Morgan Stanley Bank of America Merrill Lynch Trust 2016-C28

Morgan Stanley Bank of America Merrill Lynch Trust 2016-C28: Your Annual Performance Snapshot

Understanding your investments is key, especially when they differ from traditional stocks. Unlike a traditional company, the Morgan Stanley Bank of America Merrill Lynch Trust 2016-C28 is a Commercial Mortgage-Backed Security (CMBS) trust. It functions as a diversified portfolio of commercial real estate loans. Investors in this trust essentially invest in the cash flow these underlying property loans generate.

This annual report details the performance of this loan pool for the fiscal year ended December 31, 2023.

Business Overview

What Exactly is This Trust? The Morgan Stanley Bank of America Merrill Lynch Trust 2016-C28 was formed in 2016 to pool and securitize a variety of commercial mortgage loans. Investors purchase certificates (bonds) whose payments come from these loans. The SEC classifies the trust as a "non-accelerated filer." This means it has a smaller public float or revenue than larger companies, which can affect how often it reports. However, this classification does not reduce its obligation to provide transparent financial information. The trust has filed all required reports, ensuring compliance with regulatory standards. Its primary function is to collect principal and interest payments from the underlying mortgage loans and then distribute these funds to certificate holders according to a predefined payment waterfall.

The Loan Portfolio: A Look Inside (Management Discussion & Analysis Highlights)

When the trust launched in 2016, it held a diverse set of commercial mortgage loans. For example, the Princeton Pike Corporate Center Mortgage Loan represented approximately 5.0% of the original pool balance, making it one of the larger initial assets.

As of December 31, 2023, the trust's portfolio has changed. It diversifies across various property types, with the largest concentrations typically including:

• Office Properties
• Retail Properties
• Multifamily Properties
• Industrial Properties
• Hotel Properties
• Other

Geographically, properties securing these loans span multiple states, preventing undue concentration of risk in any single region. The master servicer and special servicer continuously monitor the underlying loans and properties. They identify potential issues and take appropriate action to mitigate losses.

Financial Performance

Loan Performance: The health of the underlying loans is crucial. As of the reporting date:

• Special Servicing: Servicers actively manage loans that are transferred to special servicing due to performance issues or imminent default. They aim to mitigate potential losses through modifications, foreclosures, or other resolution strategies.

Financial Health

The trust's financial health primarily depends on the performance of its underlying loan collateral and its credit enhancement structure.

Cash and Liquidity: The trust's liquidity comes from scheduled principal and interest payments on the mortgage loans, and from any prepayments or proceeds from loan resolutions. The trust holds these funds in trust accounts and distributes them to certificate holders monthly, after paying fees and expenses. The trust does not maintain significant discretionary cash reserves beyond operational expenses and distributions.

Credit Enhancement: The trust's credit enhancement protects senior bondholders by absorbing losses in junior tranches. It remains at a level consistent with its initial structure, though realized losses have reduced it. This mechanism is crucial for understanding the risk profile of different certificate classes. Servicers regularly assess the current level of credit enhancement in relation to the remaining loan pool and its performance.

Key Risks for Investors

Investing in CMBS trusts involves specific risks investors should understand:

1. Real Estate Market Risk: Downturns in commercial real estate values, particularly in sectors like office or retail facing structural changes, can impact property performance and loan repayment.
2. Interest Rate Risk: Fluctuations in interest rates can affect the value of the trust's certificates and the ability of borrowers to refinance their loans.
3. Prepayment Risk: Loans may prepay earlier than expected, potentially leading to reinvestment at lower rates for certain certificate holders.
4. Liquidity Risk: CMBS certificates can be less liquid than other publicly traded securities, making them harder to sell quickly without affecting price.
5. Concentration Risk: While diversified, significant exposure to a particular property type or geographic region could pose a risk if that sector or area experiences a downturn.
6. Servicer Performance Risk: The actions and effectiveness of the master and special servicers in managing the loan portfolio, especially distressed assets, directly impact investor returns.
7. Default and Loss Severity Risk: The risk that borrowers will default on their loans and that the losses incurred upon liquidation of the underlying properties will exceed expectations.

Future Outlook

The trust's future performance largely depends on the broader economic environment and specific conditions within the commercial real estate markets where the underlying properties sit. While the trust itself does not have an active "strategy" or provide forward-looking "guidance" in the traditional corporate sense, servicers continuously monitor the portfolio's outlook.

Anticipated trends that could impact the trust include:

• Economic Conditions: General economic growth, employment rates, and consumer spending directly influence the performance of commercial properties.
• Interest Rate Environment: Sustained high interest rates could impact property valuations, increase borrowing costs for refinancing, and potentially lead to higher delinquencies.
• Sector-Specific Challenges: Certain property types, such as office and some retail, may continue to face structural headwinds, while industrial and multifamily sectors might show resilience or growth.
• Servicing Strategy: The special servicer will continue to employ various strategies, including loan modifications, forbearance agreements, and, if necessary, foreclosure and liquidation, to maximize recoveries on distressed assets.

The trust's long-term performance will depend on the underlying properties' ability to generate sufficient cash flow to service their debt, and the servicers' effectiveness in managing the portfolio through various market cycles.

Competitive Position

This section does not apply to a Commercial Mortgage-Backed Security (CMBS) trust. A CMBS trust is a passive investment vehicle. It holds a pool of mortgage loans and distributes cash flows to investors. It does not operate a business, compete for customers, or develop a competitive strategy like an operating company. Instead, its performance ties to the underlying collateral and the efficiency of its servicing and administration.

What This Means for You

This trust provides exposure to a diversified pool of commercial real estate debt. The trust has maintained operational compliance and continues to generate income. However, investors should closely monitor the underlying loan portfolio's performance, especially delinquency rates, loans in special servicing, and the specific property types and geographic concentrations. Understanding these factors, along with the trust's credit enhancement levels, is essential for assessing your investment's ongoing risk and potential returns.