DBRS Morningstar Changes Trend on Two Classes from COMM 2015-CCRE26 Mortgage Trust to Negative from Stable, Discontinues Rating on One Class, Confirms Ratings on All Others
CMBSDBRS, Inc. (DBRS Morningstar) confirmed the ratings of the Commercial Mortgage Pass-Through Certificates, Series 2015-CCRE26 issued by COMM 2015-CCRE26 Mortgage Trust as follows:
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-M at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class X-B at A (sf)
-- Class C at A (low) (sf)
-- Class X-C at BBB (sf)
-- Class D at BBB (low) (sf)
Additionally, DBRS Morningstar has discontinued the rating on Class A-2 as the class has been repaid in full. The trends on all classes are Stable with the exception of Classes X-C and D, which have been changed to Negative.
The rating confirmations reflect the overall stable performance of the transaction. However, DBRS Morningstar changed the trends on Classes X-C and D to Negative as a result of ongoing performance issues with select loans, specifically those secured by hotel and retail properties, which have been disproportionately affected by the ongoing Coronavirus Disease (COVID-19) pandemic. Combined, these loans represent 30.8% of the outstanding transaction balance. As of October 2020 reporting, there are four loans in special servicing, representing 7.8% of the current pool balance, and 13 loans on the servicer’s watchlist, representing 21.8% of the current pool balance. All four loans in special servicing are at least 90 days delinquent, and three of the four loans are secured by hotel properties. The largest loan on the servicer’s watchlist, Ashley Park (Prospectus ID#3, 6.7% of the pool), is secured by an outdoor retail, lifestyle center in Newnan, Georgia, and the borrower has requested relief as the loan is currently 30 days delinquent.
As of October 2020, the transaction consisted of 57 loans totaling $1.01 billion, as three of the original 60 loans have been repaid, resulting in collateral reduction of 7.6% including loan amortization. The transaction benefits from a concentration of office collateral, as 14 loans, representing 39.1% of the pool, are secured by office properties, which have shown greater resiliency to cash flow declines during the pandemic. This includes the largest and second-largest loans in the transaction, which are secured by office towers in downtown Chicago (Prudential Plaza; 11.2% of the pool) and Midtown Manhattan (11 Madison Avenue; 7.0% of the pool), respectively. Additionally, three loans, representing 1.7% of the pool, are secured by defeasance collateral.
The two largest loans in special servicing, Hotel Lucia (Prospectus ID#11; 3.0% of the pool) and Hotel Max (Prospectus ID#12; 2.9% of the pool), are secured by boutique hotel properties in downtown Portland, Oregon, and downtown Seattle, respectively. The owner for both properties is Aspen Lodging Group, which operates its boutique hotel portfolio under the Provenance Hotels umbrella. Provenance Hotels has a portfolio of 14 boutique hotels across the country with a concentration in the Pacific Northwest, including six properties in Portland and three in the Seattle metropolitan statistical area. Both loans have not made debt service payments since March 2020, and the special servicer is still evaluating resolution strategies for the assets. It appears a loan modification is the favored outcome between the servicer and borrower, although a potential execution date for either loan is unknown at this time.
Both hotels closed in March 2020 with Hotel Lucia reopening in early July 2020, while Hotel Max remains closed at this time and is not expected to reopen until 2021. The assets received updated valuations in July 2020, with Hotel Lucia appraising at $37.0 million and Hotel Max appraising at $54.6 million. The $37.0 million valuation for Hotel Lucia represented a -24.0% variance from the issuance appraised value of $48.7 million. The property had shown signs of weakening performance prior to the effects of the pandemic as the trailing 12 months (T-12) ended March 2020 reporting showed year-over-year (YOY) occupancy and average daily rate declines. Based on the updated valuation, leverage has increased, with a loan-to-value ratio (LTV) of 82.0%. The $54.6 million valuation for Hotel Max represented a 14.5% variance from the issuance appraised value of $47.7 million. According to T-12 reporting ended March 2020, the hotel’s YOY performance had weakened slightly; however, the property continues to benefit from its location within Seattle’s Belltown neighborhood. Based on the updated valuation, leverage has declined to an LTV of 54.0%.
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, X-B, and X-C are interest-only (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 the following loans in the transaction:
-- Prospectus ID#3 – Ashley Park (6.7% of the pool)
-- Prospectus ID#11 – Hotel Lucia (3.0% of the pool)
-- Prospectus ID#12 – Hotel Max (2.9% of the pool)
-- Prospectus ID#31 – Homewood Suites by Hilton Scottsdale (0.8% of the pool)
For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com The platform includes issuer and servicer 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 US dollars unless otherwise noted.
The principal methodology is North American CMBS Surveillance Methodology (March 6, 2020), 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 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.
Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.
For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.
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