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Rating Action: Moody's affirms seven classes of CGCMT 2016-GC36
Global Credit Research - 14 Dec 2020
Approximately $818.2 million of structured securities affected
New York, December 14, 2020 -- Moody's Investors Service, ("Moody's") has affirmed the ratings on seven classes in Citigroup Commercial Mortgage Trust 2016-GC36, Commercial Mortgage Pass-Through Certificates as follows:
Cl. A-2, Affirmed Aaa (sf); previously on Dec 17, 2018 Affirmed Aaa (sf)
Cl. A-3, Affirmed Aaa (sf); previously on Dec 17, 2018 Affirmed Aaa (sf)
Cl. A-4, Affirmed Aaa (sf); previously on Dec 17, 2018 Affirmed Aaa (sf)
Cl. A-5, Affirmed Aaa (sf); previously on Dec 17, 2018 Affirmed Aaa (sf)
Cl. A-AB, Affirmed Aaa (sf); previously on Dec 17, 2018 Affirmed Aaa (sf)
Cl. A-S, Affirmed Aa2 (sf); previously on Dec 17, 2018 Affirmed Aa2 (sf)
Cl. X-A*, Affirmed Aa1 (sf); previously on Dec 17, 2018 Affirmed Aa1 (sf)
* Reflects interest-only classes
The ratings on the six P&I classes were affirmed because 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, Cl. X-A, was affirmed based on the credit quality of the referenced classes.
The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Our analysis has considered the effect on the performance of commercial real estate from the current weak US economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous, and its continuation will be closely tied to containment of the virus. As a result, the degree of uncertainty around our forecasts is unusually high. 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 9.9% of the current pooled balance compared to 6.6% at Moody's last review. Moody's base expected loss plus realized losses is now 9.5% of the original pooled balance compared to 6.4% 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 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.
As of the November 10, 2020 distribution date, the transaction's aggregate certificate balance has decreased by 4.2% to $1.1 billion from $1.16 billion at securitization. The certificates are collateralized by 57 mortgage loans ranging in size from less than 1% to 10% of the pool, with the top ten loans (excluding defeasance) constituting 60% of the pool. Three loans, constituting 1.4% of the pool, have defeased and is 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 19, compared to 20 at the last review.
As of the November 2020 remittance report, loans representing 86.1% were current or within their grace period on their debt service payments, 3.9% were 30 to 59 days delinquent, and 9.8% were 90 + days delinquent or in foreclosure.
Fourteen loans, constituting 28.0% of the pool, that currently 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.
No loans have been liquidated from the pool and there have been no realized losses to the trust. Two loans, constituting 9.5% of the pool, are currently in special servicing, all of which transferred to special servicing since March 2020.
The largest specially serviced loan is the Glenbrook Square Loan ($96.8 million -- 8.7% of the pool), which represents a pari passu portion of a $157.3 million mortgage loan. The loan is secured by 1.0 million square foot (SF) portion of a 1.2 million square foot (SF) regional mall located in Fort Wayne, Indiana. At securitization the mall included four anchor tenants, Macy's, Sears (non-collateral), JC Penney and Carson's. However, Sears and Carson's vacated their space in 2018. The Sear's space is currently being redeveloped into a multi-tenant structure and approximately 50% of the former Carson's space, approximately 61,000 SF, has been leased to Round 1 on a 10-year term. The property's historical performance has generally declined since 2016 driven primarily by lower rental revenue. The December 2019 NOI was 20% below the property's underwritten NOI and the actual NOI DSCR was 1.32X. As of September 2020, in-line occupancy at the property was 81% or 70% if excluding temporary tenants. Excluding the dark Sears space, the total mall occupancy was 78%. Comparable in-line sales (<10,00 SF) for the trailing-twelve-month period ending June 2020 were $371 PSF compared to $436 PSF in 2019 and $427 PSF in 2018. The loan has now amortized 5% since securitization after an initial 2-year interest only period. The loan transferred to special servicing in July 2020 as the property's cash flow was significantly impacted by the coronavirus pandemic. The property is the only major enclosed mall within the market, with the closest regional mall located 64 miles away. The loan is last paid through its April 2020 and the special servicer indicated they are in discussions with the borrower regarding a potential modification request, but are also exploring resolution alternatives in case an acceptable agreement cannot be reached.
The other specially serviced loan is the Abilene Hotel Portfolio, ($8.8 million -- 0.8% of the pool) which is secured by a 138-unit hotel portfolio located in Abilene, Texas. The loan transferred to special servicing in June 2020 due to being 60 days delinquent.
Moody's estimates an aggregate $34.9 million loss for the specially serviced loans (33% expected loss on average).
Moody's has also assumed a high default probability for two poorly performing loans, constituting 1.7% of the pool, and has estimated an aggregate loss of $4.1 million (a 22% expected loss on average) from these troubled loans. The largest loan troubled loan is the Residence Inn Andover, representing 1.1% of the pool, which is secured by a 120-unit, limited service hotel located in Andover, MA.
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 100% of the pool, and partial year 2020 operating results for 52% of the pool (excluding specially serviced and defeased loans). Moody's weighted average conduit LTV is 121%, compared to 120% at the 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 18.6% to the most recently available net operating income (NOI). Moody's value reflects a weighted average capitalization rate of 9.5%.
Moody's actual and stressed conduit DSCRs are 1.35X and 0.86X, respectively, compared to 1.37X and 0.86X at 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 top three conduit loans represent 29.6% of the pool balance. The largest loan is the 5 Penn Plaza Loan ($115 million -- 10.4% of the pool), which represents a pari passu portion of a $260 million mortgage loan. The loan is also encumbered by $40 million of mezzanine debt. The collateral consists of a 26-story, Class A- office building located on 8th Avenue between West 33rd and West 34th Streets in New York, New York. The building is LEED Gold Certified and measures 650,329 SF, of which 17,180 SF is comprised of ground floor retail space, and 11,198 SF is comprised of miscellaneous non-revenue concourse and sub-concourse space. The remaining 621,951 SF is comprised of office space. As of June 2020, the property was 98% leased, compared to 94% as of June 2019 and 95% as of December 2018.. Moody's LTV and stressed DSCR are 115% and 0.82X, respectively, unchanged from Moody's last review.
The second largest loan is the Sheraton Denver Downtown Fee Loan ($110 million -- 9.9% of the pool), which represents a pari passu portion of a $180 million mortgage loan. The collateral for the loan is the leased fee interest associated with a 4.38-acre parcel of land located at 1550 Court Place in Denver, Colorado. The subject parcel generates revenue through a 99-year ground lease dated December 9, 2015. The non-collateral improvements are represented by the Sheraton Denver Downtown, a 1,231-key, full-service hotel that was constructed in 1959 and renovated in 2008-2010. Moody's LTV and stressed DSCR are 109% and 0.64X, respectively, unchanged from Moody's last review.
The third largest loan is the Austin Block 21 Loan ($102.6 million -- 9.3% of the pool), which represents a pari passu portion of a $139.4 million mortgage loan. The collateral consists of a 37-story, 369,842 SF, mixed-use development located in Austin, Texas, directly across the street from City Hall. The property consists of (i) a 251-room W Austin Hotel, (ii) a 2,750-seat, 86,757 SF, live music, entertainment and private event venue space and (iii) 56,643 SF of retail and office space. The property was 78% leased as of June 2020. The property's cash flow has declined since securitization, however, it benefits from strong demand drivers. The property is part of Austin's Second District, which features six blocks of shopping, dining and entertainment venues. The subject is also directly across from City Hall and attached to the ACL Live at the Moody Theatre. Moody's LTV and stressed DSCR are 145% and 0.85X, respectively, compared to 143% and 0.86X at the last review. However, these metrics are based on return of both leisure and group and meeting demand which may lag that of the overall US pace of recovery.
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 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.
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.
Ashton Khan Associate Lead 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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