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Rating Action:

Moody's affirms seven classes of MSC 2017-H1

06 Jul 2022

Approximately $735 million of structured securities affected

New York, July 06, 2022 -- Moody's Investors Service, ("Moody's") has affirmed the ratings on seven classes in Morgan Stanley Capital I Trust 2017-H1, Commercial Mortgage Pass-Through Certificates, Series 2017-H1, as follows:

Cl. A-2, Affirmed Aaa (sf); previously on Oct 15, 2019 Affirmed Aaa (sf)

Cl. A-3, Affirmed Aaa (sf); previously on Oct 15, 2019 Affirmed Aaa (sf)

Cl. A-4, Affirmed Aaa (sf); previously on Oct 15, 2019 Affirmed Aaa (sf)

Cl. A-5, Affirmed Aaa (sf); previously on Oct 15, 2019 Affirmed Aaa (sf)

Cl. A-SB, Affirmed Aaa (sf); previously on Oct 15, 2019 Affirmed Aaa (sf)

Cl. A-S, Affirmed Aa2 (sf); previously on Oct 15, 2019 Affirmed Aa2 (sf)

Cl. X-A*, Affirmed Aaa (sf); previously on Oct 15, 2019 Affirmed Aaa (sf)

*  Reflects Interest-Only Classes

RATINGS RATIONALE

The ratings on the P&I classes were affirmed because of their 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), are within acceptable ranges.

The rating on the IO class was affirmed based on the credit quality of its referenced classes.

Moody's rating action reflects a base expected loss of 7.0% of the current pooled balance, compared to 5.6% at Moody's last review. Moody's base expected loss plus realized losses is now 6.4% 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 the interest-only class was "US and Canadian Conduit/Fusion Commercial Mortgage-Backed Securitizations Methodology" published in November 2021 and available at https://ratings.moodys.com/api/rmc-documents/74473. The methodologies used in rating interest-only classes were "US and Canadian Conduit/Fusion Commercial Mortgage-Backed Securitizations Methodology" published in November 2021 and available at https://ratings.moodys.com/api/rmc-documents/74473 and "Moody's Approach to Rating Structured Finance Interest-Only (IO) Securities" published in February 2019 and available at https://ratings.moodys.com/api/rmc-documents/59126. 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 https://ratings.moodys.com for a copy of these methodologies.

DEAL PERFORMANCE

As of the June 17, 2022 distribution date, the transaction's aggregate certificate balance has decreased by 9% to $991.4 million from $1.09 billion at securitization. The certificates are collateralized by 54 mortgage loans ranging in size from less than 1% to 6.6% of the pool, with the top ten loans (excluding defeasance) constituting 47% of the pool. Four loans, constituting 2.2% of the pool, have defeased and are secured by US government securities.

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 30, compared to 33 at Moody's last review.

As of the June 2022 remittance report, loans representing 81% were current or within their grace period on their debt service payments, 16% were beyond their grace period but less than 30 days delinquent and 3% were greater than 90 days delinquent.

Fourteen loans, constituting 27% of the pool, are on the master servicer's watchlist, of which eight loans, representing 12% of the pool, indicate the borrower has received loan modifications in relation to the 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.

Two loans have been liquidated from the pool, resulting in an aggregate realized loss of $726,259. Two loans, constituting 3.4% of the pool, are currently in special servicing.

The largest specially serviced loan is the One Presidential loan ($29 million – 2.9% of the pool), which is secured by a 133,315 square foot (SF) office property located in Bala Cynwyd, Pennsylvania, approximately seven miles northwest of the Philadelphia CBD. The property is also encumbered with $3.6 million of subordinate debt. The former largest tenant, Hamilton Lane Advisors, LLC (39% of the NRA), vacated at the end of their lease in December 2021. The property was 81% leased as of December 2021, compared to 92% at securitization, however, occupancy is expected to decline to approximately 42% based on the largest tenant's departure. The loan transferred to special servicing in November 2021 for imminent default and is last paid through the December 2021 payment date. The special servicer is dual tracking the foreclosure process while discussing workout alternatives with the borrower. An updated appraisal values the collateral 24% below the remaining A-note balance and an appraisal reduction has been recognized.

The remaining specially serviced loan is secured by a multifamily property which transferred to special servicing in October 2021 due to local code violations at the property, however, remediation is underway and the loan remains current and is included in the conduit statistics further below.

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 2020 operating results for 96% of the pool, and full or partial year 2021 operating results for 97% of the pool (excluding specially serviced and defeased loans). Moody's weighted average conduit LTV is 121%, compared to 119% 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 8% to the most recently available net operating income (NOI), excluding hotel properties that had significantly depressed NOI in 2020 / 2021. Moody's value reflects a weighted average capitalization rate of 9.9%.

Moody's actual and stressed conduit DSCRs are 1.48X and 0.90X, respectively, compared to 1.51X and 0.92X 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 top three conduit loans represent 18.1% of the pool balance. The largest loan is the Market Street - The Woodlands Loan ($65 million -- 6.6% of the pool), which is secured by a 492,082 SF, grocery-anchored outdoor lifestyle center having second and third floor office space. The loan represents a pari passu portion of a $175 million mortgage loan. The property is located in The Woodlands, Texas, which is a master-planned community approximately 35 miles north of downtown Houston. As of December 2021, the property was 91% leased, compared to 96% in December 2018. The retail component includes a Cinemark Theater (4% of total NRA) which has been impacted by the pandemic and the tenant's lease is currently month-to-month. The property underwent a cosmetic renovation during early 2019. The loan is interest only for its entire term and Moody's LTV and stressed DSCR are 121% and 0.80X, respectively, compared to 114% and 0.86X at last review.

The second largest loan is the Yeshiva University Portfolio Loan ($59 million -- 5.9% of the pool), which is secured by the borrower's fee simple interest in four office/specialized use buildings and a condominium interest in a fifth office/specialized use building, all located in New York, New York. The loan represents a pari passu interest in a $137.6 million senior loan. The portfolio is currently 100% leased to, and occupied by, Yeshiva University. Due to the single tenancy, Moody's value incorporated a lit/dark analysis. The loan has an anticipated repayment date (ARD) of May 6, 2027 and a final maturity date of May 6, 2032. The loan has amortized 1.7% since securitization after an initial interest only period. Moody's LTV and stressed DSCR are 109% and 1.17X, respectively, compared to 110% and 1.15X at last review.

The third largest loan is the iStar Leased Fee Portfolio Loan ($55 million -- 5.5% of the pool), which is secured by the borrower's leased-fee interests in 12 land parcels located across ten states. The loan represents a pari passu interest in a $227 million mortgage loan. The non-collateral improvements residing on the 12 collateral parcels consist of seven hotels, three office properties, one multifamily complex and one self-storage facility. Approximately 78% of allocated loan amount (ALA) is associated with non-collateral hotel improvements. The loan has an ARD of April 6, 2027 and a stated maturity date of April 6, 2028. The loan is interest only for its entire term. Moody's LTV and stressed DSCR are 110% and 0.74X, respectively, compared to 103% and 0.79X at last review.

REGULATORY DISCLOSURES

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 on https://ratings.moodys.com/rating-definitions.

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 issuer/deal page for the respective issuer on https://ratings.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 https://ratings.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://ratings.moodys.com/documents/PBC_1288235.

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 https://ratings.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.

Please see https://ratings.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 issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

Fred Kasimov
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

No Related Data.
© 2022 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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