DBRS Confirms All Ratings of COMM 2015-LC21 Mortgage Trust

DBRS Limited (DBRS) has today confirmed all classes of Commercial Pass-Through Certificates, Series 2015-LC21 issued by COMM 2015-LC21 Mortgage Trust:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 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 X-E at AAA (sf)
-- Class X-F at AAA (sf)
-- Class A-M 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 (low) (sf)

All trends are Stable.

The rating confirmations reflect the current performance of the pool, which is stable from issuance. The collateral consists of 103 loans secured by 198 commercial properties. As of the May 2016 remittance, the pool has experienced collateral reduction of 0.6% because of scheduled amortization, with all of the original 103 loans remaining in the pool. There are 54 loans, representing 67.0% of the current pool balance, which are reporting YE2015 financials. These loans report a weighted-average (WA) debt service coverage ratio (DSCR) of 1.82 times (x) and a WA debt yield of 9.5%. At issuance, the pool reported a WA DSCR and debt yield of 1.84x and 9.6%, respectively.

At the May 2016 remittance, there was one loan on the servicer’s watchlist. The loan represents 0.6% of the current pool balance and was placed on the watchlist for non-performance related issues. At issuance, there were required repairs to be completed within 60 days of closing; however, the borrower has not yet provided evidence of completion. It is expected that the loan will be removed from the servicer’s watchlist as the response is provided.

The Courtyard by Marriott Portfolio loan (Prospectus ID#1, 7.4% of the current pool) is the largest loan in the transaction and it is secured by a portfolio of 65 Courtyard by Marriott hotels, totalling 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 whole loan consists of Senior A-note debt of $315.0 million and a controlling subordinate B-note of $355.0 million. The subject trust holds the $97.1 million non-controlling A-2A note. 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, passed 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 3.14x. The consolidated year-to-date 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 compared with the last 12 months ended February 2015 occupancy, ADR and RevPAR of 70.0%, $116.31 and $81.42, respectively. At issuance, DBRS shadow-rated this loan investment-grade. With this review, DBRS confirms that the performance of this loan remains consistent with investment-grade loan characteristics.

The Ortega Ranch loan (Prospectus ID#10, 1.9% of the pool) is secured by a 143,478 square-foot (sf) business park in San Juan Capistrano, California. The collateral is composed of 11 buildings that offer traditional office space situated across an 18-acre campus. According to the YE2015 financials, the loan reported a DSCR of 1.05x, representing a decline from the DBRS UW DSCR of 1.33x. This was a result of a 9.5% decrease in effective gross income as well as a 13.0% increase in operating expenses. The largest increases were reported for repairs and maintenance as well as general and administrative expense items. According to the March 2016 rent roll, the property was 86.0% occupied with an average rental rate of $24.86 per square foot (psf) compared with 89.0% and $21.85 psf, respectively, at issuance. Seventeen tenants, representing 20.0% of the net rentable area (NRA), have lease expirations in the next 12 months, most of which represent less than 1.0% of the NRA. Many of these tenants are local businesses that have been in occupancy at the property since original construction in 2005/2006. At issuance an upfront TI/LC reserve of $300,000 was funded to mitigate near-term rollover risk with ongoing monthly deposits collected as well. At the May 2016 remittance, the balance of the rollover reserve account was $350,000. It was also noted at issuance that ongoing construction on Ortega Highway limited accessibility to the subject property and resulted in an increase in vacancy. Improvements in occupancy are expected as the construction project was completed in late 2015. The subject is operating in line with the performance of its San Juan Capistrano/San Clemente submarket. According to CoStar data as of May 2016, Class B Office properties in this submarket reported an average vacancy of 13.2%, availability of 16.2% and rental rate of $24.58 psf.

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.