DBRS Assigns Provisional Ratings to LSTAR Commercial Mortgage Trust 2015-3

DBRS, Inc. (DBRS) has today assigned provisional ratings to the following classes of Commercial Mortgage Pass-Through Certificates, Series 2015-3 (the Certificates), to be issued by LSTAR Commercial Mortgage Trust 2015-3. The trends are Stable.

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)
-- Class X-C at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (sf)
-- Class F at B (sf)

All classes will be privately placed pursuant to Rule 144A.

The Class X-A, X-B and X-C balances are notional. DBRS ratings on interest-only certificates address the likelihood of receiving interest based on the notional amount outstanding. DBRS considers the interest-only certificates’ position within the transaction payment waterfall when determining the appropriate rating.

The collateral consists of 13 newly originated fixed-rate loans secured by 16 properties and 49 seasoned floating-rate loans purchased by Lone Star from Fannie Mae or originally part of the following deals: LASL 2006-MF2 (MF2), LASL 2006-MF3 (MF3). The fixed-rate loans, representing 86.6% of the pool, have all been recently originated by LStar Capital Finance within the past 12 months and are collateralized by a mix of stabilized assets comprised of hospitality, retail, office and multifamily properties. The seasoned loans represent a combined 13.4% of the pool, and are secured primarily by multifamily properties, with only 0.7% of all the seasoned loans secured by mobile home communities. DBRS refers to these as multifamily seasoned loans throughout the report given the concentration. Combined, the loans were all analyzed to determine the provisional ratings, reflecting the long-term probability of loan default within the term and its refinance risk at maturity for 87.8% of the loans that were not fully amortizing, based on a fully extended loan term. Due to the floating-rate nature of 13.4% of the pool, the interest rate was modeled based on a DBRS stressed index, subject to the life cap and floor rates when applicable. Additionally, to assess refinance risk for those loans that are not fully amortizing given the current low interest rate environment, DBRS applied its refinance constants to the balloon amounts; this resulted in ten loans representing 78.1% of the pool having refinance DSCRs below 1.00x.

The 13 newly originated loans are concentrated with the largest two each representing in excess of 10.0% of the pool at 13.1% and 12.9%, respectively. Combined, the 13 newly originated loans represent 86.6% of the pool. Alternatively, the 49 seasoned loans are very granular with only one loan representing more than 1.0% of the pool. The outstanding loan balances of the seasoned loans range in size from $2.8 million to less than $196,000. The average loan balance of the seasoned collateral is $769,232.

The seasoned loans have an average seasoning of 112 months. All of the loans in the pool are current and none of the loans have been delinquent over the past 36 months. Loans that fully amortize over their respective loan terms represent 12.2% of the pool. The LStar Capital Finance-originated and seasoned loans’ expected loan balance amortization at maturity is estimated at 3.2% and 94.1%, respectively.

The transaction structural features for this deal are viewed as less desirable than what is considered the norm in transactions securitized post-2010. Specifically, affiliates of Lone Star are both the mortgage loan seller and special servicer, and appraisal reduction amounts are not deducted from outstanding principal certificate balances when determining if a Control Termination Event has occurred in order to remove control from a party that no longer has an economic interest in the transaction. The seasoned multifamily loans have representations and warranties that are limited in scope but generally in line with expectations for seasoned collateral, with the exception of those representations dealing with insurance and property condition. The insurance representation for seasoned loans states that all properties are insured for fire, hazard and commercial general liability insurance, but no mention is made with respect to earthquake, windstorm and flood coverage. The property condition representation for seasoned loans includes a qualifier to the loan seller’s knowledge, but the loan seller did not perform inspections on any of the properties securing the seasoned loans, instead reviewing site inspections conducted prior to the acquisition of the loans.

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 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.

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