DBRS Morningstar Assigns Ratings to BBCMS Trust 2015-SRCH

DBRS, Inc. (DBRS Morningstar) assigned ratings to the Commercial Mortgage Pass-Through Certificates, Series 2015-SRCH issued by BBCMS Trust 2015-SRCH (the Issuer) as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class D at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class X-A at AAA (sf)
-- Class X-B at BBB (high) (sf)

All trends are Stable.

These certificates are currently also rated by DBRS Morningstar’s affiliated rating agency, Morningstar Credit Ratings, LLC (MCR). In connection with the ongoing consolidation of DBRS Morningstar and MCR, MCR previously announced that it had placed its outstanding ratings of these certificates Under Review–Analytical Integration Review and that MCR intended to withdraw its outstanding ratings; such withdrawal will occur on or about May 20, 2020. In accordance with MCR’s engagement letter covering these certificates, upon withdrawal of MCR’s outstanding ratings, the DBRS Morningstar ratings will become the successor ratings to the withdrawn MCR ratings. Information about the MCR ratings, including the history of the MCR ratings, can be found at www.morningstarcreditratings.com.

On March 1, 2020, DBRS Morningstar finalized its “North American Single-Asset/Single-Borrower Ratings Methodology” (the NA SASB Methodology), which presents the criteria for which ratings are assigned to and/or monitored for North American single-asset/single-borrower (NA SASB) transactions, large concentrated pools, rake certificates, ground lease transactions, and credit tenant lease transactions. For further information on the NA SASB Methodology, please see the press release dated March 1, 2020, on the DBRS Morningstar website at www.dbrsmorningstar.com.

The subject rating actions are the result of the application of the NA SASB Methodology in conjunction with the “North American CMBS Surveillance Methodology,” as applicable. Qualitative adjustments were made to the final loan-to-value (LTV) sizing benchmarks used for this rating analysis.

DBRS Morningstar has requested an update from the servicer regarding any potential request for relief, but has not received a response to date.

The transaction is collateralized by the $430.0 million senior portion of $650.0 million in total debt, which includes a $71.0 million junior loan and $149.0 million in mezzanine debt, both held outside the trust. This 12-year loan has a fixed rate of 4.96% and requires interest-only (IO) payments for the first five years, ending in September 2020, before amortizing on a 30-year schedule through the loan’s maturity date in 2027.

The loan is secured by a newly constructed three-building 943,00 square foot Class A office complex in Sunnyvale, California, known as Moffett Place. The property is 100% occupied by an investment-grade-rated tenant, Google LLC (Google), which has a lease through 2027 with two seven-year renewal options and no termination options. Google has a large presence in the immediate area with Google Technology Corners less than 1.0 mile away and the Googleplex headquarters in Mountain View, California, within 5.0 miles.

The sponsor used the loan to pay off an existing construction loan, fund a $71.0 million reserve, and return $85.7 million of equity to the borrower. The loan is structured with a cash flow sweep in the event of certain triggers, including if Google does not provide notice of its intent to renew two years prior to lease expiry.

In the analysis for these rating actions, the DBRS Morningstar net cash flow (NCF) figure of $37.1 million and cap rate of 6.5% resulted in a DBRS Morningstar Value of $570.6 million, a variance of -33.3% from the appraised value of $855.0 million at issuance. The DBRS Morningstar Value implies a trust LTV of 75.4% and total debt LTV of 113.9% compared with the trust LTV of 50.3% on the appraised value at issuance.

The DBRS Morningstar NCF was reanalyzed for the subject rating action to confirm its consistency with the “DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria.” The NCF figure applied as part of the analysis represents a -19.6% variance from the Issuer’s NCF, primarily driven by not giving credit for rent steps beyond 12 months for the transaction securitization and assuming a 5.0% vacancy loss. As of YE2019, the servicer reported a NCF figure of $44.2 million, a 16% variance from the DBRS Morningstar NCF figure, primarily a factor of realized rent steps.

DBRS Morningstar applied a cap rate at the lower end of the DBRS Morningstar Cap Rate Ranges for office properties, reflecting the new construction of the property and its investment-grade tenant, Google. In addition, the 6.5% cap rate DBRS Morningstar applied is above the implied cap rate of 5.4% based on the Issuer’s underwritten NCF and appraised value.

DBRS Morningstar made positive qualitative adjustments to the final LTV sizing benchmarks used for this rating analysis, totaling 6.5% to account for cash flow volatility, property quality, and market fundamentals.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Classes X-A and X-B are IO certificates that reference a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation tranche adjusted upward by one notch if senior in the waterfall.

All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for this transaction.

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com The platform includes loan-level data for most outstanding CMBS transactions (including non-DBRS Morningstar-rated), as well as loan-level and transaction-level commentary for most DBRS Morningstar-rated and -monitored transactions.

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

The principal methodologies are the North American Single-Asset/Single-Borrower Ratings Methodology and North American CMBS Surveillance Methodology, which can be found on www.dbrsmorningstar.com under Methodologies & Criteria. For a list of the structured-finance-related methodologies that may be used during the rating process, please see the DBRS Morningstar Global Structured Finance Related Methodologies document, which can be found on www.dbrsmorningstar.com in the Commentary tab under Regulatory Affairs. Please note that not every related methodology listed under a principal structured finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS Morningstar long-term rating scale definition indicates that ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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