DBRS Morningstar Confirms All Ratings on Citigroup Commercial Mortgage Trust 2017-P8

DBRS, Inc. (DBRS Morningstar) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2017-P8 issued by Citigroup Commercial Mortgage Trust 2017-P8 as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-AB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AAA (sf)
-- Class X-B at AAA (sf)
-- Class V-2A at AAA (sf)
-- Class V-2B at AAA (sf)
-- Class C at A (high) (sf)
-- Class V-2C at A (high) (sf)
-- Class V-3AC at A (high) (sf)
-- Class X-D at BBB (high) (sf)
-- Class D at BBB (sf)
-- Class V-2D at BBB (sf)
-- Class V-3D at BBB (sf)
-- Class X-E at BBB (low) (sf)
-- Class E at BB (high) (sf)
-- Class X-F at BB (sf)
-- Class F at BB (low) (sf)

All trends are Stable, with the exception of Classes E, X-E, F, and X-F, which remain Negative because of increased risks for some of the loans on the servicer’s watchlist, as further described below. Although these loans report developments that suggest increased risk of loss, it is noteworthy that the pool has not had any losses to date and the full balance of the unrated $36.1 million first-loss Class G certificate remains intact. The generally stable performance of the loans since issuance, with no losses and one loan in special servicing that DBRS Morningstar does not expect will resolve with a loss based on the information available to date, support the rating confirmations and Stable trends for the bulk of the rated classes.

All of the original loans remain in the pool and, as of the December 2021 remittance, the pool had an aggregate principal balance of $1.06 billion, representing a collateral reduction of 2.3% since issuance. Defeasance has been minimal, with one small loan, representing 1.1% of the pool, defeased since issuance. The transaction is concentrated with loans backed by retail, office, and mixed-use property types, comprising 30.5%, 30%, and 17.5% of the pool balance, respectively.

As of the December 2021 remittance, 10 loans, representing 19% of the pool balance, are on the servicer’s watchlist and one loan, representing 1.4% of the pool balance, is in special servicing. Loans on the watchlist are being monitored for a variety of reasons, including low debt service coverage ratios (DSCRs), occupancy, and tenant rollover concerns. The largest loan on the watchlist, Bank of America Plaza (Pros ID #5; 4.3% of the pool), is secured by a Class A office property located in Troy, Michigan. The lease of one of the largest tenants, Bank of America (BofA) (35.2% of the net rentable area (NRA)), expires in July 2022 and the servicer reports the borrower is in negotiations with the tenant. The subject loan benefits from a conservative structure, with stable performance from issuance with a DSCR well above 2.0 times (x). Although BofA’s exit would drive that figure down significantly, it is noteworthy that a cash flow sweep is in place and a renewal appears to be a solid prospect given the information provided to date. An online CBRE listing for the property as of January 2022 did not appear to include the BofA space.

However, two other office loans on the servicer’s watchlist in 440 Mamaroneck Avenue (Prospectus ID #14; 3.0% of the pool) and Scripps Center (Prospectus ID #21; 2.0% of the pool) have shown performance declines from issuance, with the most recent DSCR metrics showing the coverage below 1.0x. In the case of these two loans, revenue losses from occupancy declines (440 Mamaroneck Avenue) and parking income (Scripps Center) are the culprits and, given the challenges of the ongoing Coronavirus Disease pandemic and the somewhat softer markets for each property, the risks are increased from issuance, supporting the Negative trends maintained for the lowest-rated classes with this review.

The only specially serviced loan, 245 Park Avenue (Prospectus ID #27; 1.4% of the pool) is secured by a 44-story Class A office property with ground-floor retail in Midtown Manhattan. The loan sponsor, HNA Group, a diversified China-based conglomerate, announced it would file for bankruptcy in January 2021, with the HNA Group-backed entity (PWM Property Management) that owns 245 Park Avenue subsequently filing for bankruptcy in October 2021. PWM listed the property for sale in 2018 for $2.2 billion and, while no sale occurred, a $148 million ownership stake was sold to SL Green, which was subsequently appointed property manager and leasing manager. The sponsor’s bankruptcy filing and other issues are the source of the loan’s transfer to special servicing—given the quality of the collateral and recent investment by SL Green, DBRS Morningstar believes the prospects for resolution of the outstanding issues and a return to the master servicer remain generally healthy. For additional information on this loan, please see the DBRS Morningstar loan commentary on the DBRS Viewpoint platform, for which information has been provided below.

At issuance, four loans, representing 17.9% of the current pool balance, were shadow-rated investment grade. These loans include 225 & 233 Park Avenue South (Prospectus ID #1; 5.6% of the pool), General Motors Building (Prospectus ID#2; 5.2% of the pool), The Grove at Shrewsbury (Prospectus ID# 7; 4.1% of the pool), and Lakeside Shopping Center (Prospectus ID #13; 3.1% of the pool). With this review, DBRS Morningstar confirms that the performance of these loans remains consistent with investment-grade loan characteristics.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

DBRS Morningstar did not perform an updated model run as performance was deemed to be generally in line with expectations from the last review. As of the previous actions published on January 31, 2020, the material deviation(s) from the North American CMBS Insight Model was reported on Classes B, C, V-2B, V-2C, and V-3AC, ranging between three and four notches that were lower than the implied results. The material deviation was warranted because of uncertain loan level event risk.

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 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 the following loans in the transaction:

-- Prospectus ID#5 – Bank of America Plaza (4.3% of the pool)
-- Prospectus ID#8 – Starwood Capital Group Hotel Portfolio (3.9% of the pool)
-- Prospectus ID#27– 245 Park Avenue (1.4% of the pool)

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes issuer and servicer 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 methodology is North American CMBS Surveillance Methodology (March 26, 2021), which can be found on 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 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.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482.

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.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

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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