Fitch Ratings has affirmed 14 classes of SG Commercial Mortgage Securities Trust, commercial mortgage pass-through certificates, series 2016-C5 (SGCMS 2016-C5).

The Rating Outlook on class D has been revised to Stable from Negative, and the Outlooks on classes E and X-E remain Negative.

RATING ACTIONS

Entity / Debt

Rating

Prior

SGCMS 2016-C5

A-2 78419CAB0

LT

AAAsf

Affirmed

AAAsf

A-3 78419CAC8

LT

AAAsf

Affirmed

AAAsf

A-4 78419CAD6

LT

AAAsf

Affirmed

AAAsf

A-M 78419CAF1

LT

AAAsf

Affirmed

AAAsf

A-SB 78419CAE4

LT

AAAsf

Affirmed

AAAsf

B 78419CAK0

LT

AA-sf

Affirmed

AA-sf

C 78419CAL8

LT

A-sf

Affirmed

A-sf

D 78419CAV6

LT

BBB-sf

Affirmed

BBB-sf

E 78419CAX2

LT

B-sf

Affirmed

B-sf

Page

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VIEW ADDITIONAL RATING DETAILS

KEY RATING DRIVERS

Stable Loss Expectations: While Fitch's base case loss expectations have remained relatively stable since Fitch's prior rating action, the Outlook revision to Stable from Negative on class D reflects sufficient credit enhancement (CE) and the better than expected performance of loans affected by the pandemic.

This includes better than expected recoveries on one specially serviced retail asset, Plaza Mexico - Los Angeles ($36.0 million balance), which was disposed with no loss to the trust and Holiday Inn Express Nashville - Downtown (4.9% of pool), which returned to the master servicer after receiving forbearance. The hotel has demonstrated performance recovery from the pandemic. Additionally, South Pointe Apartments (3.7%), the largest decrease in losses since Fitch's prior rating action, is no longer considered a Fitch Loan of Concern (FLOC) due to improved performance in 2022 and 2021.

Fitch's current ratings reflect a base case loss of 6.80%. Ten loans (25.4%), including six (9.8%) in special servicing, were designated FLOCs. The Negative Outlooks on classes E and X-E were maintained to reflect concerns with two regional mall FLOCs (9.6%) and one suburban office, TEK Park (3.4%), in special servicing.

The largest specially serviced loan, TEK Park, is secured by a 514,033-sf office and technology park in Breinigsville, PA. The loan, which is sponsored by Eli Sternbuch, transferred to special servicing in January 2022 for imminent monetary default. The loan is current and the servicer is monitoring property performance.

Buckeye Partners (previously 15.5% of the NRA) did not renew its lease, triggering cash management. Buckeye accounted for approximately 15% of underwritten rents at issuance. Additionally, CyOptics, which leases 26.4% NRA, has leases for the majority of its space expiring in October 2023. Occupancy declined to 61% at YE 2021 from 79% at YE 2020. Servicer-reported NOI debt service coverage ratio (DSCR) for this amortizing loan was 1.46x at YE 2021 compared with 1.32x at YE 2020.

Fitch's base case loss of approximately 26% reflects a 12% cap rate and 15% total haircut to the YE 2021 NOI.

Regional Mall FLOCs: The largest loan in the pool, The Mall at Rockingham Park (6.4%), is secured by 540,867 sf of an approximate one million sf regional mall in Salem, NH. The loan was designated a FLOC due to low occupancy after departure of collateral anchor, Lord and Taylor (29.3% NRA and 2.7% of base rents), which closed this location in December 2020 after filing for Chapter 11 Bankruptcy. As a result, collateral occupancy has declined to 55% as of September 2022 from 89% as of September 2020. Servicer-reported NOI DSCR for this full-term IO loan was 1.80x as of the YTD September 2022 compared with 1.87x at YE 2021, 1.98x at YE 2020, 2.11x at YE 2019 and 2.31x at issuance.

Per the September 2022 rent roll, near-term rollover includes 12.2% NRA by YE 2023 spread across 33 tenants. In-line tenant sales continue to remain strong at $890 psf ($530 psf excluding Apple) as of the TTM ended November 2022 compared with $1,361 psf ($518 psf excluding Apple) as of the TTM ended November 2021.

The loan is sponsored by Mayflower Realty (joint venture of Simon Property Group and the Canadian Pension Plan Investment Board) and Institutional Mall Investors. The remaining anchors are Macy's and JCPenney, which are both non-collateral. Dicks Sporting Goods subleases a portion of a non-collateral (Seritage owned) former Sears space. A 12-screen Cinemark theater opened on the Seritage parcel in December 2019.

Fitch's base case loss of approximately 10% reflects a 15% cap rate and 15% total haircut to the YE 2021 NOI.

Peachtree Mall (3.2%) is secured by 621,367 sf of an 822,443-sf regional mall located in Columbus, GA and sponsored by Brookfield Properties Retail Group. The loan was designated a FLOC due to declining cash flow/DSCR since issuance given the secular consumer shift away from traditional regional mall retail. The mall is anchored by a non-collateral Dillard's and collateral tenants that include JCPenney, At Home and Macy's. Per the September 2022 rent roll, the collateral was 93% occupied. Servicer-reported NOI DSCR for this amortizing loan was 1.66x as of the YTD June 2022 compared with 1.58x at YE 2021, 1.56x at YE 2020 and 1.98x at issuance.

Comparable in-line tenant sales were $441 psf for the YE 2021, up from $334 psf at YE 2020, $383 psf at YE 2019 and $409 psf at issuance. Tenants comprising approximately 32% of the NRA have leases scheduled to expire by YE 2023, including At Home, which leases 13.8% NRA and has lease expiration in February 2023. Per servicer updates, At Home is negotiating a short-term extension.

Fitch's base case loss of approximately 32% reflects a 20% cap rate and 5% stress to the YE 2021 NOI. Fitch increased the loss recognition to account for the likelihood of maturity default.

Increasing Credit Enhancement: As of the January 2023 distribution date, the pool's aggregate balance has been reduced by 15.2% to $624.6 million from $736.8 million at issuance. Since Fitch's prior rating action, one loan in special servicing with a $36.0 million balance paid in full post maturity. Eight loans (32.5%) are full-term IO and 10 (24.0%) that were structured with a partial-term IO component at issuance are in their amortization periods. Two loans (5.2%) are fully defeased. Actual realized losses of $1.9 million and cumulative interest shortfalls of $1.2 million are currently affecting the non-rated class G.

Pool Concentration: The top 10 loans comprise 47.2% of the pool. Loan maturities are concentrated in 2026 (70.9%), with two loans (5.8%) maturing in 2023 and 10 (23.2%) in 2025. Based on property type, the largest concentrations are office at 34.3%, retail at 29.7% and hotel at 19.9%.

RATING SENSITIVITIES

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

Downgrades of classes rated in the 'AAAsf' and 'AAsf' categories are not likely due to sufficient CE and the expected receipt of continued amortization but could occur if interest shortfalls affect the class. Classes C and D would be downgraded if additional loans become FLOCs or if performance of the FLOCs deteriorates further. Classes E, X-E, F and X-F would be downgraded if loss expectations increase, primarily on the regional mall FLOCs and specially serviced loans, additional loans transfer to special servicing or if losses are realized.

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, C and D may occur with significant improvement in CE and/or defeasance 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 of classes E, X-E, F and X-F could occur if performance of the FLOCs improves significantly and/or if there is sufficient CE, which would likely occur if the non-rated classes are not eroded and the senior classes pay-off.

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.

USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10

Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.

Additional information is available on www.fitchratings.com

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