DBRS Morningstar Confirms Two Classes of Morgan Stanley Bank of America Merrill Lynch Trust 2015-C21, Removes UR-Dev. Status

DBRS Limited (DBRS Morningstar) confirmed the ratings on the nonpooled rake bonds of the Commercial Mortgage Pass-Through Certificates, Series 2015-C21 issued by Morgan Stanley Bank of America Merrill Lynch Trust 2015-C21, which are backed by the $30.0 million subordinate B note of the Class 555 certificates, as follows:

-- Class 555A at A (sf)
-- Class 555B at BBB (sf)

All trends are Stable. The ratings have been removed from Under Review with Developing Implications, where they were placed on December 10, 2019.

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.

Prior to the finalization of the NA SASB Methodology, the DBRS Morningstar ratings for the subject transaction and all other DBRS Morningstar-rated transactions subject to the methodology in question were previously placed Under Review with Developing Implications, as the proposed methodology changes were material.

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.

The rake bonds are directly tied to 555 Eleventh Street NW, Lincoln Square, which is the second-largest loan of the pool and represents 7.5% of the pool balance. This property is a 414,204-square foot (sf) office building in the Washington, D.C., central business district, with ground-floor retail, a subterranean movie theatre, and a three-level subterranean parking garage. Loan proceeds, consisting of a $177.0 million mortgage loan along with $90.6 million of borrower equity, and $50.0 million of mezzanine debt, were used to finance the $300.0 million acquisition of the property to Rockrose General Equities Holdings LLC and to fund closing costs and escrows. The $90.0 million A note is split into two pari passu pieces of which $60.0 million is secured in the trust. There is an $87.0 million subordinate B note, of which $30.0 million backs the nonpooled certificates (Classes 555A and 555B).

Occupancy of the property was 97.3% as of September 2019, which compares favourably with its 85.0% occupancy at issuance. The two largest tenants at the property comprise 67.8% of the total net rentable area (NRA), including Latham & Watkins LLP, a top-tier international law firm with a lease extending through January 2031 and represents 58.1% of the NRA. Landmark Theatres is the second-largest tenant and occupies 9.7% of NRA with a lease extending through March 2032.

The loan is sponsored and managed by Rockrose Development Corporation (Rockrose Development). Founded in 1967, Rockrose Development has developed more than 11,200 apartments, 4.5 million sf of office space, and another 500,000 sf in various projects including retail, parking, and distribution centres. Its current ownership portfolio is primarily concentrated in Long Island City in Manhattan, New York, and Washington, D.C. At loan closing, the sponsor had approximately $90.6 million invested in the property.

The DBRS Morningstar net cash flow (NCF) derived at issuance was reanalyzed for the subject rating action to confirm its consistency with the “DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria.” The resulting NCF figure was $12.8 million and a cap rate of 6.75% was applied, resulting in a DBRS Morningstar Value of $189.4 million, a variance of -39.7% from the appraised value at issuance of $309.0 million. The DBRS Morningstar Value implies an LTV of 63.3% based on the A note and $30.0 million subordinate B note balance. The NCF figure applied as part of the analysis represents a -19.4% variance from the Issuer’s NCF, primarily driven by tenant improvements and leasing costs. According to the trailing-12 month September 2019 financials, the loan reported a debt service coverage ratio (DSCR) of 2.24 times (x), compared with the YE2018 DSCR of 2.29x.

The cap rate applied is at the lower end of the range of DBRS Morningstar Cap Rate Ranges for office properties, reflective of the strong occupancy and favourable location within the market. In addition, the 6.75% cap rate applied is above the implied cap rate of 4.1% 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 totalling 3.5% 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.

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 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 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.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

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 under Related Documents or by contacting us at [email protected].

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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