DBRS Confirms Ratings on LSTAR Commercial Mortgage Trust 2015-3

DBRS Limited (DBRS) has today confirmed the ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2015-3 (the Certificates) issued by LSTAR Commercial Mortgage Trust 2015-3:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)
-- Class X-C 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 (sf)
-- Class F at B (sf)

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

The rating confirmations reflect the overall stable performance of the transaction. Since issuance, the transaction has experienced collateral reduction of 7.7% as a result of scheduled loan amortization and unexpected loan prepayments as 16 of the original 62 loans have paid out of the trust ahead of their respective maturity dates. Eleven loans, representing 87.1% of the current pool balance, have YE2015 financials available, reporting a weighted-average (WA) debt service coverage ratio (DSCR) and WA debt yield of 1.90 times (x) and 9.6%, respectively. The transaction is concentrated as the largest 12 loans represent 91.2% of the current pool balance.

The largest 12 loans in the pool were newly originated at issuance while the remaining 34 loans are seasoned loans that were purchased by the loan seller from Fannie Mae or were originally part of the now retired LASL 2006-MF2 and LASL 2006-MF3 CMBS transactions. Of the 16 loans that have prepaid to date, one loan was newly originated at issuance and 15 loans were seasoned loans. The newly originated loans are secured by hospitality, retail, office and multifamily properties, while the seasoned loans are secured by multifamily and manufactured housing community properties. The seasoned loans are granular within the transaction as the largest seasoned loan represents 0.6% of the current pool balance. All of the remaining seasoned loans, representing 8.7% of the current pool balance, are fully amortizing.

As of the May 2016 remittance, there are two loans on the servicer’s watchlist, representing 0.6% of the current pool balance, which were flagged for items of deferred maintenance or the debt service payment was received late; however, there are no delinquent loans in the transaction. A loan in the top 15 is highlighted below.

The Hudson River Commons loan (Prospectus ID#10, 4.0% of the current pool balance) is secured by a 129,000 square foot (sf) anchored retail property in Troy, New York, approximately 8.8 miles northeast of Albany. The property represents the dominate retail centre in Troy, with anchor tenants including Big Lots, Peebles and Save-A-Lot, all with leases scheduled to expire in 2020 or 2023. The property remains at 100% occupancy as of the December 2015 rent roll. According to the YE2015 financials, the DSCR was reported at 1.10x, which is a decrease from the DBRS UW DSCR of 1.40x with the decline in net cash flow mainly driven by an increase in total operating expenses. Repairs and maintenance increased by 58.0% over the DBRS underwritten figure, which may have been attributed by ongoing renovations at the property. DBRS was aware of these capital expenditure projects at issuance, which included updates to the property’s facade, parking lot, roof, pylon sign, drainage systems and the outparcel lot. DBRS has sent a question to the servicer for an explanation regarding the increase in expenses. The borrower has invested $3.5 million into the renovation to date, with an additional $1.0 million budgeted for the future. The servicer was contacted for a status update regarding the renovations and a response is currently outstanding as of the date of this press release. DBRS expects the cash flow to stabilize once all renovations are completed.

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

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.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

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