DBRS Morningstar Takes Rating Actions on CSAIL 2015-C1 Commercial Mortgage Trust

DBRS, Inc. (DBRS Morningstar) downgraded the ratings on four classes of Commercial Mortgage Pass-Through Certificates, Series 2015-C1 issued by CSAIL 2015-C1 Commercial Mortgage Trust as follows:

-- Class X-E to BB (sf) from BB (high) (sf)
-- Class E to BB (low) (sf) from BB (sf)
-- Class X-F to B (sf) from B (high) (sf)
-- Class F to B (low) (sf) from B (sf)

Additionally, DBRS Morningstar confirmed the ratings on the following classes:

-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class X-D at BBB (sf)
-- Class D at BBB (low) (sf)

DBRS Morningstar also changed the trends on Classes X-B, B, C, X-D, D, X-E, E, X-F, and F to Negative from Stable while the trends on all other classes are Stable. DBRS Morningstar also discontinued the rating on Class A-2 because the class has been paid in full.

The rating downgrades and trend changes reflect ongoing performance issues with select loans, specifically those secured by hotel and retail properties, which the ongoing Coronavirus Disease (COVID-19) pandemic has disproportionately affected. In total, 30 loans in the transaction are secured by hotel and retail properties, representing 50.4% of the current pool balance. As of the November 2020 reporting, there are five loans in special servicing, representing 7.8% of the current pool balance, and 20 loans on the servicer’s watchlist, representing 32.0% of the current pool balance.

Four of the five loans in special servicing are at least 90 days delinquent with all five loans secured by either hotel or retail properties. Additionally, three of the four largest loans in the transaction are on the servicer’s watchlist. The largest loan, Soho-Tribeca Grand Hotel Portfolio (Prospectus ID#1; 10.0% of the current pool balance), is secured by two hotel properties in New York City’s SoHo and Tribeca neighborhoods and the third-largest loan, Courtyard Midtown East (Prospectus ID#3; 7.3% of the current pool balance), is secured by a hotel in New York City’s Midtown neighborhood. The fourth-largest loan, Westfield Trumbull (7.0% of the current pool balance), is secured by a portion of a regional mall in Trumbull, Connecticut. DBRS Morningstar has flagged these three loans for performance issues with the Courtyard Midtown East and Westfield Trumbull loans currently on the DBRS Morningstar Hotlist for increased credit risk prior to the onset of the pandemic.

As of November 2020, the transaction comprises 74 loans totaling $715.0 million. Eight of the original 82 loans have been repaid or liquidated from the trust, resulting in collateral reduction of 10.4% including payoffs, loan amortization, and $4.1 million of realized losses. The transaction benefits from a minor concentration of office collateral as six loans, representing 12.6% of the current pool balance, are secured by office properties, which have shown greater resilience to cash flow declines during the pandemic. This includes the second-largest loan in the transaction, 500 Fifth Avenue (9.1% of the current pool balance), which is secured by an office tower in Manhattan. The transaction also includes 15 loans secured by multifamily and manufactured housing community properties, representing 10.9% of the current pool balance. Additionally, 14 loans, representing 9.9% of the current pool balance, have been defeased.

The largest loan in special servicing, 777 East 10th Street (Prospectus ID#8; 2.6% of the current pool balance), is secured by a mixed-use building located in downtown Los Angeles’ Fashion District. The property serves as wholesale retail, office, storage, and production space for its tenants, which operate in the fashion and textile industries. The loan transferred to the special servicer in May 2020 because of cash flow issues that the coronavirus pandemic exacerbated; however, the property reported figures that underperformed issuance expectations prior to the pandemic. The borrower last made its debt service payment in February 2020, and the YE2019 and YE2018 debt service coverage ratios (DSCRs) were 1.11 times (x) and 1.31x, respectively. The property was appraised for $47.7 million at issuance, equating to a loan-to-value (LTV) ratio of 60.4% based on the current pool balance; however, given the performance decline and the outstanding delinquency, the property’s value has likely decreased. According to the servicer, it has submitted a proposal for forbearance terms to the borrower that is currently under review. In its analysis, DBRS Morningstar assumed a haircut to the issuance value and liquidated this loan from the trust, resulting in a hypothetical loss severity exceeding 15.0%.

The second-largest loan in special servicing, Bayshore Mall (Prospectus ID#14; 2.0% of the current pool balance), is secured by a regional mall in Eureka, California. The loan transferred to the special servicer in October 2020; however, the loan has been delinquent since August 2020. Property performance began to suffer at YE2019 when Sears vacated its anchor pad and, as of June 2020, the property was 68.0% occupied. Remaining anchor tenants include Walmart, Kohl’s, Sportsman’s Warehouse, Bed Bath & Beyond, and Ross Dress for Less. Sales figures have also been weak in recent years as, according to the March 2020 sales report, trailing 12-month (T-12) sales for in-line tenants occupying less than 10,000 square feet (sf) were $326 per sf (psf) and T-12 sales for tenants occupying more than 10,000 sf were $234 psf. The property was appraised for $69.0 million at issuance, equating to an LTV ratio of 65.0% based on the current pool balance; however, given the performance decline, outstanding delinquency, and headwinds facing retail and specifically nontrophy regional malls, the property’s value has likely decreased. According to the servicer, the borrower—Brookfield Properties Retail Inc.—may be interested in transitioning the property back to the lender. As such, a new appraisal has been ordered and counsel has been hired because the loan is early in the resolution process. In its analysis, DBRS Morningstar assumed a haircut to the issuance value and liquidated this loan from the trust, resulting in a hypothetical loss severity exceeding 20.0%.

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, X-D, X-E, and X-F 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#1 – Soho-Tribeca Grand Hotel Portfolio (10.0% of the pool)
-- Prospectus ID#3 – Courtyard Midtown East (7.3% of the pool)
-- Prospectus ID#4 – Westfield Trumbull (7.0% of the pool)
-- Prospectus ID#8 – 777 East 10th Street (2.6% of the pool)
-- Prospectus ID#14 – Bayshore Mall (2.0% 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.

DBRS Morningstar notes that this press release was amended on November 4, 2021, to remove language that indicated DBRS Morningstar had materially deviated from its quantitative model when determining the rating assigned to Class B by assigning a rating higher than the lower rating implied by the quantitative model. No model deviation was noted.

Notes:
All figures are in U.S. 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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