Fitch Affirms CD 2017-CD3.
KEY RATING DRIVERS
Stable Performance: The overall pool performance remains stable from issuance. There are no delinquent or specially serviced loans. As of the January 2018 distribution date, the pool's aggregate balance has been reduced by 0.33% to $1.32 billion from $1.33 billion at issuance. The largest loan in the pool is currently on the servicer's watchlist.
Largest Loan: The largest loan, 229 West 43rd Street Retail Condo (7.6% of current pool), is secured by a six-floor, 245,132-square foot retail condominium located along West 43rd and 44th Streets in the Times Square area of Manhattan.
As of the September 2017 rent roll, the property was fully leased to eight tenants, including Bowlmor (31.6% of net rentable area [NRA]; lease expiry in July 2034), National Geographic (24.1%; October 2032), Gulliver's Gate (18.6%; January 2031) and Guitar Center Stores (11.5%; January 2029); however, physical occupancy was 88.7%. One restaurant tenant, Guy's American Bar & Kitchen (6.4%), vacated on Dec. 31, 2017, ahead of its scheduled November 2032 lease expiration. The tenant's base rent is considered below-market at $118.25 psf. Fitch requested an update from the servicer on the tenant's lease status and intentions, but it was not provided. Another restaurant tenant, OHM Group (The American Market by Todd English; 4.9% of NRA), has not yet opened for business. The tenant was originally expected to take occupancy in late 2017. Fitch requested an update from the servicer on the tenant's expected opening date, but it was not provided.
The loan reported a low net cash flow (NCF) debt service coverage ratio (DSCR) of 0.86x for the first half of 2017. This is primarily due to four tenants, which signed leases at the time of issuance, including National Geographic, Gulliver's Gate, OHM (The American Market by Todd English) and Los Tacos (0.7% of NRA), having free rent periods. At issuance, the borrower deposited $11.1 million into an upfront reserve for rent concessions for these tenants. For the first half of 2017, rent concessions totaled $4.3 million, which would bring DSCR up to 2.30x. In addition, the property benefits from an Industrial Commercial Incentive Program (ICIP) tax abatement. The tax exemption has entered its phase out period, beginning the 2017/2018 tax year with burn-off by 20% per year until 2021.
Higher Fitch Leverage: The pool's Fitch DSCR and loan-to-value (LTV) for the trust are 1.14x and 108.4%, respectively, compared to 1.21x and 105.2%, respectively, for Fitch-rated transactions in 2016.
High Percentage of Investment-Grade Credit Opinion Loans: Two loans (10.2% of pool) have investment-grade credit opinions, which is above the 2016 average of 8.4%. The third largest loan, 85 Tenth Avenue (5.7%), has an investment-grade credit opinion of 'BBBsf' on a stand-alone basis. Hilton Hawaiian Village Waikiki Beach Resort (4.5%) has an investment-grade credit opinion of 'BBB-sf' on a stand-alone basis.
Pool Concentrations: The top 10 loans comprise 52.6% of the pool. Office properties comprise 53.9% of the pool. Geographic concentrations include New York City (31.3% of pool) and California (19.6%).
Below-Average Amortization: Sixteen loans (51.2% of pool) are full-term interest-only and 16 loans (27.2%) are partial interest-only, compared to 33.3% and 33.3%, respectively, for Fitch-rated transactions in 2016. The pool is scheduled to amortize by 6.9% of the initial pool balance prior to maturity, well below the respective 2016 average of 10.4%.
Additional Debt: Two loans (10.2% of pool) have secured subordinate secured debt and four loans (19%) have mezzanine or preferred equity financing. The transaction has a Fitch DSCR and LTV on the total debt of 1.03x and 119.6%, respectively.
The Rating Outlooks for all classes remain Stable due to overall stable collateral performance and no material changes since issuance. Fitch does not foresee positive or negative ratings migration unless a material economic or asset level event changes the underlying transaction's portfolio-level metrics.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10
No third-party due diligence was provided or reviewed in relation to this rating action.
Fitch has affirmed the following ratings:
--$24.9 million class A-1 at 'AAAsf'; Outlook Stable;
--$38.3 million class A-2 at 'AAAsf'; Outlook Stable;
--$200 million class A-3 at 'AAAsf'; Outlook Stable;
--$589.3 million class A-4 at 'AAAsf'; Outlook Stable;
--$54.8 million class A-AB at 'AAAsf'; Outlook Stable;
--$78.1 million class A-S at 'AAAsf'; Outlook Stable;
--$61.9 million class B at 'AA-sf'; Outlook Stable;
--$63.5 million class C at 'A-sf'; Outlook Stable;
--$76.5 million(a) class D 'BBB-sf'; Outlook Stable;
--$35.8 million(a)(d) class E 'BB-sf'; Outlook Stable
--$14.7 million class(a)(d) F 'B-sf'; Outlook Stable.
--$985.5 million(b) class X-A 'AAAsf'; Outlook Stable;
--$61.9 million(b) class X-B 'AA-sf'; Outlook Stable;
--$76.5 million(a)(b) class X-D 'BBB-sf'; Outlook Stable;
--$9.0 million(e) class V-A 'AAAsf'; Outlook Stable;
--$566,121(e) class V-B 'AA-sf'; Outlook Stable;
--$581,020(e) class V-C 'A-sf'; Outlook Stable;
--$700,208(e) class V-D 'BBB-sf'; Outlook Stable.
The following classes are not rated by Fitch:
--$60.2 million(a)(d) class G;
--$25.1 million class(a)(c) VRR Interest;
--$1.0 million class(e) V-E.
(a) Privately placed and pursuant to Rule 144A.
(b) Notional amount and interest only.
(c) Vertical credit risk retention interest representing 1.9% of the pool balance (as of the closing date).
(d) Horizontal credit risk retention interest representing 3.1% of the pool balance (as of the closing date).
(e) Exchangeable certificates.
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|Publication:||Daily the Pak Banker (Lahore, Pakistan)|
|Date:||Apr 14, 2018|
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