DBRS Places One Class of CCMOT 2015-3 Under Review with Negative Implications

DBRS Limited (DBRS) has today placed the following class of Commercial Mortgage Pass-Through Certificates, Series 2015-3 issued by Canadian Commercial Mortgage Origination Trust 2015-3 Under Review with Negative Implications:

-- Class G at B (sf)

DBRS has placed Class G Under Review with Negative Implications because of concerns and uncertainties surrounding the Clearwater Suites Hotel loan (Prospectus ID#7, 3.9% of the current pool balance), with the collateral property’s decline in performance in 2015 and in light of the recent wildfire activity in Fort McMurray, Alberta, where the property is located. The subject loan represents the $23.0 million A-2 controlling pari passu note of the $33.0 million whole loan balance; the $10.0 million A-1 non-controlling note is secured in the CMLS 2014-1 transaction, also rated by DBRS.

Clearwater Suites is a 150-unit, full-service hotel located in Fort McMurray, Alberta, approximately 17 kilometres from the Fort McMurray International Airport, within the city’s downtown core. The area has recently sustained widespread damage as a result of a wildfire that broke out in early May 2016. According to an update provided in early May 2016, the servicer indicated that the hotel had not been physically affected by the wildfire; however, the property’s website confirms that the subject remains closed until access to the area is provided by the regional authorities. Based on the most recent maps detailing affected areas provided the various news sources, it appears that the subject property falls outside of those areas reported to have sustained significant damage. All residents and workers have been evacuated from the area, and the government is expected to allow re-entry beginning June 1, 2016.

In addition to the issues caused by the wildfire, the property’s performance has shown a steady decline in the last year. Revenues have been adversely affected by the downturn in the oil industry, upon which the area is heavily reliant for jobs and residents.

This transaction closed in September 2015, and at the time of issuance, it was noted that the cash flows had declined compared with the cash flows at the time of issuance of the CMLS 2014-1 transaction. As a result, the DBRS underwritten (UW) net cash flow (NCF) was updated in conjunction with the analysis for this transaction. The DBRS UW NCF for this loan was $3.0 million, which is representative of a 1.15 times (x) debt service coverage ratio (DSCR). However, according to the year-end 2015 financials, cash flows fell even further by the end of the year, and the loan finished with a DSCR of 0.86x. As of December 2015, the property had a year-to-date occupancy rate of 54.1%, an average daily rate of $193.89 and a revenue per available room rate of $104.88, respectively, compared with 70.1%, $212.17 and $148.67 as of December 2014, respectively.

Compounding the increased risk with the performance decline is the likelihood that any business interruption coverage (should it be required in the event the property’s operations are affected by the wildfire activity) would be limited to providing relief to the most recent cash flows achieved over a specified period. However, if the property’s operations are not affected by the fires, DBRS believes there will be a short- to middle-term benefit to the property, as displaced residents and workers in the area for reconstruction will need temporary and transient housing. Sustaining improved occupancy rates, however, would be dependent on the ability of the oil industry to rebound. As the situation is ongoing, the extent of the impact to the subject property is unknown at this time. DBRS will continue to monitor as information is received and the property’s operational status is confirmed.

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

Notes:
All figures are in Canadian 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.