DBRS Morningstar Confirms All Ratings on Morgan Stanley Bank of America Merrill Lynch Trust 2017-C33, Changes Trends on Five Classes to Stable from Negative

DBRS Limited (DBRS Morningstar) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2017-C33 issued by Morgan Stanley Bank of America Merrill Lynch Trust 2017-C33 as follows:

-- Class A-2 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class X-A at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (high) (sf)
-- Class X-B at AA (low) (sf)
-- Class C at A (high) (sf)
-- Class X-D at BBB (high) (sf)
-- Class D at BBB (sf)
-- Class E at BB (high) (sf)
-- Class F at BB (low) (sf)

DBRS Morningstar changed the trends on Classes B, X-B, C, X-D, and D to Stable from Negative. Classes E and F continue to carry Negative trends. All other trends are Stable. The trend changes to Stable reflect the repayment of the largest loan in the pool, Hyatt Regency Austin (Prospectus ID#1, previously 8.8% of the pool). This loan had previously transferred to special servicing for monetary default but was successfully repaid in April 2021 with no loss to the trust. The Negative trends on Classes E and F reflect the continued performance challenges facing the underlying collateral as a result of the Coronavirus Disease (COVID-19) pandemic.

DBRS Morningstar notes that the pool has a high concentration of retail and office properties, representing more than 40.0% of the pool, which the coronavirus pandemic has affected most severely. The high concentration has suggested increased risks for the pool, particularly at the lower rating categories, since issuance.

As of the November 2021 remittance, 42 of the 44 original loans remain in the pool, with a collateral reduction of 13.6% since issuance as result of loan amortization. As of the November 2021 remittance, two loans are in special servicing because of ongoing difficulties caused by the coronavirus pandemic. One of these loans, Holiday Inn Express Quakertown (Prospectus ID#33, 0.9% of the current pool balance) remains 121+ days delinquent, while the other loan, Key Center Cleveland (Prospectus ID#5, 6.2% of the current pool balance), remains current.

Key Center Cleveland is secured by a mixed-use property in Cleveland. The collateral for the loan totals 2.1 million square feet (sf) and consists of a 400-key hotel, two Class A office buildings, and an underground parking garage. The property was built in 1991 and renovated in 2005. The loan was transferred to special servicing at the borrower’s request in November 2020 because of imminent default as a result of the pandemic. The loan remains current, and negotiations for temporary relief are ongoing. Per the October 2021 rent roll, the office portion of the property had an occupancy and average rental rate of 88.7% and $29.95 per sf (psf), respectively. Per the Q2 2021 reporting, the loan had a coverage of 1.41 times (x), increasing from 1.32x at YE2020. As of September 2021, the hotel portion of the collateral reported a trailing three-month (T-3) occupancy, average daily rate, and revenue per available room (RevPAR) of 60.4%, $162.64, and $98.24, respectively. The T-3 RevPAR penetration figure is 105.1%.

The second-largest tenant at Key Center Cleveland, Squire Patton Boggs (11.0% of the NRA), has a lease expiry in April 2022. In the event the tenant does not renew its lease, the property’s vacancy rate will increase to 21.4%. The property’s largest tenant, KeyBank (31.8% of the net rentable area (NRA), expiring June 2030), downsized by 44,000 sf (3.2% of the NRA) in July 2020 after giving the required 12 months’ notice and paying a $2.1 million fee. While there is a three-year lockout before the tenant can contract its footprint further, KeyBank retains two more identical options, allowing the tenant to downsize by 103,000 sf total. As of Q3 2021, the Downtown submarket reported an average asking rate and vacancy of $15.78 psf and 20.8%, respectively. Comparable properties within 1 mile of the subject had figures of $23.89 psf and 14.6%.

There are also nine loans, representing 19.2% of the current pool balance, on the servicer watchlist, which were generally added for performance declines related to increased vacancy or rent collection issues. The largest loan on the servicer’s watchlist, D.C. Office Portfolio (Prospectus ID#8, 5.6% of the current pool balance), is secured by three Class B office buildings in Washington, D.C. DBRS Morningstar is highlighting the loan because of a decline in net cash flow and increased vacancy. The April 2020 departure of The Daily Caller, Inc. (12.6% of the NRA) at 1920 L Street reduced the overall occupancy rate to 73.4%. As of Q2 2021, the property had an occupancy and average rental rate of 70.3% and $46.45 psf, respectively. Also at Q2 2021, the loan reported an annualized debt service coverage ratio of 0.96x, dropping from 1.28x at YE2020 and the issuance figure of 1.71x.

The decline in net cash flows is partially due to government mandates to shut down businesses amid the pandemic, resulting in some tenants paying partial rent or, in some cases, not paying rent at all. The borrower has worked with tenants, allowing them to defer payments, and has forgiven some delinquencies. As of June 2021, the borrower reported an increase in prospective leasing action at the collateral. As of Q3 2021, the Downtown submarket reported an average asking rent and vacancy of $55.41 psf and 14.6%, respectively. Comparable properties within 1 mile of the subject reported figures of $50.38 psf and 20.3%, respectively.

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#5 – Key Center Cleveland (6.2% of the pool)
-- Prospectus ID#8 – D.C. Office Portfolio (5.6% 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.

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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