DBRS Confirms all Classes of Bank of America Merrill Lynch Commercial Mortgage Trust 2017-BNK3

DBRS Limited (DBRS) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2017-BNK3 (the Certificates) issued by Bank of America Merrill Lynch Commercial Mortgage Trust 2017-BNK3 as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (sf)
-- Class X-B at A (high) (sf)
-- Class C at A (sf)
-- Class X-D at BBB (high) (sf)
-- Class D at BBB (sf)
-- Class E at BB (high) (sf)
-- Class F at B (high) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since issuance. At issuance, the collateral consisted of 63 fixed-rate loans secured by 94 commercial and multifamily properties, with a trust balance of $977.1 million. As of the January 2019 remittance, all loans remain in the pool with a current trust balance of $969.0 million, representing a collateral reduction of 1.5% due to scheduled loan amortization. Loans representing 97.5% of the pool are reporting year-end (YE) 2017 financials and reported a weighted-average (WA) debt service coverage ratio (DSCR) and debt yield of 1.99 times (x) and 10.5%, respectively. At issuance the pool reported a DBRS WA Term DSCR and debt yield of 1.83x and 10.2%, respectively, representing a WA net cash flow growth of 9.1% since issuance. The largest 15 loans, representing 60.7% of the pool balance, reported a WA DSCR and WA debt yield of 2.19x and 10.4%, respectively.

Sixteen loans, representing 54.5% of the pool balance and including 11 of the top 15 loans, are structured with full-term interest-only (IO) payments. An additional 13 loans, representing 12.9% of the pool, have partial IO payments remaining.

The pool has a high concentration of retail properties representing 33.9% of the pool, with six loans (representing 21.4% of the pool balance) within the top 15. The retail sector has been generally underperforming reflected in recent store closures and chain bankruptcies. These loans reported a WA annualized YE2017 DSCR of 1.82x, representing an 8.4% improvement in cash flows since DBRS’s original analysis and continue to exhibit a strong WA occupancy rate of 91.6%. At issuance, DBRS noted the bulk of the pool’s retail exposure includes collateral properties located in established suburban markets with strong sales figures reported for retail loans in the top ten.

As of the January 2019 remittance, six loans, representing 3.3% of the balance are on the servicer’s watchlist. The largest watchlist loan, Harwood Hills (Prospectus ID#29, 1.0% of the pool balance), is being monitored for the collateral’s loss of the grocery anchor in place at issuance, Fiesta Mart, which represented 41.6% of the net rentable area. The marketing efforts and hefty tenant reserve balance do provide strong mitigants against the risk in the increased physical vacancy at the property.

At issuance, DBRS shadow-rated the 85 Tenth Avenue loan (Prospectus ID#4, 5.2% of the pool balance) and the Potomac Mills loan (Prospectus ID#14, 2.1% of the pool balance) investment grade. With this review, DBRS confirms that the performance of these loans remain consistent with investment-grade characteristics.

Classes X-A, X-B and X-D are interest-only (IO) certificates that reference a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation tranche adjusted upward by one notch if senior in the waterfall.

All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed or discontinued by DBRS.

DBRS provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:

-- Prospectus ID#4 – 85 Tenth Avenue (5.2% of the pool)
-- Prospectus ID#14 – Potomac Mills (2.1% of the pool)
-- Prospectus ID#29 – Harwood Hills (1.0% of the pool)
-- Prospectus ID#39 – Holiday Inn Express Spartanburg (0.8% of the pool)
-- Prospectus ID#60 – The Devonshire Shops (0.2% of the pool)

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrs.com. The platform includes issuer and servicer data for most outstanding CMBS transactions (including non-DBRS rated), as well as loan-level and transaction-level commentary for most DBRS-rated and -monitored transactions.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology, which can be found on www.dbrs.com under Methodologies & Criteria. For a list of the structured-finance-related methodologies that may be used during the rating process, please see the DBRS Global Structured Finance Related Methodologies document, which can be found on www.dbrs.com in the Commentary tab under Regulatory Affairs. Please note that not every related methodology listed under a principal structured finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrs.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS 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 related appendix for additional information regarding the sensitivity of assumptions used in the rating process. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS long-term rating scale definition indicates that ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

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

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