DBRS Confirms Ratings of COMM 2015-PC1 Mortgage Trust

DBRS Limited (DBRS) has today confirmed all classes of Commercial Pass-Through Certificates, Series 2015-PC1 issued by COMM 2015-PC1 Mortgage Trust as follows:

-- 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 A-5 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 has been stable from issuance. The collateral consists of 80 loans secured by 147 commercial properties. As of the May 2016 remittance, the pool has experienced collateral reduction of 0.4% due to scheduled amortization, with all of the original 80 loans remaining in the pool. There are 55 loans, representing 68.7% of the current pool balance, which are reporting YE2015 financials. These loans report a weighted-average (WA) debt service coverage ratio (DSCR) of 1.19 times (x) and a WA debt yield of 9.4%. At issuance, the pool reported a WA DSCR and debt yield of 1.51x and 9.6%, respectively. DBRS believes reported cash flows are likely artificially depressed for some of the loans showing YE2015 metrics, as first year reporting is often skewed as compared to underwritten or historical figures, particularly when it comes to expenses. As such, DBRS expects the WA DSCR for the pool will improve with the 2016 reporting.

At the May 2016 remittance, there were two loans on the servicer’s watchlist, Prospectus ID #37, The Hub Shopping Center and Prospectus ID #72, Chapin Center, representing 1.0% and 0.33% of the current pool balance, respectively. The Chapin Center loan was flagged for upcoming tenant rollover and the Hub Shopping Center loan was flagged for a decline in cash flow from the Issuer’s underwritten figures. Both loans are reporting Q1 2016 figures and the servicer reports the cash flow decline for the former loan is likely the result of annualized expenses.

The City Center at 735 Water Street loan (Prospectus ID#15, 1.8% of the current pool balance) is secured by a 353,000 square foot (sf) mixed-use, LEED-certified office and retail property in downtown Milwaukee, Wisconsin, situated directly on the Milwaukee River. According to the December 2015 rent roll, the property reported an occupancy rate of 88.3%; however, the third-largest tenant, Borgelt, Powell, Petersen & Frauen S.C. (Borgelt), appears to have vacated at its lease expiration in March 2016, and as such, occupancy may be as low as 80.0%. The second-largest tenant, National Business Furniture, occupies 7.8% of the net rentable area (NRA) with a lease expiring in April 2016 and one five-year renewal option remaining. As of June 2016, the tenant is still located at the subject property and DBRS has asked the servicer to verify the tenant’s current status. According to CoStar, Class B office properties larger than 100,000 sf within a 0.2-mile radius from the subject reported an average vacancy rate and availability rate of 12.1% and 19.6%, respectively. With Borgelt’s departure, vacancy at the subject property appears to be above the market vacancy, but in line with the market availability rate. The 833 East Michigan building, a 358,000 sf Class A office property recently completed in March 2016 is a direct competitor to the subject. This property is located less than a mile from the subject and offers similar amenities. According to CoStar, 833 Michigan is 70.2% occupied with asking rents ranging between $19.50 per square foot (psf) and $23.50 psf. In comparison, the subject’s asking rents range between $15.00 psf and $19.00 psf. Since the acquisition of the property, the sponsor has invested $23.6 million of capital improvements into the asset in order to maintain a competitive presence in the market. The YE2015 financials reported a DSCR of 1.64x, which is well above the DBRS underwritten DSCR of 1.16x. At issuance, DBRS underwrote an additional vacancy factor of 15.0% for the month-to-month tenants in place at the property, contributing to the variance from the Issuer’s net cash flow figure by -18.4%.

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

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.