DBRS Confirms Ratings on Citigroup Commercial Mortgage Trust, Series 2015-GC27

DBRS Limited (DBRS) has today confirmed the ratings on the Commercial Mortgage Pass-Through Certificates issued by Citigroup Commercial Mortgage Trust, Series 2015-GC27 as follows:

-- 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-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.

The rating confirmations reflect the overall stable performance of the transaction, which remains in line with DBRS expectations. At issuance, the collateral consisted of 100 fixed-rate loans secured by 116 commercial properties. The transaction had a DBRS weighted-average (WA) debt service coverage ratio (DSCR) and a DBRS WA debt yield of 1.45 times (x) and 8.1%, respectively. As of the January 2016 remittance, loans representing 96.5% are reporting 2015 partial-year financials (most loans reporting a Q3 2015 figure). For the 14 loans reporting 2015 cash flows in the Top 15, the WA amortizing DSCR was 1.81x, with a WA net cash flow growth over the respective DBRS underwritten figures of 22.0%. All loans remain in the pool, with an aggregate balance of $1,188 million, representing a collateral reduction of 0.5% since issuance as a result of scheduled loan amortization.

As of the January 2016 remittance, there are no loans in special servicing or on the servicer’s watchlist. Two loans in the Top 15 are detailed below.

393-401 Fifth Avenue (Prospectus ID#2, 8.0% of the current pool balance) is secured by a 218,162 square foot (sf) Class B office property in Midtown Manhattan. The subject was initially constructed in 1905 and 1910 as two eight-story buildings, which were later conjoined as one office complex. The collateral contains ground-floor retail space with frontage along Fifth Avenue, as well as basement storage space and office space. According to the September 2015 rent roll, the property was 96.7% occupied, an increase from the in-place occupancy of 79.8% at issuance. The largest tenant, American Eagle Outfitters (AEO), occupies 69.6% of the NRA. This location is considered AEO’s primary design and office space in New York City, and appeals to a wide variety of tenants in the market. According to the servicer, AEO will extend its lease ten years to May 2026. DBRS has requested details regarding the new lease terms. In conjunction with this renewal, AEO will expand into an additional 16,575 sf of vacant space on the fourth floor, at $60.00 psf, and 20,293 sf of available space in the basement level at $25.00 psf through May 2026. The tenant currently pays $25.00 psf for the new basement unit, but rent will increase by $0.50 psf after the first year of the lease term and step up 2.0% each year for the remaining term. DBRS was aware at issuance that the tenant was in discussions to assume these spaces.

The loan had $10 million reserved for AEO at issuance for either the renewal or re-letting of its space. In addition, a $2 million tenant improvement allowance is available to the tenant, provided no trigger period has occurred. DBRS has asked the servicer for the updated balance of both reserves and whether AEO is receiving funds to renovate its space. As of February 2016, for the Murray Hill submarket of New York, CoStar reported an average vacancy rate of 6.1%, an availability rate of 8.5% and an average gross rental rate of $45.61 psf. The subject compares favorably with a vacancy rate of 3.3% and average gross rental rate of $51.69 psf. According to the Q3 2015 financials, the property reported a DSCR of 2.01x, an increase from the DBRS underwritten DSCR of 1.50x.

Whitman Square (Prospectus ID#6, 2.7% of the current pool balance) is secured by a 468,121 sf shadow anchored retail power center in Philadelphia, located adjacent to the Philadelphia Airport and slightly northeast of the central business district. The property is shadow anchored by Lowe’s and Wal-Mart. This Wal-Mart location is expected to remain open for business, as it was not included on the company’s recent closure list. According to the May 2015 rent roll, the property was 100% occupied; however, the second-largest tenant has a lease expiration in 2016 and the former third-largest tenant is known to have vacated the property. Michael’s is the second-largest tenant, occupying 16.9% of NRA with a lease expiring in November 2016. The tenant has been at the property since December 2004 and currently has three five-year renewal options at increased rental rates. It is uncertain at this time whether Michael’s will be renewing its lease, and as such, DBRS has reached out to the servicer for a leasing update. OfficeMax is the former third-largest tenant, previously occupying 13.8% of NRA. Its lease was scheduled to expire in January 2016, but the tenant vacated ahead of its lease expiration as early as July 2015; however, according to CoStar, OfficeMax’s space was subleased to Ashley Furniture Homestore (Ashley) and the tenant signed a direct lease in December 2015. Ashley will officially move into the space starting in March 2016 on a ten-year lease term. The details of Ashley’s lease was not available and has been requested from the servicer.

According to CoStar, power centers in the Northeast Philadelphia submarket reported an average triple net rent of $18.73 psf with a vacancy and availability rate of 1.1%. Despite the temporary increase in vacancy at the property of 13.8%, which is a result of OfficeMax leaving, the property has historically been occupying at 100% since 2011. Also, the subject’s average rental rate is slightly above the submarket at $19.37 psf triple net as per the May 2015 rent roll. The Q3 2015 financials reported a DSCR of 1.30x, an increase from the DBRS underwritten DSCR of 1.21x.

DBRS continues to monitor this transaction in its Monthly CMBS Surveillance Report, with additional information on the DBRS viewpoint for this transaction. The January 2016 Monthly CMBS Surveillance Report for this transaction will be published shortly. If you are interested in receiving this report, contact DBRS at info@dbrs.com.

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

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

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

The applicable methodologies are North American CMBS Rating Methodology (June 2015) and CMBS North American Surveillance (December 2015), which can be found on our website under Methodologies.