CD 2017-CD5 Mortgage Trust -- Moody's affirms seven classes of CD 2017-CD5

Rating Action: Moody's affirms seven classes of CD 2017-CD5Global Credit Research - 01 Apr 2021Approximately $710 million of structured securities affectedNew York, April 01, 2021 -- Moody's Investors Service, ("Moody's") has affirmed the ratings on seven classes in CD 2017-CD5 Mortgage Trust, Commercial Mortgage Pass-Through Certificates, Series 2017-CD5 as follows:Cl. A-1, Affirmed Aaa (sf); previously on Aug 9, 2018 Affirmed Aaa (sf)Cl. A-2, Affirmed Aaa (sf); previously on Aug 9, 2018 Affirmed Aaa (sf)Cl. A-3, Affirmed Aaa (sf); previously on Aug 9, 2018 Affirmed Aaa (sf)Cl. A-4, Affirmed Aaa (sf); previously on Aug 9, 2018 Affirmed Aaa (sf)Cl. A-AB, Affirmed Aaa (sf); previously on Aug 9, 2018 Affirmed Aaa (sf)Cl. A-S, Affirmed Aa3 (sf); previously on Aug 9, 2018 Affirmed Aa3 (sf)Cl. X-A*, Affirmed Aa1 (sf); previously on Aug 9, 2018 Affirmed Aa1 (sf)* Reflects interest-only classesRATINGS RATIONALEThe ratings on six principal and interest (P&I) classes were affirmed due to 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 interest-only (IO) class, Class X-A, was affirmed based on the credit quality of the referenced classes.The coronavirus pandemic has had a significant impact on economic activity. Although global economies have shown a remarkable degree of resilience to date and are returning to growth, the uneven effects on individual businesses, sectors and regions will continue throughout 2021 and will endure as a challenge to the world's economies well beyond the end of the year. While persistent virus fears remain the main risk for a recovery in demand, the economy will recover faster if vaccines and further fiscal and monetary policy responses bring forward a normalization of activity. As a result, there is a heightened degree of uncertainty around our forecasts. Our analysis has considered the effect on the performance of commercial real estate from a gradual and unbalanced recovery in US economic activity. Stress on commercial real estate properties will be most directly stemming from declines in hotel occupancies (particularly related to conference or other group attendance) and declines in foot traffic and sales for non-essential items at retail properties.We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.Moody's rating action reflects a base expected loss of 5.8% of the current pooled balance, compared to 4.2% at Moody's last review. Moody's base expected loss plus realized losses is now 5.7% of the original pooled balance, compared to 4.2% 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 RATINGSThe 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 ACTIONThe principal methodology used in rating all classes except interest-only classes was "Approach to Rating US and Canadian Conduit/Fusion CMBS" published in September 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1244778. The methodologies used in rating interest-only classes were "Approach to Rating US and Canadian Conduit/Fusion CMBS" published in September 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1244778 and "Moody's Approach to Rating Structured Finance Interest-Only (IO) Securities" published in February 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1111179. 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 www.moodys.com for a copy of these methodologies. DEAL PERFORMANCEAs of the March 17, 2021 distribution date, the transaction's aggregate certificate balance has decreased by 2.2% to $910.8 million from $931.6 million at securitization. The certificates are collateralized by 48 mortgage loans ranging in size from less than 1% to 11.0% of the pool, with the top ten loans (excluding defeasance) constituting 52.5% of the pool. Two loans, constituting 17.6% of the pool, have investment-grade structured credit assessments. One loan, constituting 0.8% 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 25, the same as at Moody's last review.As of the March 2021 remittance report, loans representing 96% were current or within their grace period on their debt service payments, 4% were between 30-59 days delinquent and less than 1% were 90 days or more delinquent.Eleven loans, constituting 29.2% of the pool, are on the master servicer's watchlist, of which two loans, representing 11% of the pool, indicate the borrower has requested relief/received loan modifications in relation to coronavirus impact on the property. 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.No loans have been liquidated from the pool and three loans, constituting 6.3% of the pool, are currently in special servicing. All of the specially serviced loans have transferred to special servicing since March 2020.The largest specially serviced loan is the Embassy Suites Anaheim Orange Loan ($33.0 million -- 3.6% of the pool), which is secured by a 230-room, full-service hotel located in Orange, California. The property was also encumbered with a $8.0 million mezzanine debt at securitization. The demand segmentation at securitization was 87% transient and 13% meeting and group. The loan was transferred to special servicing in May 2020 for imminent monetary default at the borrower's request as a result of the coronavirus pandemic. The special servicer has since processed and approved the mezzanine lender's assumption and reinstatement of the loan. The loan is still within its initial five-year interest-only period and is 30-59 days delinquent.The second largest specially serviced loan is the Gurnee Mills Loan ($18.7 million -- 2.1% of the pool), which represents a pari-passu portion of a $256.4 million mortgage loan. The loan is secured by a 1.7 million square feet (SF) portion of a 1.9 million SF regional mall located in Gurnee, Illinois, approximately 43 miles northwest of the Chicago central business district (CBD). The anchors include Macy's, Bass Pro Shops, Kohl's (each part of the collateral) and Burlington Coat Factory (non-collateral). There is a vacant collateral anchor box, a former Sears (201,000 SF) which vacated in 2018. The sponsor, Simon Property Group, is considering splitting the former Sears space into three separate boxes and has had discussions with several tenants to lease the smaller spaces. The mall offers shoppers entertainment attractions including two international food courts, multiple themed restaurants, a 19 screen Marcus Cinema (non-collateral and currently open), Serpent Safari's reptile exhibit, Rink Side Sports Family Entertainment Center, and a 30,000-gallon freshwater aquarium and an archery/shooting range in the Bass Pro Shops. As of September 2020, the collateral was 75% leased and the total property was 78% occupied. The loan transferred to special servicing in June 2020 due to imminent monetary default as a result of the pandemic. The special servicer and borrower entered into a forbearance agreement on December 31, 2020, and the loan is in the process of being returned to the master servicer. The loan has amortized 4.9% since securitization and is current through its March 2021 payment.The remaining specially serviced loan is secured by a 6,316 SF mixed-use property located in New York, New York. Moody's estimates an aggregate $10.7 million loss for the specially serviced loans (21% expected loss on average).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 2019 operating results for 99% of the pool, and partial year 2020 operating results for 59% of the pool (excluding specially serviced and defeased loans). Moody's weighted average conduit LTV is 119%, compared to 116% 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 16.3% to the most recently available net operating income (NOI). Moody's value reflects a weighted average capitalization rate of 10.3%.Moody's actual and stressed conduit DSCRs are 1.62X and 0.95X, respectively, compared to x1.69X and 0.97X 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 General Motors Building Loan ($100.0 million -- 11.0% of the pool), which represents a pari-passu portion of a $1.5 billion senior mortgage loan with $830.0 million in subordinate debt. The loan is secured by a 50-story, Class A, office building comprised of approximately 2 million SF and includes 188,000 SF of a two-story and below-grade concourse retail space that wraps around the base of the building. The property is located in New York, New York and spans the entire city block bound by 58th Street, 59th Street, Madison Avenue and Fifth Avenue on the southeast corner of Central Park. As of September 2020, the property was 91% leased by a diverse roster of tenants. The largest tenants include Weil, Goshala & Manges (22% of net rentable area (NRA)) and Aramis (18% of NRA). Both tenants have been at the property since its construction in 1968. The largest retail tenant, Apple (5% of NRA), had opened its newly renovated store in late 2019 after undergoing significant renovation and expansion. Moody's structured credit assessment and stressed DSCR are aaa (sca.pd) and 1.37X, respectively.The second largest loan with a structured credit assessment is the Olympic Tower Loan ($60.0 million -- 6.6% of the pool), which represents a pari-passu portion of a $611.0 million senior mortgage loan with $149.0 million of subordinate debt. The property was also encumbered with a $240.0 million mezzanine debt at securitization. The loan is secured by a leasehold interest in 525,372 SF of rentable area contained within four office and retail buildings and sub-leasehold in an approximately 2,211 SF parcel of land located in New York, New York. The ground leases have expirations dates in September 2074 and January 2067. As of September 2020, the property was 97% occupied compared to 99% in December 2019. The loan is interest-only through its entire term and is current through its March 2021 payment. Moody's structured credit assessment and stressed DSCR is baa2 (sca.pd) and 1.06X, respectively.The top three conduit loans represent 16.1% of the pool balance. The largest loan is the AHIP Northeast Portfolio IV Loan ($55.5 million -- 6.1% of the pool), which is secured by four hotels (three extended-stay and one limited-service) located in the cities of Baltimore and Hanover in Maryland and Neptune and Egg Harbor in New Jersey. The portfolio has a combined total of 467-rooms and are flagged by three Residence Inns and one Hampton Inn. The loan was placed on the watchlist in September 2020 for relief request due to the coronavirus pandemic. The servicer approved a loan modification which allowed for debt service payments to be made from reserves and deferred reserve deposits. The reserve repayments were expected to start in November 2020 through April 2021 and per the servicer, the borrower has continued to make the required monthly repayments. The net cash flow has been impacted by the coronavirus pandemic with a 33% decrease in 2020 compared to 2019. After an initial 30-month interest-only period, the loan has amortized 1.8% since securitization and is current through its March 2021 payment. The portfolio may face potential refinance risk in 16 months when the loan comes due for maturity in July 2022. Moody's LTV and stressed DSCR are 137% and 0.91X, respectively, compared to 113% and 1.10X at the last review.The second largest loan is the 245 Park Avenue Loan ($51.3 million -- 5.6% of the pool), which represents a pari-passu portion of a $1.08 billion mortgage loan with $120.0 million of subordinate debt. The property was also encumbered with a $568.0 million mezzanine debt at securitization. The loan is secured by a 1.7 million SF, Class A, office tower located in Midtown Manhattan and across the street from Grand Central Terminal. The property occupies the entire city block defined by 46th Street, 47th Street, Park Avenue, and Lexington Avenue. As of September 2020, the property was 93% occupied compared to 92% in December 2019. The largest in-place tenant Société Générale executed a sublease from JPMorgan Chase Bank for approximately 560,000 SF through October 31, 2022 and executed a 10-year direct lease with a start date in November 2022. Excluding Société Générale, JPMorgan leases an additional 225,000 SF through 2022, the majority of which have been subleased to various tenants. Another major tenant, the MLB, which leases 224,477 SF through October 2022, has previously indicated that they will be relocating in 2020 and vacating the remaining space in the building prior to the end of the lease term. The loan structure includes a cash flow sweep if the MLB fails to renew substantially all of its premises at least 12 months prior to lease expiration or if the MLB were to vacate substantially all of its premises (capped at $85 PSF for their space). In early 2021, new/renewal leases were signed with Ares Capital Corporation, The Norinchukin Bank, and Houlihan Lokey. The loan is interest-only through its entire term and is current through its March 2021 payment. Moody's LTV and stressed DSCR are 103% and 0.84X, respectively, compared to 97% and 0.89X at the last review.The third largest loan is the Starwood Capital Group Hotel Portfolio Loan ($40.0 million -- 4.4% of the pool), which represents a pari-passu portion of a $577.3 million mortgage loan. The loan is secured by the borrower's fee and leasehold interests in 65 limited-service, full-service, and extended-stay hotels located across 21 states. The two largest state concentrations are California (10 hotels; 1,068 guestrooms) and Texas (22 hotels; 1,914 guestrooms). Six major franchises are represented in the portfolio including Marriott International, Hilton Worldwide, Larkspur Landing, InterContinental Hotels Group, Choice Hotels International and Carlson. The portfolio's year-end 2019 cash flow was in line with securitization levels; however, performance had declined annually over the prior three years due to lower revenues and higher operating expenses. The portfolio's RevPAR was $85.94 at year-end 2019 and the portfolio's 2019 NOI DSCR was 2.77X. The loan was placed on the watchlist in October 2020 for relief request due to the coronavirus pandemic and the borrower was subsequently granted deferred reserve payments and use of reserves to fund debt service payments. Repayment is expected to commence in February 2021 over a 12-month period. The loan is interest-only for its entire term and is current through its March 2021 payment. Moody's LTV and stressed DSCR are 123% and 1.00X, respectively, compared to 113% and 1.09X at the last review.REGULATORY DISCLOSURESFor 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 at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.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 ratings tab on the issuer/entity page for the respective issuer on www.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 www.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://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.At least one ESG consideration was material to the credit rating action(s) announced and described above.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 www.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 www.moodys.com.Please see www.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 ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Amy Wang Associate Lead Analyst Structured Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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