA SASB Methodology, please see the press release dated March 1, 2020, on the DBRS Morningstar website at www.dbrsmorningstar.com.

The subject rating actions are the result of the application of the NA SASB Methodology in conjunction with the “North American CMBS Surveillance Methodology,” as applicable. Qualitative adjustments were made to the final loan-to-value (LTV) sizing benchmarks used for this rating analysis.

This loan is secured by Two Independence Square—a 605, 897-sqaure foot (sf) Class A office property in Washington, D.C. Situated on a 2.26 acre site, the subject is located within the Southwest Federal Center, a business district mostly occupied by branches of the U.S. government, and just south of the National Mall and Capitol Building. The property is LEED Gold certified and has been the National Aeronautics and Space Administration’s (NASA) headquarters since its construction in 1992. The interest-only (IO) loan is structured with a five-year term and whole loan proceeds of $225.7 million ($373 per sf (psf)), along with $142.2 million of sponsor equity, facilitated the purchase of the subject for $355.6 million ($587 psf). The trust is secured by the senior A-1 note of $64.0 million and the $61.7 million subordinate B note, while the three remaining senior A notes totalling $100.0 million are securitized in other transactions.

The property is 98.6% leased to NASA on a lease that expires in August 2028 which NASA renewed beyond its original expiration in 2013 for 15 years, well beyond the five-year loan term. The lease contains no early termination options as part of the lease renewal. The seller invested $86.3 million ($142 psf) to renovate the building exteriors and interiors and to upgrade security; NASA invested an additional $42 million ($70 psf) in its space and pays a total rent of approximately $44.54 psf. The remaining 8,644 sf is leased to three ground floor retail tenants. The sponsor for this loan is structured as a U.S. real estate investment trust owned by Hana Financial Group; Korea Investment & Securities Co., Ltd.; and Samsung Securities Co., Ltd.

In the analysis for these rating actions, the resulting DBRS Morningstar net cash flow (NCF) was $20.2 million and a cap rate of 6.75% was applied, resulting in a DBRS Morningstar Value of $299.0 million, a variance of 20.3% from the appraised value at issuance of $375.0 million. The DBRS Morningstar Value implies an LTV of 75.5%, as compared with the LTV on the issuance appraised value of 60.2%.

The DBRS Morningstar NCF was re-analyzed for the subject rating action to confirm its consistency with the “DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria.” The NCF figure applied as part of the analysis represents a 1.1% variance from the Issuer’s NCF, primarily driven by management fees and utilities. DBRS Morningstar gave credit to the long-term credit tenancy of NASA. As of YE2019, the servicer reported a NCF figure of $21.1 million, a 4.5% variance from the DBRS Morningstar NCF figure.

The cap rate applied is at the lower end of the range of DBRS Morningstar Cap Rate Ranges for office properties, reflective of the asset’s Class A quality, the significant upgrades made, and location within the Southwest submarket of Washington. In addition, the 6.75% cap rate applied is above the implied cap rate of 5.44% based on the Issuer’s underwritten NCF and appraised value.

DBRS Morningstar made positive qualitative adjustments to the final LTV sizing benchmarks used for this rating analysis, totalling 4.50% to account for cash flow volatility, property quality, and market fundamentals.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Class X is an IO certificate that references 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 ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for this transaction.

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com The platform includes loan-level data for most outstanding CMBS transactions (including non-DBRS Morningstar-rated), as well as loan-level and transaction-level commentary for most DBRS Morningstar-rated and -monitored transactions.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodologies are the North American Single-Asset/Single-Borrower Ratings Methodology and North American CMBS Surveillance Methodology, which can be found on www.dbrsmorningstar.com under Methodologies & Criteria. For a list of the structured-finance-related methodologies that may be used during the rating process, please see the DBRS Morningstar Global Structured Finance Related Methodologies document, which can be found on www.dbrsmorningstar.com in the Commentary tab under Regulatory Affairs. Please note that not every related methodology listed under a principal structured finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

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@dbrsmorningstar.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS Morningstar long-term rating scale definition indicates that 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.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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