Fitch Ratings has affirmed all classes of BANK 2017-BNK7 Commercial Mortgage Pass-Through Certificates Series 2017-BNK7.

RATING ACTIONS

Entity / Debt

Rating

Prior

BANK 2017-BNK7

A-3 06541XAC4

LT

AAAsf

Affirmed

AAAsf

A-4 06541XAE0

LT

AAAsf

Affirmed

AAAsf

A-5 06541XAF7

LT

AAAsf

Affirmed

AAAsf

A-S 06541XAJ9

LT

AAAsf

Affirmed

AAAsf

A-SB 06541XAD2

LT

AAAsf

Affirmed

AAAsf

B 06541XAK6

LT

AA-sf

Affirmed

AA-sf

C 06541XAL4

LT

A-sf

Affirmed

A-sf

D 06541XAV2

LT

BBB-sf

Affirmed

BBB-sf

E 06541XAX8

LT

BB-sf

Affirmed

BB-sf

Page

of 2

VIEW ADDITIONAL RATING DETAILS

KEY RATING DRIVERS

Stable Loss Expectations: Overall pool performance and loss expectations have remained stable since Fitch's prior rating action. All loans within the pool are performing with no loans in special servicing. Three loans (12.9% of the pool) have been designated as Fitch Loans of Concern (FLOCs). Fitch's current ratings incorporate a base case loss of 3.8% for the pool.

Fitch Loans of Concern: The largest driver to losses is the Mall of Louisiana loan (5.5%), which is secured by 776,789-sf portion of a 1.5 million-sf super-regional mall located in Baton Rouge, LA. Non-collateral anchor tenant, Sears closed at the location in May 2021 with no reported leasing prospects. The servicer-reported YE 2021 NOI declined by 8% from YE2020 and was down 24% from the originator's underwritten level at issuance. However, the NOI as of September 2022, on an annualized basis, reflected a 5% improvement from the prior year.

In-line tenant sales in 2021 were reported at $539 psf for stores under 10,000 sf, excluding Apple, and $678 psf including Apple, both of which are an improvement from 2020 and 2019, reporting $334 psf and $394 psf, $454 psf and $587 psf, respectively. However, reported sales for AMC Theaters were $64,467 per screen in 2021, a 68% decrease from $199,956 per screen in 2020. Updated sales from 2022 were unavailable at the time of review.

Fitch modeled a loss of approximately 16.0% on the loan based on a 12.5% cap rate and a 5% stress to the YE2021 NOI which reflects declining NOI and a dark Sears box.

The second largest driver to losses is the Redondo Beach Hotel Portfolio (5.2%), a two-property, 319-key limited-service/extended stay hotel portfolio located in Redondo Beach, CA. Portfolio performance continues to recover but remains below levels prior to the pandemic. Trailing-twelve-month NOI as of September 2022 increased 26% compared to YE2021 but remains 30% below the YE2019 NOI. Portfolio-level occupancy of 78% and RevPAR of $120.24 as of September 2022 continued to trail occupancy and RevPAR levels in 2019 of 90% and $138.87, however, ADR of $154.55 from September 2022 fell in line with 2019 level of $155.07.

Fitch's modeled loss of 13% is based on a cap rate of 11.5% and a 10% stress to the YE2019 NOI to reflect the expectation of continued recovery.

The largest increase in losses is contributed by First Stamford Place (2.2%), which consists of three office buildings totaling 810,475-sf and located in Stamford, CT. Following Franklin Templeton's acquisition of Legg Mason in 2020, the tenant subsequently reduced its footprint by 7% of the property NRA causing property occupancy to fall to 75% from 82% in 2020. Occupancy declined further to 71% as of YE 2022 after Odyssey Reinsurance Company, the largest tenant at the subject, downsized by 1.5% of the property space.

Fitch's modeled loss of 12% is based on a cap rate of 10% and a 5% stress to the YE2022 NOI, which reflects the decline in occupancy at the subject property.

Minimal Change to Credit Enhancement: As of the February 2023 distribution date, the pool's aggregate principal balance was reduced by 6.8% to $1.13 billion from $1.21 billion at issuance. One loan (1.4%) is fully defeased. Twenty-two loans (52.9%) are full-term interest-only (IO) loans and 12 loans (20.8%) are partial-term IO loans, all of which have begun amortizing. Interest shortfalls are currently impacting class G.

Investment-Grade Credit Opinion Loans: Four loans (23.0%) were assigned investment-grade credit opinions at issuance and all loans continue to perform in line with Fitch's expectations at issuance. The General Motors Building (9.4%), Westin Building Exchange (5.7%), The Churchill (4.1%) and Moffett Place B4 (2.7%) were assigned 'AAAsf*', 'AAAsf*', 'AAAsf*' and 'BBB-sf*' standalone credit opinions, respectively, at issuance.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to negative rating action/downgrade:

Downgrades to the senior classes, A-1, A-2, A-3, A-SB, A-4, A-5, X-A, B, X-B and C are not likely due to the high credit enhancement (CE), but could occur if interest shortfalls occur or if loans of concern transfer to special servicing and realize significant losses. Downgrades to classes D and X-D would occur should overall pool losses increase, one or more large loans, have an outsized loss, which would erode CE. Downgrades to classes E, X-E, F and X-F would occur should loss expectations increase due to an increase in specially serviced loans, or a further decline in the FLOCs' performance.

Fitch has identified both a baseline and a worse-than-expected, adverse stagflation scenario based on fallout from the Russia-Ukraine war whereby growth is sharply lower amid higher inflation and interest rates; even if the adverse scenario should play out, Fitch expects virtually no impact on ratings performance, indicating very few rating or Outlook changes. However, for some transactions with concentrations in underperforming retail exposure, the ratings impact may be mild to modest, indicating some changes on sub-investment grade notes.

Factors that could, individually or collectively, lead to positive rating action/upgrade:

Upgrades of classes B, X-B and C may occur with significant improvement in CE or defeasance, but would be limited should the deal be susceptible to a concentration whereby the underperformance of FLOCs could cause this trend to reverse. Upgrades to classes D and X-D would also consider these factors, but would be limited based on sensitivity to concentrations or the potential for future concentration; classes would not be upgraded above 'Asf' if there is a likelihood for interest shortfalls. Upgrades to classes E, X-E, F and X-F is not likely until the later years in a transaction and only if the performance of the remaining pool is stable and/or if there is sufficient CE, which would likely occur when class G is not eroded and the senior classes payoff.

Best/Worst Case Rating Scenario

International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.

(C) 2023 Electronic News Publishing, source ENP Newswire