DBRS Confirms Ratings on CFCRE 2015-RUM Mortgage Trust

DBRS, Inc. (DBRS) has today confirmed all classes of Commercial Mortgage Pass-Through Certificates issued by CFCRE 2015-RUM Mortgage Trust as follows:

-- Class A at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (high) (sf)
-- Class X-CP at BBB (low) (sf)
-- Class X-EXT at BBB (low) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which remains in line with DBRS’s expectations at issuance. The trust loan is secured by the Ritz-Carlton Grand Cayman, a 300-room luxury hotel resort located along the renowned Seven Mile Beach on Grand Cayman, the largest of the Cayman Islands. The $140.0 million floating-rate, securitized mortgage loan is supplemented by a subordinate $35.0 million interest-only (IO) mezzanine loan. The transaction closed in July 2015 and is IO for the initial two-year term as well as during the three subsequent one-year extension options. According to the servicer, the borrower has exercised its first one-year extension option extending the loan until July 2018.

The collateral includes the leasehold interest in the hotel and amenities, which include six restaurants and bars, a 20,000-square foot (sf) spa, 59,032 sf of meeting space, 9,600 sf of retail space, two pools and a children’s waterpark, as well as a five-court tennis center.

Improvements are situated on land owned by the government of the Cayman Islands under a ground lease extending through November 2104, which has been prepaid for the entire term. The resort includes 69 luxury residential condo units that do not serve as collateral for the loan. There are also 24 hotel-condo units that participate in the hotel’s unit rental program and the corresponding rental agreements serve as security for the loan. The condo-hotel unit owners are allowed to split their units, yielding a maximum of 65 keys for a total of 365 rooms across the subject hotel at any given time. Since issuance, a further five condo-hotel suites, divisible into up to ten units, have been constructed and added to the pool of rental units, increasing the total room count at the property to a maximum of 375 units.

The collateral’s performance has remained healthy since issuance, as the YE2016 debt service coverage ratio (DSCR) was 3.58 times (x) compared with the YE2015 DSCR of 3.63x. Year-end cash flow reporting continues to be in excess of the DBRS stressed Term DSCR of 2.45x. While the year-end occupancy rate increased 1.0% between YE2015 and YE2016, the average daily rate (ADR) over the same period decreased by 3.7% to $658 from $683. The resulting revenue per available room (RevPAR) decreased marginally by 2.1%, to $435 from $444. As of the April 2016 Smith Travel Research report, the property continues to outperform its competitive set, with occupancy, ADR and RevPAR penetration of 107.4%, 145.4% and 156.1%, respectively.

The loan benefits from strong institutional sponsorship, as it is majority owned by Five Mile Capital Partners, which has invested over $23 million in improving the property since acquiring it in 2012, including a full renovation of all guestrooms at $32,500 per key in 2013. The loan benefits from both a seasonality reserve and an insurance reserve with current balances of $3.99 million and $2.17 million, respectively, with contributions being made during the high season each year from January to July in order to cover debt service and operating expense shortfalls during the low season.

The Kimpton Seafire Resort and Spa (Kimpton), a 266-key, boutique-style, upscale resort located a mile and a half north of the Ritz-Carlton, opened in November 2016, and represents the first new development on Seven Mile Beach in ten years. While it is the newest hotel in the market, DBRS expects the Kimpton to be only slightly competitive to the Ritz-Carlton given its inferior amenities and flag. Management’s opinion mirrored that view and they do not expect a big impact because of the different guest profile expected at the Kimpton property. Additionally, the Grand Hyatt Baha Mar, located in Nassau, the Bahamas that totals 2,200 rooms, opened in May 2017 after several delays of its original scheduled grand opening. The resort will include a golf course, a 100,000 sf casino and a luxury spa among other amenities. It will also include 160 rooms under the Rosewood flag that will be directly competitive with the luxury brand of the Ritz-Carlton.

For more information on this rating action, please contact DBRS at info@dbrs.com.

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 principal methodology is the CMBS North American Surveillance (March 2017), which can be found on dbrs.com under Methodologies.