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Rating Action: Moody's affirms seven classes of UBS 2017-C4
Global Credit Research - 16 Dec 2020
Approximately $604 million of structured securities affected
New York, December 16, 2020 -- Moody's Investors Service, ("Moody's") has affirmed the ratings on seven classes in UBS Commercial Mortgage Trust 2017-C4, Commercial Mortgage Pass-Through Certificates, Series 2017-C4 as follows:
Cl. A-1, Affirmed Aaa (sf); previously on Mar 17, 2020 Affirmed Aaa (sf)
Cl. A-2, Affirmed Aaa (sf); previously on Mar 17, 2020 Affirmed Aaa (sf)
Cl. A-3, Affirmed Aaa (sf); previously on Mar 17, 2020 Affirmed Aaa (sf)
Cl. A-4, Affirmed Aaa (sf); previously on Mar 17, 2020 Affirmed Aaa (sf)
Cl. A-SB, Affirmed Aaa (sf); previously on Mar 17, 2020 Affirmed Aaa (sf)
Cl. A-S, Affirmed Aa3 (sf); previously on Mar 17, 2020 Affirmed Aa3 (sf)
Cl. X-A*, Affirmed Aaa (sf); previously on Mar 17, 2020 Affirmed Aaa (sf)
* Reflects interest-only classes
The ratings on six P&I classes were affirmed because of the classes' 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), being within acceptable ranges.
The rating on the IO class was affirmed based on the credit quality of its 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 7.9% of the current pooled balance, compared to 5.7% at Moody's last review. Moody's base expected loss plus realized losses is now 7.7% of the original pooled balance, compared to 5.5% 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 18, 2020 distribution date, the transaction's aggregate certificate balance has decreased by 3% to $795 million from $818 million at securitization. The certificates are collateralized by 49 mortgage loans ranging in size from less than 1% to 6% of the pool, with the top ten loans (excluding defeasance) constituting 45% of the pool. Three loans, constituting 11.9% of the pool, have investment-grade structured credit assessments.
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 32, the same as at Moody's last review.
As of the November 2020 remittance report, loans representing 76% were current or within their grace period on their debt service payments, 4% were beyond their grace period but less than 30 days delinquent, 9% were between 30 -- 59 days delinquent, 2% were between 60 -- 89 days delinquent and 9% were greater than 90 days delinquent.
Thirteen loans, constituting 17% of the pool, are on the master servicer's watchlist, of which seven loans, representing 10% of the pool, indicate the borrower has requested relief 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.
Nine loans, constituting 20% of the pool, are currently in special servicing. Eight of the specially serviced loans, representing 18% of the pool, have transferred to special servicing since May 2020. No loans have been liquidated from the pool.
The largest specially serviced loan is the Embassy Suites - Brea Loan ($37.8 million -- 4.8% of the pool), which is secured by the borrower's leasehold interest in a 228-guestroom, full-service hotel located in Brea, California, which is approximately 13 miles northeast of the Anaheim CBD and three miles north of California State University Fullerton. Through year-end 2019 the property's performance had improved from securitization due to an increase in revenue and the 2019 NOI DSCR was 2.88X. The property's operations have been significantly impacted by the coronavirus pandemic and the loan transferred to special servicing in July 2020 due to monetary default. For the trailing twelve month (TTM) period ending September 2020, the property's occupancy, ADR and RevPAR were 56%, $167 and $94, respectively, compared to 88%, $178 and $156, respectively, for the same period in 2019. The loan is last paid through its July 2020 payment date and the special servicer indicated they are currently reviewing a forbearance request submitted by the borrower. The loan had an initial 2-year interest only period and has amortized 1.8% since securitization. Due to the historical performance, Moody's has included this loan in the conduit statistics with a Moody's LTV of 114%. 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.
The second largest specially serviced loan is the Fairmount at Brewerytown Loan ($28 million -- 3.5% of the pool), which is secured by a six-story mid-rise loft style apartment building with a total of 161 units, 12,450 SF of ground floor retail space and a 110 space parking garage located in Philadelphia, Pennsylvania. The property is also encumbered with $7 million of subordinate financing. Property performance has declined from expectations at securitization and the 2019 net operating income (NOI) was 18% below underwritten levels. The property is a historical building and operating expenses have increased due to construction defects, HVAC and other repairs along with ongoing maintenance needs. The property was further impacted by the pandemic with tenants falling behind on rental payments. The loan transferred to special servicing in June 2020 due to payment default and is paid through September 2020. The loan is interest only for its entire term. The special servicer indicated the loan is currently cash managed and they are continuing discussions with the borrower.
The third largest specially serviced loan is the DoubleTree Orlando Loan ($25.2 million -- 3.2% of the pool), which is secured by a 342-key, 15-story full service hotel located in the north end of the Orlando central business district (CBD). The property was constructed in 1985, most recently renovated in 2016 and includes a five-story parking garage. Through year-end 2019 the property performance had improved from securitization due to higher revenue and the 2019 NOI DSCR was 2.95X. The loan recently transferred to special servicing in May 2020 for imminent monetary default as the property's operation have been significant impacted by the pandemic. For the TTM period ending July 2020, the property's occupancy, ADR and RevPAR were 57%, $130 and $74, respectively, compared to an occupancy, ADR and RevPAR of 68%, $130 and $89 for the same period in 2019. The loan is last paid through its September 2020 payment date and the borrower and special servicer are discussing potential debt relief terms. Due to the historical performance, Moody's has included this loan in the conduit statistics with a Moody's LTV of 121%.
The fourth largest specially serviced loan is the Courtyard St. Louis Downtown Convention Center Loan ($17.2 million -- 2.2% of the pool), which is secured by a 165-key select-service historic hotel originally built in 1929 and fully renovated in 2015. Through year-end 2019, the property's performance has declined slightly due to increased operating expenses and the 2019 NOI DSCR was close to 2.00X. However, the property has been significantly impacted by the pandemic and the property did not generate enough net cash flow during the first six months of 2020 to cover operating expenses. The loan transferred to special servicing in May 2020 due to imminent monetary default and is paid through August 2020. The loan had an initial interest only period and has now amortized 2.5% since securitization. The special servicer and borrower are continuing to negotiate a potential COVID-19 related forbearance agreement.
The remaining five specially serviced loans each represent less than 2% of the pool and all but one transferred to special servicing as a result of the pandemic. Moody's has also assumed a high default probability for one poorly performing loan, constituting 1% of the pool, secured by a retail property located in Cypress, California which was exhibiting declining NOI prior to 2020 and had been further impacted by business disruptions created by the pandemic. Moody's has estimated an aggregate loss of $15.1 million (a 21% expected loss based on average) for the troubled loan and four of the specially serviced loans. Five of the specially serviced loans including (Embassy Suites -- Brea; DoubleTree Orlando; Park Millennium Garage; JW Marriott Chicago; TZA Multifamily Portfolio I) were included in the conduit statistics as a result of their historical performance prior to the impacts of the coronavirus pandemic.
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 85% of the pool (excluding four of the nine specially serviced loans and defeased loans). Moody's weighted average conduit LTV is 123%, compared to 122% 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 22% 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 1.50X and 0.92X, respectively, compared to 1.47X and 0.91X 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 237 Park Avenue Loan ($50 million -- 6.3% of the pool), which represents a pari passu portion of a $348 million senior mortgage loan. Additionally, the property is also encumbered with $345.2 million in subordinate debt and $87.8 million in subordinated and non-pooled mezzanine interests. The loan is secured by the borrower's fee and leasehold condominium interests in a component of a 21-story, 1.3 million SF Class A office tower located in Manhattan, New York. The collateral also includes rent generated by space leases as well as the assignment of the purchase money note and mortgage with installment payments similar to lease payments generated by NYPH (a tenant of the building). As of June 2020, the property was 98% leased compared 99% in September 2019 and 95% in June 2017. The three largest tenants represent 74% of the NRA and all have lease expiration dates in 2025 or later. The loan is interest only throughout the entire 10-year loan term and Moody's structured credit assessment and stressed DSCR are baa1 (sca.pd) and 1.41X, respectively.
The second loan with a structured credit assessment is the Park West Village Loan ($40 million -- 5.0% of the pool), which represents a pari passu portion of a $120 million senior mortgage loan. The property is also encumbered with $18.8 million of subordinate debt, and $186.3 million in mezzanine interests. The loan is secured by an 852-unit, high-rise multifamily complex located in Manhattan, New York. The property's occupancy has declined in 2020 and the June 2020 occupancy was 89%, compared to 97% in September 2019 and 96% in July 2017. The property contains approximately 424 market rate units and 428 rent-stabilized units. The loan is interest only throughout the entire 5-year loan term. Moody's structured credit assessment and stressed DSCR are baa1 (sca.pd) and 1.17X, respectively.
The third loan with a structured credit assessment is the Del Amo Fashion Center Loan ($5.0 million -- 0.6% of the pool), which represents a pari-passu portion of a $459.3 senior mortgage. The property is also encumbered by $125.7 million in subordinate debt. The loan is secured by a 1.8 million square foot (SF) component of a 2.5 million SF super-regional mall located in Torrance, California. The property is anchored by Sears (non-collateral), Macy's (non-collateral), J.C. Penney, Nordstrom, and AMC Theatres. Other major tenants include Dick's Sporting Goods, Burlington Coat Factory, LA Fitness, Dave & Busters, and Marshalls. The property was 87% leased as of June 2020. As of June 2020, collateral occupancy, inline occupancy, and total mall occupancy were 82%, 72% and 87%, respectively. Year-end comparable in-line tenant sales were reported as $577 PSF for 2019, compared to $573 PSF in 2018. Moody's structured credit assessment and stressed DSCR are baa2 (sca.pd) and 1.20X, respectively.
The top three conduit loans represent 14.7% of the pool balance. The largest loan is the Preston Hollow Loan ($48.3 million -- 6.1% of the pool), which is secured by the borrower's fee simple interest in a mixed-use, grocery anchored retail and office complex located in Dallas, Texas, approximately seven miles north of the CBD. The collateral is comprised of two single-story retail buildings (Building A and B) and one three-story office/retail building (Building C). Building C features retail on the first floor and office space on the second and third floors. Building C also has an attached, multilevel parking garage with approximately 600 parking spaces. The property was 93% leased as of June 2020, compared to 94% in September 2019 and 92% in July 2017. Property performance has marginally improved since securitization due to higher rental revenues. The loan is interest only throughout the entire 10-year loan term and Moody's LTV and stressed DSCR are 145% and 0.71X, respectively, the same as at the last review.
The second largest conduit loan is The District Loan ($37.9 million -- 4.8% of the pool), which represents a pari passu portion of a $75.8 million mortgage loan. The loan is secured by the borrower's fee simple interest in a 612,102 SF, open-air shopping center located in South Jordan, Utah, which is approximately 22 miles south of the Salt Lake City CBD. The property was 95% leased as of March 2020, compared to 89% in September 2019. The property is anchored by a 20-screen MegaPlex Theaters, Harmons, Hobby Lobby, Gordmans and Ross. Non-collateral shadow anchors include Target and JCPenney. The property's performance has been in line with expectations at securitization and the year-to-date June 2020 NOI DSCR was 1.52X. The loan has amortized by 5% and Moody's LTV and stressed DSCR are 124% and 0.90X, respectively.
The third largest loan is the 245 Park Avenue Loan ($31.0 million -- 3.9% of the pool), which represents a pari passu portion of a $1.08 billion first mortgage loan. The loan is secured by a 44-story, Class A office tower located in Manhattan, New York. The property is also encumbered with $120.0 million of B-note and $568.0 million of subordinated and non-pooled mezzanine debt. The property occupies the entire city block defined by 46th Street, 47th Street, Park Avenue and Lexington Avenue. As of year-end 2019, the property was 92% leased, a slight increase from securitization. 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 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). Moody's analysis accounted for the upcoming rollover and Moody's LTV and stressed DSCR are 102% and 0.84X, respectively, compared to 97% and 0.89X at the last review.
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.
Fred Kasimov 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 Matthew Halpern 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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