DBRS Morningstar Confirms Ratings on All Classes of COMM 2016-CCRE28 Mortgage Trust

DBRS, Inc. (DBRS Morningstar) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2016-CCRE28 issued by COMM 2016-CCRE28 Mortgage Trust:

-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-HR at AAA (sf)
-- Class A-M at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-HR at AAA (sf)
-- Class XP-A at AAA (sf)
-- Class B at AA (sf)
-- Class X-B at A (high) (sf)
-- Class C at A (sf)
-- Class D at BBB (high) (sf)
-- Class X-C at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class X-D at BBB (low) (sf)
-- Class F at BB (high) (sf)
-- Class G at BB (low) (sf)
-- Class X-E at B (sf)
-- Class H at B (low) (sf)

Classes F, G, H, X-D and X-E continue to carry Negative trends because of concerns associated with loans in special servicing as well as the pool’s high percentage of loans secured by retail and hospitality properties, which have been disproportionately affected by the ongoing Coronavirus Disease (COVID-19) pandemic. The other rated classes have Stable trends. In total, there are 23 loans in the transaction that are secured by hotel and retail properties, representing 39.6% of the current pool balance. As of the November 2021 reporting, there are three loans in special servicing, representing 2.7% of the current pool balance. Two of the properties are secured by hospitality properties in Texas, while the remaining loan is secured by an office building in Albuquerque, New Mexico. All three loans are real estate owned as foreclosure occurred in 2021. DBRS Morningstar’s largest forecast loss is associated with the largest loan in special servicing, Holiday Inn Fort Worth North Fossil Creek (Prospectus ID#28; 1.2% of the pool). Based on an updated appraisal completed in July 2021, DBRS Morningstar is forecasting a loss severity of more than 75%.

At issuance, the transaction consisted of 49 loans secured by commercial and multifamily properties, with an aggregate trust balance of $1.0 billion. As of the November 2021 remittance, 48 loans remain in the pool with a trust balance of $948.6 billion, representing a collateral reduction of 7.6% since issuance. While all of the rated classes are receiving their full interest payments, Class J (not rated by DBRS Morningstar) reported an interest shortfall of $1.1 milion as of the November 2021 remittance. Since the last DBRS Morningstar rating action, the Hilton Garden Inn Albany (Prospectus ID#28; 1.1% of the issuance trust balance), which was previously in special servicing, liquidated for a minimal loss to the trust.

There are nine loans on the servicer’s watchlist, representing 24.1% of the current pool balance. The largest, Equitable City Center (Prospectus ID#6; 5.8% of the pool), is secured by the borrower's fee-simple interest in a 165,257-square-foot (sf) anchored retail property in the Koreatown neighborhood of Los Angeles. The loan previously transferred to special servicing in August 2020 for payment default and returned back to the master servicer in June 2021 after receiving short-term forbearance. The forbearance included deferring interest payments between April 2020 through December 2020 and delaying the commencement of loan amortization to July 2021 from January 2021.

The property’s performance has been declining in recent years after occupancy decreased to its current level of 70% after the property’s second-largest tenant, Crystal Spa and Sauna of Los Angeles (9.3% of the net rentable area) vacated in July 2020. The two largest tenants remaining are H-Mart, which occupies 18% of the gross leasable area (GLA) on a lease through February 2030, and Seung Ae, which occupies 6% of the GLA on a lease through 2025. Outside of the two largest tenants, the rent roll is fairly granular as no other tenant represents more than 5% of the GLA.

As of YE2020, net cash flow declined by 26% compared with issuance while still covering at a 1.30 times (x) debt service coverage ratio (DSCR). The property was reappraised in September 2020, which valued the subject at $75.6 million, virtually unchanged from the at-issuance appraisal of $76.0 million.

The second-largest loan on the servicer’s watchlist is the Hyatt Regency St. Louis at the Arch loan (Prospectus ID#5; 5.31% of the pool). The $50.4 million loan is secured by the borrower's fee-simple interest in a 910-room full-service hotel adjacent to the Gateway Arch in downtown St. Louis. The hotel encompasses 1.1 million sf and is the second-largest hotel in the downtown area. Constructed in 1986, the hotel underwent more than $40.0 million in renovations between 2008 and 2009. The loan is on the servicer’s watchlist for coronavirus-related concerns after the borrower received coronavirus relief that included withdrawing funds from the capital fund to cover operating shortfalls between April 2020 and June 2020 as well as suspending deposits to the capital fund. The loan maintained stable performance prior to the pandemic, as the YE2019 net cash flow was 20.6% higher compared with issuance. The loan had a stable DSCR of 2.15x during this time period. At issuance, the collateral was appraised for $154.9 million, which implies a loan-to-value ratio of 70%.

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-HR, XP-A, X-B, X-C, X-D, and X-E 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 – Hyatt Regency St. Louis at the Arch (5.3% of the pool)
-- Prospectus ID#6 – Equitable City Center (5.8% 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 the 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 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.

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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