Approximately $490.7 million of structured securities affected
New York, March 29, 2023 — Moody’s Investors Service, (“Moody’s”) has affirmed the ratings on six classes in CD 2016-CD1 Mortgage Trust as follows:
Class A-3, Affirmed Aaa (sf); previously on Oct 5, 2021 Affirmed Aaa (sf)
Class A-4, Affirmed Aaa (sf); previously on Oct 5, 2021 Affirmed Aaa (sf)
Class A-SB, Affirmed Aaa (sf); previously on Oct 5, 2021 Affirmed Aaa (sf)
Class A-M, Affirmed Aa3 (sf); previously on Oct 5, 2021 Affirmed Aa3 (sf)
Class B, Affirmed A2 (sf); previously on Oct 5, 2021 Affirmed A2 (sf)
Class X-A*, Affirmed Aa1 (sf); previously on Oct 5, 2021 Affirmed Aa1 (sf)
* Reflects Interest-Only Classes
RATINGS RATIONALE
The ratings on the P&I classes were affirmed because of their credit support and the transaction’s key metrics, including Moody’s loan-to-value (LTV) ratio, Moody’s stressed debt service coverage ratio (DSCR) and the transaction’s Herfindahl Index (Herf), are within acceptable ranges.
The rating on the IO class was affirmed based on the credit quality of the referenced classes.
Moody’s rating action reflects a base expected loss of 6.5% of the current pooled balance, compared to 7.0% at Moody’s last review. Moody’s base expected loss plus realized losses is now 5.6% of the original pooled balance, compared to 6.3% at the last review. Moody’s provides a current list of base expected losses for conduit and fusion CMBS transactions on moodys.com at http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF215255.
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:
The performance expectations for a given variable indicate Moody’s forward-looking view of the likely range of performance over the medium term. Performance that falls outside the given range can indicate that the collateral’s credit quality is stronger or weaker than Moody’s had previously expected.
Factors that could lead to an upgrade of the ratings include a significant amount of loan paydowns or amortization, an increase in the pool’s share of defeasance or an improvement in pool performance.
Factors that could lead to a downgrade of the ratings include a decline in the performance of the pool, loan concentration, an increase in realized and expected losses from specially serviced and troubled loans or interest shortfalls.
METHODOLOGY UNDERLYING THE RATING ACTION
The methodologies used in rating all classes except interest-only classes were “Large Loan and Single Asset/Single Borrower Commercial Mortgage-Backed Securitizations Methodology” published in July 2022 and available at https://ratings.moodys.com/api/rmc-documents/391055 and “US and Canadian Conduit/Fusion Commercial Mortgage-Backed Securitizations Methodology” published in July 2022 and available at https://ratings.moodys.com/api/rmc-documents/391056. The methodologies used in rating interest-only classes were “Large Loan and Single Asset/Single Borrower Commercial Mortgage-Backed Securitizations Methodology” published in July 2022 and available at https://ratings.moodys.com/api/rmc-documents/391055, “US and Canadian Conduit/Fusion Commercial Mortgage-Backed Securitizations Methodology” published in July 2022 and available at https://ratings.moodys.com/api/rmc-documents/391056 and “Moody’s Approach to Rating Structured Finance Interest-Only (IO) Securities” published in February 2019 and available at https://ratings.moodys.com/api/rmc-documents/59126. Please see the list of ratings at the top of this announcement to identify which classes are interest-only (indicated by the *). Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of these methodologies.
DEAL PERFORMANCE
As of the March 10, 2023 distribution date, the transaction’s aggregate certificate balance has decreased by 15% to $595.8 million from $703.2 million at securitization. The certificates are collateralized by 30 mortgage loans ranging in size from less than 1% to 10.9% of the pool, with the top ten loans (excluding defeasance) constituting 71.1% of the pool. Two loans, constituting 15.9% of the pool, have investment-grade structured credit assessments. Six loans, constituting 6.2% of the pool, have defeased and are secured by US government securities.
Moody’s uses a variation of Herf to measure the diversity of loan sizes, where a higher number represents greater diversity. Loan concentration has an important bearing on potential rating volatility, including the risk of multiple notch downgrades under adverse circumstances. The credit neutral Herf score is 40. The pool has a Herf of 14, compared to 17 at Moody’s last review.
As of the March 2023 remittance report, loans representing 95.9% were current or within their grace period on their debt service payments and the remaining 4.1% were in foreclosure.
Seven loans, constituting 32.1% of the pool, are on the master servicer’s watchlist. The watchlist includes loans that meet certain portfolio review guidelines established as part of the CRE Finance Council (CREFC) monthly reporting package. As part of Moody’s ongoing monitoring of a transaction, the agency reviews the watchlist to assess which loans have material issues that could affect performance.
One loan has been liquidated from the pool, resulting in an aggregate realized loss of $360,650 (a loss severity of 1.6%). Three loans, constituting 5.0% of the pool, are currently in special servicing. Two of the specially serviced loans, representing 4.1% of the pool, have transferred to special servicing since March 2020.
The largest specially serviced loan is the 401 South State Street loan ($14.0 million 2.3% of the pool), which represents a pari passu portion of a $42.4 million first mortgage. The loan is secured by a fee simple interest in a 479,522 square foot (SF) office building and a 7,500 SF one-story commercial building located in Chicago, Illinois. The loan transferred to special servicing in June 2020 for payment default. The major tenant, Robert Morris University (75% of the NRA) vacated and stopped paying rent in April 2020. The property is currently 100% vacant. As of the March 2023 remittance report, the loan was last paid through its March 2020 payment date. The loan has amortized 11% since securitization. The foreclosure sale occurred in March 2023 and is in the process of being confirmed.
The remaining two specially serviced loans are secured by a retail center in Hawaii and a limited-service hotel in Cocoa Beach, Florida. Moody’s estimates an aggregate $13.2 million loss for the specially serviced loans (53% expected loss on average).
Moody’s has also assumed a high default probability for one poorly performing loan. The Embassy Suites Columbus loan ($21.2 million 3.6% of the pool) is secured by a 198-key hotel full-service hotel located in Columbus, Ohio. The loan had transferred to special servicing in June 2020 due to imminent default at the borrower’s request in relation to business disruptions from the pandemic. The loan was modified and returned to the master servicer in December 2022.
The credit risk of loans is determined primarily by two factors: 1) Moody’s assessment of the probability of default, which is largely driven by each loan’s DSCR, and 2) Moody’s assessment of the severity of loss upon a default, which is largely driven by each loan’s loan-to-value ratio, referred to as the Moody’s LTV or MLTV. As described in the CMBS methodology used to rate this transaction, we make various adjustments to the MLTV. We adjust the MLTV for each loan using a value that reflects capitalization (cap) rates that are between our sustainable cap rates and market cap rates. We also use an adjusted loan balance that reflects each loan’s amortization profile. The MLTV reported in this publication reflects the MLTV before the adjustments described in the methodology.
Moody’s received full year 2021 operating results for 88% of the pool, and full or partial year 2022 operating results for 92% of the pool (excluding specially serviced and defeased loans). Moody’s weighted average conduit LTV is 118%, compared to 120% at Moody’s last review. Moody’s conduit component excludes loans with structured credit assessments, defeased and CTL loans, and specially serviced and troubled loans. Moody’s net cash flow (NCF) reflects a weighted average haircut of 18.2% to the most recently available net operating income (NOI), excluding one regional mall that had significantly depressed NOI in 2021. Moody’s value reflects a weighted average capitalization rate of 10.2%.
Moody’s actual and stressed conduit DSCRs are 1.60X and 0.96X, respectively, compared to 1.44X and 0.94X at the last review. Moody’s actual DSCR is based on Moody’s NCF and the loan’s actual debt service. Moody’s stressed DSCR is based on Moody’s NCF and a 9.25% stress rate the agency applied to the loan balance.
The largest loan with a structured credit assessment is the 10 Hudson Yards loan ($65 million — 10.9% of the pool), which represents a pari passu portion of a $708.1 million first mortgage loan. The property is also encumbered with a $191.9 million B-Note and $300.0 million in mezzanine debt. The loan is secured by the fee interest in a 52-story mixed-use office tower containing 1.8 million SF of office, retail, and storage space. The property is located on the corner of 30th Street and 10th Avenue in New York City and was the first tower in the entire Hudson Yards development to be completed and leased. The property has also received a LEED Platinum certification. The five largest tenants at 10 Hudson Yards are Tapestry (38% of NRA), L’Oréal (23% of NRA), Boston Consulting Group (11% of NRA), SAP America (8% of NRA), and Intersection (4% of NRA). As of September 2022, the property was 98% leased, compared to 100% in 2021 and 93% at securitization. The loan is interest-only through its entire term and Moody’s structured credit assessment and stressed DSCR are aa1 (sca.pd) and 1.27X, respectively.
The other loan with a structured credit assessment is the Vertex Pharmaceuticals HQ Loan ($30.0 million 5.0% of the pool), which represents a pari passu portion of a $425 million senior mortgage. The property is also encumbered with $195 million of mezzanine debt. The loan is secured by the borrower’s fee simple interest in a two-building, Class-A office complex located in the Seaport District of Boston, Massachusetts. The 15-story buildings were built-to-suit between 2011 and 2013 to serve as corporate headquarters for Vertex Pharmaceutical Incorporated. Both buildings have achieved LEED Gold certification. Vertex leases 100% of the office (429,147 SF), lab (476,670 SF) and mechanical (164,736 SF) space through December 2028. In addition, the property consists of 49,906 SF of ground floor retail and associated storage space leased to multiple tenants. Due to the significant tenant concentration, Moody’s value incorporated a lit/dark analysis. Moody’s structured credit assessment and stressed DSCR are aa1 (sca.pd) and 1.52X, respectively.
The top three conduit loans represent 28% of the pool balance. The largest loan is the Fiserv at 2900 Westside loan ($60.8 million 10.2% of the pool), which is secured by the leasehold interest in two, six-story, office buildings located in Alpharetta, Georgia, approximately 23 miles north of the Atlanta CBD. To obtain and maintain certain real property tax abatements, the predecessor to the borrower entered into a municipal bond structure with the local development authority, exchanging fee interest in the property for leasehold interest and certain municipal bonds. The borrower is entitled to purchase fee interest back any time prior to December 31, 2025 in exchange for ending the tax abatement structure. Both buildings were constructed in 2001 for a total of 376,351 SF and connected by a 17,773 SF lobby and a sky bridge. The property is 100% leased to Fiserv under a triple-net lease that expires in December 2027. Due to the single-tenant exposure, Moody’s value incorporated a lit/dark analysis. After an initial three-year interest-only period, the loan has amortized 6.4% since securitization. Moody’s LTV and stressed DSCR are 131% and 0.89X, respectively, compared to 135% and 0.87X at the last review.
The second largest loan the Westfield San Francisco Centre Loan ($60.0 million 10.1% of the pool), which represents a pari-passu portion of a $433 million first-mortgage loan. The total mortgage debt also includes subordinate B-notes with an aggregate balance of $125 million, which is held outside the trust. The loan is secured by a 794,521 SF component of a 1,445,449 SF, nine-story super regional mall and office development located in the Union Square district of San Francisco, California. The mall is anchored by Bloomingdale’s, Nordstrom, and a 9-screen Century Theatre. As of September 2022, the collateral was 52% occupied, compared to collateral occupancy of 90% in December 2019, 92% in December 2018 and 96% at securitization. Multiple large tenants have vacated since securitization including the former largest tenant at securitization (16% of the total collateral NRA and 52% of the office NRA) as well as Crunchyroll (71,614 SF) and Trustarc (28,217 SF). As a result of the lower occupancy, the property’s NOI has declined significantly since securitization. Westfield America, the borrower, a subsidiary of Unibail-Rodamco-Westfield, has indicated intentions to sell the property, as part of greater plans to divest US holdings. The loan is interest only for its entire term and Moody’s LTV and stressed DSCR are 122% and 0.94X, respectively.
The third largest loan is the Prudential Plaza loan ($47.1 million — 7.9% of the pool), which represents a pari passu portion of a $391.1 million first-mortgage loan. The loan is secured by the fee interest in two Class A office towers totaling 2.3 million SF located in Chicago’s East Loop submarket. One Prudential Plaza is a 41-story 1.3 million SF building and two Prudential Plaza is a 64-story, 1 million SF building. The two towers are connected by a public mezzanine level that contains approximately 60,000 SF of restaurant and retail space. As of December 2022, the property was 83% leased, up from 81% in 2021 and 72% at securitization. Moody’s LTV and stressed DSCR are 130% and 0.77X, respectively, compared to 133% and 0.75X at the last review.
REGULATORY DISCLOSURES
For further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.
The analysis includes an assessment of collateral characteristics and performance to determine the expected collateral loss or a range of expected collateral losses or cash flows to the rated instruments. As a second step, Moody’s estimates expected collateral losses or cash flows using a quantitative tool that takes into account credit enhancement, loss allocation and other structural features, to derive the expected loss for each rated instrument.
Moody’s did not use any stress scenario simulations in its analysis.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.
Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.
Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.
Nicola Gomes
Asst Vice President – Analyst
Structured Finance Group
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Romina Padhi
VP – Senior Credit Officer
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
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