DBRS Confirms Ratings on CSAIL 2015-C2 Commercial Mortgage Trust

DBRS Limited (DBRS) has today confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2015-C2 issued by CSAIL 2015-C2 Commercial Mortgage Trust 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-SB at AAA (sf)
-- Class A-S 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-NR 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 (low) (sf)
-- Class F at B (sf)

All trends are Stable. DBRS does not rate the first loss piece, Class NR.

The rating confirmations reflect the stable performance of the transaction since closing. At issuance, the collateral consisted of 118 fixed-rate loans secured by 160 commercial properties. As of the April 2016 remittance, the pool experienced a collateral reduction of 0.8% as a result of scheduled loan amortization. Loans representing 47.2% of the pool are reporting YE2015 financials, with loans representing 37.1% of the pool reporting partial year financials for 2015. The seven loans in the Top 15 (representing 22.0% of the current pool balance) reporting YE2015 figures showed a weighted-average (WA) amortizing debt service coverage ratio (DSCR) of 1.67 times (x), a weighted-average decrease of -3.0% from the respective DBRS underwritten figures. Eight loans in the Top 15 with 2015 partial year financials reported a WA DSCR of 2.17x with WA net cash flow growth over the respective DBRS underwritten figures of +25.8%.

As of the April 2016 remittance, there is one loan in special servicing, representing 0.4% of the pool. The loan was transferred to the special servicer because of delinquency. Eight loans, representing 7.6% of the pool, are on the servicer’s watchlist. The largest loan on the watchlist and the loan in special servicing are discussed below.

The Depot (Prospectus ID#6, 2.4% of the current pool balance) is secured by a 192-unit, 642-bed student housing property in Akron, Ohio, located less than a quarter-mile from the University of Akron and approximately half a mile south of the Akron, Ohio CBD. The property was constructed in 2014 at a cost of $36 million by the sponsor, The NRP Group. This loan was placed on the servicer’s watchlist because of the low DSCR of 0.61x at YE2015, with an occupancy rate of 57.7%. These figures represent declines from the DBRS underwritten DSCR of 1.12x and in-place occupancy at issuance of 94.2%. The decline in net cash flow was primarily driven by a decrease in occupancy and reduced rental rates, which averaged $618 per bed as of the December 2015 rent roll, compared to an average of $634 per bed at issuance. A competing property in the subject’s vicinity, 22 Exchange, secured in another CMBS transaction rated by DBRS, reported a YE2015 occupancy rate of 94.0% and an average rental rate of $652 per bed. 22 Exchange is also located within walking distance of the campus; however, the property is older in vintage and provides a less extensive amenity package compared to the subject property. The 22 Exchange loan is being monitored for a low DSCR due to rent concessions and increased operating expenses. Enrollment at the University of Akron has been declining since 2011, with approximately 25,000 students enrolled for the Fall 2015 semester, a -2.7% decrease from Fall 2014. Although the enrollment declines are likely contributors to the performance decline for the subject property, given the competing property’s ability to maintain occupancy well above that of the subject’s, DBRS believes mismanagement of the property could also be a factor. Given the sharp cash flow declines from issuance, this loan was modeled with an increased probability of default and will be closely monitored for developments.

The loan in special servicing, Elmhurst & Lake in the Hills (Prospectus ID#68, 0.4% of the current pool balance), is secured by two unanchored retail properties located in two Chicago suburbs, Elmhurst and Lake in the Hills, Illinois. The properties collectively consist of approximately 33,582 sf of space. According to the January 2015 rent roll, the collateral was 81.4% occupied with major tenants, including Xsport Fitness (28.3% of the collateral NRA) at the Elmhurst location and Athletico (15.2% of the collateral NRA) at the Lake in the Hills location, both with leases scheduled to expire in 2018 and 2021, respectively. At closing, approximately 18.6% of the combined NRA was vacant, shell space, with a TI/LC reserve of $350,000 funded at closing for those four spaces. The leasing reserve had a balance of approximately $95,000 as of the May 2016 remittance, indicating some leasing activity has occurred since issuance. The properties were considered to be in good condition at the time of the engineer’s respective inspections conducted at issuance. The loan was transferred to the special servicer in March 2016 due to payment default, with monthly payments in various stages of delinquency since July 2015 before transitioning over 60 days delinquent in March 2016. The servicer advises that the borrower has not been responsive to inquiries regarding the delinquency. The sponsors are two individuals that acquired the properties in 2009 and 2010. The trust loan refinanced existing debt on the property and returned approximately $857,000 in cash equity to the sponsors, with $1.16 million in cash equity remaining. As the borrower has not been responsive to the servicer’s inquiries, the reason for the delinquency is not apparent. DBRS has verified that all major tenants in place at issuance remain open, indicating cash flows have likely not declined significantly from issuance. Given the unknown factor with this loan, DBRS has modeled the loan with an increased probability of default and will closely monitor for developments.

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.