DBRS Morningstar Confirms Ratings on All Classes of Citigroup Commercial Mortgage Trust 2017-B1

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on all classes of the Commercial Mortgage Pass-Through Certificates, Series 2017-B1 issued by Citigroup Mortgage Trust 2017-B1 as follows:

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

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which generally remains in line with DBRS Morningstar’s expectations since the last rating action in November 2022. While there are increased risks for a handful of loans, including two specially serviced loans representing 2.0% of the pool balance, reported performance metrics for the majority of the pool have been strong, evidenced by the pool’s healthy weighted-average (WA) debt service coverage ratio (DSCR) of 2.44 times (x). DBRS Morningstar recognizes that the transaction’s office concentration of nine office loans, representing 32.5% of the pool balance, poses increased credit risk as uncertainty around the future demand for the property type looms. In the analysis for this review, certain loans backed by office properties and other properties exhibiting declines in performance from issuance or demonstrating increased risks from issuance were analyzed with stressed scenarios to increase the expected losses as applicable. The resulting WA expected loss for the office loans in the pool is about 45% higher than the pool’s average expected loss.

As of the August 2023 remittance, 45 of the original 48 loans remain in the pool, with an aggregate trust balance of $848.1 million, representing a collateral reduction of approximately 9.9% since issuance as a result of repayment and scheduled loan amortization. Five loans, representing 4.0% of the pool, have been fully defeased. In addition to the two previously mentioned specially serviced loans, there are six loans, representing 10.5% of the pool, being monitored on the servicer’s watchlist for various concerns, including declining DSCR, recent and/or upcoming tenant rollover risk, and lack of updated financials.

The largest loan on the servicer’s watchlist, Wellington Commercial Condo (Prospectus ID#10, 3.5% of the pool balance), is secured by the borrower's fee-simple interest in a 42,380-square-foot (sf) anchored retail property in Upper East Side Manhattan at the base of a 156-unit luxury apartment building. The loan was added to the servicer’s watchlist in 2018 for a low DSCR. Based on the financials for the trailing six months (T-6) ended June 30, 2023, the loan reported a DSCR of 1.63x, an improvement from the YE 2022, YE2021, and YE2020 figures of 0.83x, 1.08x, and 0.96x, respectively. Servicer reported occupancy of 100% at June 2023 is unchanged from YE2022 and represents a significant increase from 65% at YE2021 and YE2020 after new tenant 82Roses LLC took occupancy of 43.1% of the net rentable area (NRA) in 2022 with a lease expiration in November 2037.

The second-largest loan on the servicer’s watchlist, TKG 4 Retail Portfolio (Prospectus ID#12, 2.9% of the pool balance), is secured by the borrower's fee-simple interests in a portfolio of two anchored retail properties with a combined 301,530 sf located in Ohio and Nebraska. The loan was added to the servicer’s watchlist in 2021 for a low DSCR, reported at 1.08x, which has since declined to 0.9x as of YE2022. Occupancy has fluctuated between 80% and 91% since YE2020 but the spikes in occupancy are attributable to a seasonal tenant, Spirit Halloween, leaving a significant chunk of space vacant more than half of the year. Given the concerns surrounding the prolonged decline in DSCR and occupancy, DBRS Morningstar applied a probability of default penalty in its analysis, resulting in an expected loss that was nearly four times the pool’s WA expected loss.

The third-largest loan on the servicer’s watchlist, 6 West 48th Street (Prospectus ID#19, 1.8% of the pool balance), is secured by a 78,450-sf office space in New York’s Midtown neighborhood, built in 1918 and renovated in 1989. Servicer reported occupancy and DSCR as of YE2022 declined to 11.0% and 0.86x, respectively, from 64.0% and 1.81x at YE2021, after multiple tenants vacated. These included Rockefeller Philanthropy Advisory Group, which vacated a space representing 24% of the NRA at lease expiration in October 2022, moving its headquarters to lower Manhattan. According to the servicer, as of June 2023, the DSCR has declined further to -1.31x. Given the property’s vintage combined with the shift in workplace dynamics resulting in challenges for older properties, DBRS Morningstar anticipates there will be significant challenges stabilizing the property back to historical occupancy levels. Consequently, DBRS Morningstar applied a stressed loan-to-value ratio and increased the probability of default penalty, resulting in an expected loss approximately 6.5 times that of the pool average.

The transaction benefits from four loans that are shadow-rated investment grade: General Motors Building (Prospectus ID#1, 10.9% of the pool), Lakeside Shopping Center (Prospectus ID#2, 7.0% of the pool), Two Fordham Square (Prospectus ID#5, 6.2% of the pool), and Del Amo Fashion Center (Prospectus ID#18, 2.4% of the pool). With this review, DBRS Morningstar confirms that the performance of these four loans is consistent with the investment-grade shadow ratings.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/416784 (July 4, 2023).

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 DBRS Morningstar.

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

The principal methodology is North American CMBS Surveillance Methodology (March 16, 2023) https://www.dbrsmorningstar.com/research/410912.

Other methodologies referenced in this transaction are listed at the end of this press release.

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 credit rating was initiated at the request of the rated entity.

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

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

This is a solicited credit rating.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

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://www.dbrsmorningstar.com/about/methodologies.

North American CMBS Multi-Borrower Rating Methodology (March 16, 2023)/North American CMBS Insight Model version 1.1.0.0, https://www.dbrsmorningstar.com/research/410913

Rating North American CMBS Interest-Only Certificates (December 19, 2022), https://www.dbrsmorningstar.com/research/407577

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 12, 2022), https://www.dbrsmorningstar.com/research/402646

North American Commercial Mortgage Servicer Rankings (August 23, 2023), https://www.dbrsmorningstar.com/research/419592

Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023), https://www.dbrsmorningstar.com/research/415687

Legal Criteria for U.S. Structured Finance (December 7, 2022), https://www.dbrsmorningstar.com/research/407008

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