DBRS Morningstar Confirms All Citigroup Commercial Mortgage Trust 2016-C2 Ratings

DBRS Limited (DBRS Morningstar) confirmed its ratings on the following categories of Commercial Mortgage Transfer Certificates, Series 2016-C2 issued by Citigroup Commercial Mortgage Trust 2016-C2.

Class A-1 to AAA (fs)

Class A-2 to AAA (fs)

Class A-3 to AAA (fs)

Class A-4 to AAA (fs)

Class A-AB at AAA (fs)

Class AS to AAA (fs)

Class XA to AAA (fs)

Class B to AA (sf)

Class XB to A (high) (sf)

Class C to A (sf)

Class D to BBB (sf)

Class XD to BBB (sf)

Class E-1 to BB (high) (sf)

Class E-2 to BB (sf)

Class E to BB (sf)

Class F-1 to BB (low) (sf)

Class F-2 to B (high) (sf)

Class F to B (high) (sf)

Class EF to B (high) (sf)

Class G-1 to B (sf)

Class G-2 to B (low) (sf)

Class EFG at B (weak) (sf)

Class G to B (low) (sf)

All trends are stable.

The rating confirmations and stable trends reflect the transaction’s generally stable performance since DBRS Morningstar’s last rating action, although some loans are showing signs of heightened stress from issuance, as detailed below.

Since the June 2022 disbursement report, all 44 original loans remain in the pool, which has seen a nominal collateral reduction of 4.2% due to scheduled amortization. Additionally, there has been $2.3 million realized losses that were contained in the unrated Class H2. Five loans, representing 8.7% of the current pool balance, have been canceled and two loans, representing 6.4% of the current pool balance, are currently under special management. Thirteen loans, representing 22.8% of the current pool balance, are being watched on the manager’s watchlist for a variety of reasons, including stressed occupancy rates and low debt service coverage ratios (DSCRs).

The largest special services loan, Welcome Hospitality Portfolio (Prospectus ID#8; 3.9% of the pool), is guaranteed by a Hilton hotel in Scranton, Pennsylvaniaand one Hampton Inn in West Springfield, Massachusetts. The loan was initially transferred to a special service in May 2020 in the event of an imminent monetary default, due to cash constraints caused primarily by the coronavirus disease (COVID-19) pandemic. The borrower benefited from a six-month forbearance in September 2020which expired in January 2021. According to the administrator, the loan has been in arrears since the March 2022 “updated” payment date. The borrower would have requested an extension and is currently negotiating a second forbearance. According to the 2021 Year End (YE) financial reports, consolidated occupancy, average daily rate (ADR) and revenue per available room (RevPAR) figures of 71.1%, $111and $79, respectively, are comparable to emission metrics, suggesting an overall improvement in portfolio performance compared to the previous year. As of YE2021, the Hilton property’s cash flow had rebounded to pre-pandemic levels, with a net operating income (NOI) of $3.2 million; However, the Hampton Inn published property YE2021 NOI of $1.3 million, a difference of -46.1% compared to the issue. The portfolio had a combined land value of $34.1 million on issue; however, an evaluation conducted in August 2020 reported a combined value of $25.3 million. The decline in value is explained by a 44% drop in the Hampton Inn’s as is the value of the property.

The biggest loan on the servicer’s watch list, Staybridge Suites Times Square (Prospectus ID#6; 4.9% of the pool), is secured by a long-stay hotel in from manhattan Times Square district. The loan was added to the server agent’s watch list in May 2020 due to non-compliance with covenants related to a drop in DSCR. The loan was last modified in March 2021, date on which the reserve deposits for furniture, fittings and equipment were deferred for three months. Since the June 2022 discount report, the loan remains outstanding. According to YE2021 financial reports, the DSCR of the loan was -0.55x (x) compared to -1.34x in YE2020 and 2.09x at issuance. Additionally, the subject property had an average occupancy rate of 35.8% as of YE2021, with ADR and RevPAR figures of $117.67 and $42.17, respectively. In comparison, the competitive set reported occupancy, ADR and RevPAR figures of 67%, $149.46and $100.13. Given recent declines in collateral yields and general challenges facing the extended-stay hotel asset class, DBRS Morningstar’s outlook for this loan has deteriorated since issuance and, as a result, a penalty probability of default was applied in the analysis to reflect the increased risk profile.

Upon issuance, DBRS Morningstar assigned a fictitious investment grade rating to the loan from Vertex Pharmaceuticals HQ (Prospectus ID#1; 10.3% of the pool). The loan is secured by the borrower’s interest on Vertex Pharmaceuticals’ headquarters, a 1,133,723 square foot Class A office building consisting of two Jetty of fans development within from boston Seaport district. The loan continues to perform well, with a YE2021 occupancy rate of 98.9% and a DSCR of 6.4x. Additionally, gross revenue and free cash flow have increased by approximately 11.2% and 1.5%, respectively, since issuance. With this review, DBRS Morningstar confirms that the performance of this loan remains consistent with the characteristics of higher quality loans.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS

No environmental/social/governance factor had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors in the DBRS Morningstar analytical framework is available in DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

Classes XA, XB, and XD are certificates of interest only (IO) that refer to a single rated tranche or multiple rated tranches. The IO rating reflects the lowest rated applicable benchmark obligation tranche adjusted up one notch if senior in the cascade.

All ratings are subject to monitoring, which could result in ratings being upgraded, downgraded, revised, confirmed or discontinued by DBRS Morningstar.

DBRS Morningstar provides updated analysis and in-depth commentary on the DBRS Viewpoint platform for this transaction.

The DBRS Viewpoint platform provides additional information about this transaction and the underlying loan, including DBRS Morningstar metrics, commentary, servicing agent reported cash flow, and other performance-related data. For free access to this content, please register with the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com.

Remarks:

All figures are in WE dollars unless otherwise specified.

The primary methodology is the North American CMBS Monitoring Methodology (March 4, 2022), which can be found on dbrsmorningstar.com under Methodologies and Criteria. For a list of structured finance related methodologies that may be used during the rating process, please see the DBRS Morningstar Global Structured Finance Related Methodologies document, which can be found on dbrsmorningstar.com in the Commentary tab under Regulatory Affairs. Please note that not all associated methodologies listed in a Principal Structured Finance Asset Class Methodology can be used to assess or monitor an individual structured finance or debt security.

DBRS Sovereign Morningstar group publishes reference macroeconomic scenarios for rated sovereigns. DBRS Morningstar’s analysis considered impacts consistent with baseline scenarios as set out in the following report: https://www.dbrsmorningstar.com/research/384482.

Related regulatory information pursuant to National Instrument 25-101 Designated Rating Organizations is incorporated by reference and may be viewed by clicking the link under Related Documents or by contacting us at info@dbrsmorningstar.com.

The rated entity or its related entities participated in the rating process for this rating metric. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the relevant appendix for more information on the sensitivity of the assumptions used in the rating process.

For more information about this credit or this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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Ratings

Date Issued	Debt Rated	Rating	Trend	Action	Attributesi

US = Lead Analyst based in the USA

CA = Lead Analyst based in Canada

EU = Lead Analyst based in EU

UK = Lead Analyst based in UK

E= EU approved

U = UK approved

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Unsolicited Non Participating

06-Jul-22	Commercial Mortgage Pass-Through Certificates, Series 2016-C2, Class A-1	AAA (sf)	Stb	Confirmed	CA

06-Jul-22	Commercial Mortgage Pass-Through Certificates, Series 2016-C2, Class A-2	AAA (sf)	Stb	Confirmed	CA

06-Jul-22	Commercial Mortgage Pass-Through Certificates, Series 2016-C2, Class A-3	AAA (sf)	Stb	Confirmed	CA

06-Jul-22	Commercial Mortgage Pass-Through Certificates, Series 2016-C2, Class A-4	AAA (sf)	Stb	Confirmed	CA

06-Jul-22	Commercial Mortgage Pass-Through Certificates, Series 2016-C2, Class A-AB	AAA (sf)	Stb	Confirmed	CA

06-Jul-22	Commercial Mortgage Pass-Through Certificates, Series 2016-C2, Class A-S	AAA (sf)	Stb	Confirmed	CA

06-Jul-22	Commercial Mortgage Pass-Through Certificates, Series 2016-C2, Class X-A	AAA (sf)	Stb	Confirmed	CA

06-Jul-22	Commercial Mortgage Pass-Through Certificates, Series 2016-C2, Class B	AA (sf)	Stb	Confirmed	CA

06-Jul-22	Commercial Mortgage Pass-Through Certificates, Series 2016-C2, Class X-B	A (high) (sf)	Stb	Confirmed	CA

06-Jul-22	Commercial Mortgage Pass-Through Certificates, Series 2016-C2, Class C	A (sf)	Stb	Confirmed	CA

06-Jul-22	Commercial Mortgage Pass-Through Certificates, Series 2016-C2, Class D	BBB (sf)	Stb	Confirmed	CA

06-Jul-22	Commercial Mortgage Pass-Through Certificates, Series 2016-C2, Class X-D	BBB (sf)	Stb	Confirmed	CA

06-Jul-22	Commercial Mortgage Pass-Through Certificates, Series 2016-C2, Class E-1	BB (high) (sf)	Stb	Confirmed	CA

06-Jul-22	Commercial Mortgage Pass-Through Certificates, Series 2016-C2, Class E	BB (sf)	Stb	Confirmed	CA

06-Jul-22	Commercial Mortgage Pass-Through Certificates, Series 2016-C2, Class E-2	BB (sf)	Stb	Confirmed	CA

06-Jul-22	Commercial Mortgage Pass-Through Certificates, Series 2016-C2, Class F-1	BB (low) (sf)	Stb	Confirmed	CA

06-Jul-22	Commercial Mortgage Pass-Through Certificates, Series 2016-C2, Class EF	B (high) (sf)	Stb	Confirmed	CA

06-Jul-22	Commercial Mortgage Pass-Through Certificates, Series 2016-C2, Class F	B (high) (sf)	Stb	Confirmed	CA

06-Jul-22	Commercial Mortgage Pass-Through Certificates, Series 2016-C2, Class F-2	B (high) (sf)	Stb	Confirmed	CA

06-Jul-22	Commercial Mortgage Pass-Through Certificates, Series 2016-C2, Class G-1	B (sf)	Stb	Confirmed	CA

06-Jul-22	Commercial Mortgage Pass-Through Certificates, Series 2016-C2, Class EFG	B (low) (sf)	Stb	Confirmed	CA

06-Jul-22	Commercial Mortgage Pass-Through Certificates, Series 2016-C2, Class G	B (low) (sf)	Stb	Confirmed	CA

06-Jul-22	Commercial Mortgage Pass-Through Certificates, Series 2016-C2, Class G-2	B (low) (sf)	Stb	Confirmed	CA