DBRS Morningstar Discontinues One Class; Confirms Ratings on Bank of America Merrill Lynch Commercial Mortgage Trust 2017-BNK3

DBRS Limited (DBRS Morningstar) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2017-BNK3, issued by Bank of America Merrill Lynch Commercial Mortgage Trust 2017-BNK3 as follows:

-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (sf)
-- Class X-B at A (high) (sf)
-- Class C at A (sf)
-- Class X-D at BBB (high) (sf)
-- Class D at BBB (sf)
-- Class E at BB (high) (sf)
-- Class F at B (high) (sf)

The rating for Class A-1 was discontinued as the class was repaid in full as of the January 2022 remittance. All trends are Stable.

The confirmations reflect the overall stable performance of the transaction since the last rating action. At issuance the pool consisted of 63 fixed-rate loans secured by 94 properties with a total trust balance of $977.1 million. As of the January 2022 remittance, 62 loans remain in the pool, with an aggregate trust balance of $893.3 million, representing a collateral reduction of approximately 8.6% since issuance, as a result of scheduled amortization and loan repayment. Defeased collateral represents 2.1% of the pool. There has been no realized trust loss to date.

Nineteen loans, representing 29.3% of the current trust balance, are being monitored on the servicer’s watchlist. These loans are being monitored for various reasons, mainly because of low debt service coverage ratio and performance declines as a result of ongoing difficulties caused by the Coronavirus Disease (COVID-19) pandemic. Additionally, there is one loan, Holiday Inn Express & Suites King of Prussia (Prospectus ID#25, 1.2% of the current pool), in special servicing.

The third-largest loan on the servicer’s watchlist is Shoreline Office Center (Prospectus ID#12, 2.5% of the pool), which is secured by a 98,861-square-foot suburban office property in Mill Valley, California. The loan was added to the servicer’s watchlist following the departure of the former largest tenant, Glassdoor (previously 56.9% of net rentable area). At issuance, Glassdoor had maintained its corporate headquarters at the subject before moving operations to San Francisco beginning in 2020. A cash trap event was triggered in January 2021 as Glassdoor was required to renew the lease seven months prior to lease expiration. As a result of the departure of Glassdoor, occupancy declined to 49.3% as of September 2021, and cash flow has declined to below breakeven level. As of the January 2022 reporting, the loan reported over $2.7 million of tenant reserves. Additionally, the loan was originally structured with a $1.3 million letter of credit that can be utilized only to backfill Glassdoor’s space, $1.1 million of which has already been disbursed. DBRS Morningstar has inquired about leasing updates.

The only loan in special servicing, Holiday Inn Express & Suites King of Prussia, transferred for payment default in June 2020. The loan is secured by a 155-room limited-service hotel property in King of Prussia, Pennsylvania, constructed in 1983. Foreclosure was filed, followed by a motion for receivership in November 2020. The loan was included in a portfolio note sale marketing initiative, but the borrower agreed to reinstate the loan, subject to certain conditions, and the loan was ultimately pulled from the sale. Although the loan remains delinquent, the reinstatement agreement is being finalized, and the closing is pending. The most recent appraisal reported by the servicer, dated September 2020, valued the property at $15.3 million (78.8% loan-to-value (LTV)), down 12% from the appraised value of $17.3 million at issuance (69.7% LTV). According to the August 31, 2021, STR report, the trailing three-month period (T-3) ended August 31, 2021, occupancy, average daily rate, and revenue per available room were reported at 54.0%, $114, and $62, respectively, compared with the T-3 ended August 31, 2020, values of 28.6%, $87, and $25, respectively.

At issuance, DBRS Morningstar shadow rated the following loans as investment grade: 85 Tenth Avenue Center (Prospectus ID #4, 5.6% of the pool) and Potomac Mills (Prospectus ID #14, 2.3% of the pool). DBRS Morningstar maintains that the performance of these loans remains consistent with investment-grade 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.

Classes X-A, X-B, 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 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#12–Shoreline Office Center (2.5% of the pool)
-- Prospectus ID#25–Holiday Inn Express & Suites King of Prussia (1.2% 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/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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.

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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