Morningstar DBRS Confirms Credit Ratings on All Classes of CSMC Trust 2017-CHOP

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on the Commercial Mortgage Pass-Through Certificates Series 2017-CHOP issued by CSMC Trust 2017-CHOP as follows:

-- Class A at AAA (sf)
-- Class X-EXT at AAA (sf)
-- Class B at AA (sf)
-- Class C at AA (low) (sf)
-- Class D BBB (high) (sf)
-- Class E at BB (low) (sf)

All trends are Stable.

The credit rating confirmations and Stable trends reflect the overall stable performance of the underlying collateral since Morningstar DBRS' previous review in May 2024. At issuance, the transaction was secured by a portfolio of 48 select-service, limited-service, and extended-stay hotels, totaling 6,401 keys, located across 21 states and operating under eight different flags across the Marriott, Hilton, and Hyatt brands. As of April 2025 reporting, 36 properties remain as part of the collateral. There have been no property releases since the previous credit rating action, however, 12 properties have been released since issuance. Additional details are outlined below.

The interest-only (IO), floating-rate mortgage loan had an original aggregate principal balance of $780.0 million. The loan was in special servicing beginning in 2020 and was ultimately resolved when a buyer for all 48 hotels was secured and the new ownership, an affiliate of Kohlberg Kravis Roberts & Co. (KKR), assumed the underlying loan.

The trust balance of $619.6 million, as of the April 2025 remittance, represents a collateral reduction of 20.6% since issuance as a result of the aforementioned property releases from the trust. The transaction documents allow the borrower to partially prepay the loan when releasing individual properties, subject to a debt yield test and a release price of 105.0% of the applicable allocated loan amount (ALA) until 10.0% of the original principal balance of the loan has been repaid, 110.0% of the ALA until 20.0% of the original principal balance of the loan has been repaid, and 115.0% of the ALA thereafter.

The loan was modified as part of KKR's assumption, with terms including an extension of the maturity date to June 2027, a borrower-funded debt service reserve equal to 12 months of payments, the replacement of the current property management team with Schulte Hospitality Group and Hersha Hospitality Management, the purchase of an interest rate cap agreement, and the loan remaining in cash management for the life of the extended term. In addition, KKR Real Estate Partners Americas III AIV, LP, as the replacement guarantor and environmental indemnitor, also provided a flag loss guaranty and a property improvement plan completion guaranty.

As of April 2025 reporting, the loan is current and performing but is being monitored on the servicer's watchlist for deferred maintenance concerns. Morningstar DBRS has not received an update on the resolution of these concerns as of the date of this press release, however, the servicer noted that deferred maintenance letters have been sent to the borrower to address the issues.

Operating performance continues to incrementally improve with the portfolio reporting a weighted-average occupancy rate of 71.4%, average daily rate of $144.86, and revenue per available room (RevPAR) of $104.60 as of YE2024. It is noteworthy that RevPAR has exceeded the pre-pandemic figure of $95.06 with 26 of the remaining 36 properties reporting RevPAR penetration rates above 100.0% for the trailing 12 months (T-12) ended December 31, 2024. The portfolio generated a net cash flow (NCF) of $53.6 million, resulting in a debt service coverage ratio (DSCR) of 1.58 times (x) as of YE2024 compared with the NCF of $51.3 million, reflecting a DSCR of 1.56x, for the remaining 36 properties at YE2023.

Morningstar DBRS' prior credit rating action in May 2024 included an updated collateral valuation. For more information regarding the approach and analysis conducted, please refer to the press release titled "Morningstar DBRS Upgrades Credit Ratings on Three Classes of CSMC Trust 2017-CHOP," published on May 17, 2024. For the purposes of this credit rating action, Morningstar DBRS maintained the valuation approach from the previous review given that the composition of the pool has remained static since that time. The analysis considered a cap rate of 9.5% and a Morningstar DBRS NCF of $41.1 million (inclusive of a 20% haircut that was applied to evaluate the potential for credit rating upgrades) for the remaining 36 properties. The resulting Morningstar DBRS value of $432.4 million is 43.6% lower than the issuance appraised value of $767.1 million for the remaining 36 properties. The Morningstar DBRS value reflects a loan-to-value ratio of 143.3% on the whole loan and 73.9% on the remaining $319.6 million of rated proceeds.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings at https://dbrs.morningstar.com/research/437781 (August 13, 2024).

Class X-EXT is an IO certificate that references 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 credit ratings are subject to surveillance, which could result in credit ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by Morningstar DBRS.

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

The principal methodology is North American CMBS Surveillance Methodology (February 28, 2025): https://dbrs.morningstar.com/research/448963.

Other methodologies referenced in this transaction are listed at the end of this press release.

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@morningstar.com.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

DBRS Limited
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Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

-- North American Single-Asset/Single-Borrower Ratings Methodology (February 28, 2025): https://dbrs.morningstar.com/research/448962
-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (September 19, 2024): https://dbrs.morningstar.com/research/439702
-- Legal Criteria for U.S. Structured Finance (December 3, 2024):
https://dbrs.morningstar.com/research/444064
-- North American Commercial Mortgage Servicer Rankings (August 23, 2024):
https://dbrs.morningstar.com/research/438283
-- Interest Rate Stresses for U.S. Structured Finance Transactions (March 27, 2025):
https://dbrs.morningstar.com/research/450750

A description of how Morningstar DBRS analyzes structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/417279 (July 17, 2023)

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.