DBRS Confirms All Classes of COMM 2015-CCRE23 Mortgage Trust

DBRS Limited (DBRS) has today confirmed all classes of Commercial Mortgage Pass-Through Certificates, Series COMM 2015-CCRE23 (the Certificates) issued by COMM 2015-CCRE23 Mortgage Trust:

-- 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-M at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)
-- Class X-C at AAA (sf)
-- Class X-D at AAA (sf)
-- Class CM-A at AAA (sf)
-- Class CM-X-CP at AAA (sf)
-- Class CM-X-EXT at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class CM-B at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class F at B (low) (sf)

All trends are Stable.

Class CM-A is a non-pooled rake bond backed by the $33.5 million Courtyard by Marriott Portfolio A-1 note and Classes CM-X-CP, CM-X-EXT and CM-B are non-pooled rake bonds backed by the $355.0 million Courtyard by Marriott Portfolio B-note.

The rating confirmations reflect the current performance of the pool, which is stable from issuance. The collateral consists of 83 fixed-rate loans secured by 220 commercial properties. As of the April 2016 remittance, the pool has experienced collateral reduction of 0.5% due to scheduled loan amortization, with all of the original 83 loans remaining in the pool. Approximately 34 loans, representing 57.2% of the current pool balance, are reporting year-end or partial-year 2015 financials. These loans report a weighted-average (WA) debt service coverage ratio (DSCR) of 2.21 times (x) and the WA debt yield of 10.7%. At issuance, the pool reported a WA DSCR and debt yield of 1.92x and 9.5%, respectively.

The Courtyard by Marriott Portfolio loan (Prospectus ID#2, 7.3% of the current pool) is secured by a portfolio of 65 Courtyard by Marriott hotels, totaling 9,590 keys. The collateral included the fee and leasehold interest in 49 hotels, the fee interest in nine hotels and the leasehold interest in seven hotels. The subject loan consists of the $33.5 million A-1 piece and $100.0 million A-2A piece of the whole Senior A-note debt of $315.0 million, as well as the controlling subordinate B-note debt of $355.0 million. This loan benefits from granularity, as no single asset contributes more than 4.7% of the DBRS underwritten (UW) net cash flow (NCF). Additionally, the properties are spread across 29 states, with the largest representation located in California (22.9% of the DBRS UW NCF) and Illinois (8.9% of the DBRS UW NCF). The hotels operate under a single management agreement that does not expire until 2025, past loan maturity in April 2020. According to the YE2015 financials, the loan reported a DSCR of 4.24x, representing an increase from the DBRS UW DSCR of 3.15x. The consolidated YTD 2015 occupancy, average daily rate (ADR) and revenue per available room (RevPAR) were 70.7%, $122.62 and $86.70, respectively. These figures have all increased since issuance when compared with the trailing 12-month February 2015 occupancy, ADR and RevPAR of 70.0%, $116.31 and $81.42, respectively. At issuance, DBRS shadow-rated this loan investment-grade. DBRS confirms with this review that the performance of this loan remains consistent with investment-grade loan characteristics.

As of the April 2016 remittance, there are two loans on the servicer’s watchlist, representing 3.9% of the current pool balance, and there are no loans in special servicing. One loan on the watchlist is highlighted below.

The Sherman Plaza loan (Prospectus ID#6, 3.6% of the current pool balance) is secured by a 267,648 square foot (sf) Class A office complex located in the Van Nuys neighborhood of Los Angeles. The complex consists of two four- and five-story office buildings which were originally built in 1983 and 1988. This loan was added to the watchlist as the largest tenant, North Los Angeles Regional Center (NLARC), representing 26.3% of the net rentable area (NRA), exercised its early termination option. The servicer has confirmed that the tenant will be vacating in October 2016, prior to its original lease expiration of April 2020. According to the asset summary report, the tenant is required to pay a termination fee of $790,000. According to the servicer, the borrower has identified a possible replacement tenant that would occupy about half of the NLARC’s space; however, a lease has yet to be executed and potential terms are unknown at this time. According to the March 2016 rent roll, the property was 92.0% occupied with an average annual rental rate of $27.73 per square foot (psf). The second-largest tenant at the property, USA GSA (representing 9.8% of the NRA) has a lease that expires in August 2016 and the borrower is currently in talks with the tenant regarding the upcoming lease expiry. As of April 2016, the loan has a current reserve balance of approximately $1.9 million, not inclusive of the NLARC termination fee. The YE2015 amortizing DSCR for the loan was reported at 1.09x, which represents a decline from the DBRS UW DSCR of 1.25x. The decline is attributable to an increase in operating expenses with effective gross income in line with the DBRS UW levels. According to Real Capital Analytics, within a five-mile radius of the subject, 12 office properties have sold or refinanced in the past year at an average price of $209 psf, compared with the leverage of $182 psf for the loan. The borrower appears to be committed to the property, as it contributed an additional $2.4 million in cash equity to refinance the loan at issuance, which included funding an upfront TI/LC reserve of $1.3 million. Due to the uncertainty surrounding upcoming lease expirations, DBRS modeled the loan with an elevated probability of default.

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 (March 2016) and CMBS North American Surveillance (December 2015), which can be found on our website under Methodologies.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.