DBRS Morningstar Confirms Ratings on BANK 2017-BNK7

DBRS, Inc. (DBRS Morningstar) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2017-BNK7 issued by BANK 2017-BNK7 as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-S 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 (sf)
-- Class D at BBB (low) (sf)
-- Class X-E at BB (sf)
-- Class E at BB (low) (sf)
-- Class X-F at B (sf)
-- Class F at B (low) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since last review. At issuance, the transaction consisted of 65 fixed-rate loans secured by 83 commercial or multifamily properties with an aggregate balance of $1.21 billion. According to the November 2021 remittance, 64 loans remain in the pool with a collateral reduction of 2.8% since issuance, as a result of scheduled amortization and one loan that prepaid early in June 2019. Additionally, one loan, which represents 1.4% of the current pool balance, is defeased.

As of the November 2021 remittance report, there were 14 loans, representing 15.5% of the current pool balance, on the servicer’s watchlist and one loan, representing 1.1% of the current pool balance, in special servicing. Of the loans on the servicer’s watchlist, five loans, representing 1.7% of the current pool balance, were secured by co-operative housing properties. The three largest loans on the servicer’s watchlist, all of which are in the top 15, representing a combined 11.0% of the current pool balance, are all secured by hotel assets. These three watchlisted loans are being monitored for low debt service coverage ratios (DSCR) related to the effects of the Coronavirus Disease (COVID-19) pandemic, and each was granted relief in the form of a forbearance allowing the borrowers to use furniture, fixtures, and equipment (FF&E) reserve funds to make debt service payments and deferral of FF&E contribution requirements for a three-month period. As of November 2021, updated financials were provided for two of the three properties and showed improving occupancy and DSCR, though still below the breakeven threshold. The three loans remain current.

The fourth-largest loan on the servicer’s watchlist is 8532 Melrose Avenue (Prospectus ID#21; 1.2% of the current pool balance). The loan is secured by a small retail property in West Hollywood, California. The loan is being monitored for the January 2022 lease expiry for the largest tenant, Lululemon USA (59.1% of the net rentable area). The servicer has confirmed that the lease was extended to September 2027, one month past loan maturity; however, the renewal significantly reduced the tenant’s rental rate to $160 per square foot (psf) from the $240 psf rate at issuance, with a free rent period for the first nine months of 2022. The free rent period notwithstanding, DBRS Morningstar estimates that this new rental rate will result in a DSCR decline to below 1.50 times (x), based on the YE2019 revenue figure and reported DSCR of 1.90x.

The one loan in special servicing is HGI Memphis Wolfchase Galleria (Prospectus ID#23; 1.1% of the current pool balance). The loan is secured by the borrower’s fee-simple interest in a 124-room select-service hotel in Cordova, Tennessee, approximately 12 miles northeast of the Memphis central business district. The loan was transferred to special servicing in May 2020 for an imminent monetary default related to the effects of the pandemic. In June 2021, the borrower managed to bring the loan current, and the servicer reports that the workout negotiations remained ongoing as of the most recent commentary. The most recent financials provided are for the trailing 12 months ended June 30, 2021, with a DSCR below breakeven at 0.75x but up from 0.13x at YE2020, suggesting hotel performance is trending in the right direction.

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, 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#21 – 8532 Melrose Avenue (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 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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