Morningstar DBRS Confirms Credit Ratings on All Classes of COMM 2016-667M Mortgage Trust

DBRS, Inc. (Morningstar DBRS) confirmed its credit ratings on the Commercial Mortgage Pass-Through Certificates, Series 2016-667M issued by COMM 2016-667M Mortgage Trust as follows:

-- Class X-A at A (sf)
-- Class A at A (low) (sf)
-- Class B at BB (sf)
-- Class C at B (sf)
-- Class D at CCC (sf)
-- Class E at CCC (sf)

The trends on Classes X-A, A, B, and C are Stable, while Classes D and E have credit ratings that typically do not carry a trend in commercial mortgage-backed securities (CMBS).

The credit rating confirmations reflect the overall stable performance of the underlying collateral, which is in line with Morningstar DBRS' expectations since its previous credit rating action in July 2024. The collateral property for the underlying loan is a 25-story, Class A office building in Midtown Manhattan at the corner of Madison Avenue and 61st Street, one block east of Central Park. The property was constructed by a sponsor-affiliate in 1985 and consists of 254,316 square feet (sf) of office space and 14,832 sf of retail space. The $254.0 million whole loan is interest only (IO) for the entire 10-year term. This transaction consists of a $214.0 million trust loan, with an additional senior $40.0 million A-2 pari passu note securitized in the CD 2016-CD2 transaction, not rated by Morningstar DBRS. The loan is sponsored by Hartz Financial, a subsidiary of Hartz Group, Inc.

As part of the analysis for the July 2024 credit rating action, Morningstar DBRS updated its net cash flow (NCF) and LTV Sizing Benchmarks to account for the secular shift in office use and demand, as well as the subject property's fluctuating occupancy rate and prolonged cash flow declines from the issuance levels. The most recently reported figures show in-place performance continues to be depressed as compared with issuance expectations, with a YE2024 NCF figure of $2.7 million (debt service coverage ratio of 0.33 times), representing a 67.1% decrease from the YE2023 NCF of $8.2 million, NCF is expected to increase significantly throughout 2025 and 2026 as rental abatement periods for new and renewal tenant leases expire. However, performance is expected to remain below the issuer's NCF of $22.4 million derived at loan closing in 2016. The Morningstar DBRS NCF of $14.9 million, derived in July 2024, was based on leases in place, historical operating expense information, and leasing costs based on recently executed new and renewal leases.

According to the December 2024 rent roll, the property was 77.4% occupied with a weighted-average rental rate of approximately $126.0 per square foot (psf). As of May 2025, the property's website shows availability, which suggests a leased rate of 87.5%, an increase from the June 2024 leased rate of 84.2%. The delta between the stated occupancy rate and the leased rate is primarily related to the renewals and relocations for Michael Kors and Redbird Capital (Redbird), which was noted by Morningstar DBRS in its previous credit rating action. The servicer confirmed Michael Kors took possession of its space in February 2025 after a delivery delay caused by a slower buildout process than originally scheduled. The tenant now occupies 10,613 sf (3.9% of the NRA) of retail space on the first floor and will begin paying full, unabated rent in October 2025 at a rental rate of $425.00 psf or $4.5 million annually.

According to the servicer, the buildout for Redbird also experienced delays, with projected rent commencement pushed into 2025 from the original expected lease start date of November 2024. According to the property's website, 18,005 sf of space formerly leased to Redbird is now available for lease, suggesting a majority of Redbird's new space has been delivered. It also currently leases 6,600 sf on the 17th floor on a short-term basis. Ultimately, Redbird will be the largest tenant at the property, occupying 42,223 sf (15.7% of the NRA) on a lease through October 2034, paying a rental rate of $130.00 or $5.5 million annually.

Additional updates provided by the servicer include the lease extension and contraction of Corvex Management, which will move from the second floor to the 23rd floor on a seven-year lease, expiring in September 2032. The tenant will downsize to 8,779 sf (3.3% of the NRA) from 15,300 sf (5.7% of the NRA) and pay a starting rental rate of $175.00 psf, a $10.00 psf increase over its previous rental rate. Northwell Health (1.1% of the NRA) also extended its lease by five years to November 2030; however, Morningstar DBRS did not receive updated rental rate information for the tenant. The other retail tenant at the property, Santoni (1.5% of the NRA), will commence rental payments in July 2025 after its one-year abatement period ends. The tenant's lease expires in July 2034, and it will pay a starting rental rate of $400.00 psf or $1.7 million annually with annual 3.0% rent steps. The property's second largest tenant, BevMax Office Centers (11.9% of the NRA), is a co-working space with a scheduled lease expiration in October 2028. The provided rent roll did not include a rental rate for the tenant; however, annual rent was budgeted at $2.9 million ($90.00 psf) in 2024. Morningstar DBRS was unable to confirm the annual rent paid by the tenant for the purposes of this review and notes the increased operating risk for the tenant as the business model for co-working space has been volatile in recent years.

According to Q1 2025 Cushman & Wakefield data, office properties in the Madison Avenue / Fifth Avenue submarket reported an average asking rental rate of $115.99 psf with vacancy at 23.4% for Class A office properties. As a whole, the submarket has shown minor improvement as Cushman & Wakefield reported Q4 2023 metrics of $111.30 psf and 25.2%, respectively. While rollover risk throughout 2025 is limited to two tenants, occupying 4.0% of the NRA, the suites for both tenants are currently listed as available on the property's website with availability dates coinciding with the tenants' respective lease expiry dates. Combined, those tenants contribute $2.0 million in rental revenue. An additional four tenants (12.6% of total NRA) have scheduled lease expiration dates prior to loan maturity in September 2026. Inclusive of the upcoming tenant relocations and known future tenant departures, property occupancy would be 84.2% if no other leasing activity occurs through Q3 2025. Morningstar DBRS was not provided with an update regarding any additional pending leasing activity regarding available space; however, the servicer confirmed the leasing reserve and cash sweep reserve have balances of $1.2 million and $4.7 million, respectively.

As noted above, the Morningstar DBRS Value was updated as part of the July 2024 credit rating action; in the analysis for this review, that value was maintained, which was based on a capitalization rate of 7.00% applied to the Morningstar DBRS NCF of $14.9 million. Morningstar DBRS also maintained positive qualitative adjustments to the Loan-to-Value Ratio (LTV) Sizing Benchmarks totaling 4.0% to reflect the subject property's cash flow stability reflecting the recent leasing activity, the property quality, and the property's location within the Plaza District submarket. The Morningstar DBRS concluded value of $212.6 million represented a -71.3% variance from the issuance appraised value of $740.0 million and implies an LTV of 119.5% on the whole loan balance.

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, or 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 (August 13, 2024): https://dbrs.morningstar.com/research/437781

Class X-A is an interest-only (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 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. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The Morningstar DBRS Long-Term Obligation Rating Scale definition indicates that credit 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.

DBRS, Inc.
22 West Washington Street
Chicago, IL 60602 USA
Tel. +1 312 332-3429

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

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