DBRS Assigns Provisional Ratings to Citigroup Commercial Mortgage Trust 2015-GC27

DBRS, Inc. (DBRS) has today assigned provisional ratings to the following classes of Commercial Mortgage Pass-Through Certificates, Series 2015-GC27 (the Certificates), to be issued by Citigroup Commercial Mortgage Trust 2015-GC27:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-AB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)
-- Class X-E at AAA (sf)
-- Class X-F at AAA (sf)
-- Class X-H at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (sf)
-- Class PEZ at A (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class F at B (sf)
-- Class G at B (low) (sf)

All trends are Stable.

Classes X-E, X-F, X-H, D, E, F, G, and H will be privately placed.

Classes X-A, X-B, X-E, X-F and X-H balances are notional. DBRS ratings on interest-only (IO) certificates address the likelihood of receiving interest based on the notional amount outstanding. DBRS considers the IO certificates' position within the transaction payment waterfall when determining the appropriate rating.

Up to the full certificate balance of the Class A-S, Class B and Class C certificates may be exchanged for Class PEZ certificates. Class PEZ certificates may be exchanged for up to the full certificate balance of the Class A-S, Class B and Class C certificates.

The collateral consists of 100 fixed-rate loans secured by 116 commercial properties, comprising a total transaction balance of $1,194,026,467. The DBRS sample included 37 of the 100 loans, representing 64.4% of the pool. Site inspections were performed on 39 of the 116 properties in the pool (59.3% of the pool by allocated loan balance). Of the sampled loans, two loans representing 5.6% of the pool, were given Above Average property quality, a measure indicating a higher likelihood of attracting and retaining new or existing tenants/guests, resulting in a more stable performance. Only six loans, representing 8.9% of the pool, are secured by hotels, which have the highest cash flow volatility of all major property types. Many recent conduit transactions have had hotel concentrations in excess of 15% of the pool. Overall, the pool is relatively diverse based on loan size, with a concentration profile equivalent to that of a pool of 37 equal-sized loans. Increased pool diversity helps to insulate the higher-rated classes from event risk.

The transaction has a high concentration of loans with elevated refinance risk. Fifty-five loans, representing 64.5% of the pool, have DBRS Refi DSCRs below 1.00x. Thirty of these loans, representing 42.9% of the pool, have DBRS Refi DSCRs of less than 0.90x. However, the DBRS Refi DSCRs are based on a weighted-average stressed refinance constant of 9.82%, which implies an interest rate of 9.19%, amortizing on a 30-year schedule. This represents a significant stress of 5.4% over the weighted-average contractual interest rate of the loans in the pool. In addition, the combined partial IO and full-term IO concentration amounts to 66.7% of the transaction balance. There are thirteen loans representing 22.9% of the pool, including three loans in the top ten, which are IO for the full term. An additional 40 loans, representing 43.8% of the pool, have remaining partial IO periods. This results in a low level of total pool amortization during the loan term of -11.1%. However, DBRS determines the probability of default based on the lower of term or refinance DSCR, and loans that lack amortization are treated more punitively. Furthermore, the pool has a high concentration of retail properties as 38.0 % of the pool are secured entirely by retail assets, which increases to 42.9% of the pool when including loans only partially secured by retail. The retail sector has generally underperformed since the Great Recession due to declining consumer spending power, store closures, chain bankruptcies and the rapidly growing popularity of e-commerce. According to the U.S. Census Bureau, e-commerce sales represented 5.8% of total retail sales in 2013, nearly tripling the penetration of 2.0% in 2004. As the e-commerce share of sales is expected to continue to grow significantly in the coming years, the retail real estate sector may continue to be relatively weak.

The ratings assigned to the Certificates by DBRS are based exclusively on the credit provided by the transaction structure and underlying trust assets. All classes will be subject to ongoing surveillance, which could result in upgrades or downgrades by DBRS after the date of issuance.

Notes:
All figures are in U.S. dollars unless otherwise noted.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodology is CMBS Rating Methodology, which can be found on our website under Methodologies.

The Rule 17g-7 Report of Representations and Warranties is hereby incorporated by reference and can be found by clicking on the link to the right under Other Research or by contacting us at info@dbrs.com.