DBRS Morningstar Confirms Ratings on Citigroup Commercial Mortgage Trust 2015-GC31, Removes One Rating from Under Review with Negative Implications
CMBSDBRS Limited (DBRS Morningstar) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2015-GC31 issued by Citigroup Commercial Mortgage Trust 2015-GC31 as follows:
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-AB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class PEZ at A (low) (sf)
-- Class D at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class G at B (low) (sf)
All trends are Stable. DBRS Morningstar also removed its rating on Class G from Under Review with Negative Implications, where it was placed on August 6, 2020.
The rating confirmation and Stable trends reflect the overall stable performance of the transaction since issuance. As of November 2020, the transaction consisted of 49 loans totalling $685.8 million. One of the original 50 loans has been repaid, resulting in collateral reduction of 5.2% including loan amortization. The transaction benefits from a concentration of office collateral as seven loans, representing 37.6% of the current pool balance, are secured by office properties, which have shown greater resilience to cash flow declines during the Coronavirus Disease (COVID-19) pandemic. While the ongoing pandemic has disproportionately affected loans secured by hotel and retail properties, the pool has a relatively small concentration with a combined 17 loans, representing 20.2% of the current pool balance, secured by these property types. Eight loans, representing 11.1% of the current pool balance, are secured by defeasance collateral.
As of the November 2020 reporting, only one loan is in special servicing, representing 0.8% of the current pool balance, and eight loans are on the servicer’s watchlist, representing 22.8% of the current pool balance. The specially serviced loan, Walgreens-Smithfield (Prospectus ID#34), is secured by a 14,559-square-foot (sf), single-tenant property in Smithfield, Rhode Island. The property transferred to special servicing for nonmonetary default in October 2020 as the borrower failed to follow cash management provisions following the departure of Walgreens, which went dark in December 2019. Walgreens is on a lease through 2090 and continues to honour rent obligations. While the loan is late on payments, it reported an annualized debt service coverage ratio of 1.84 times as of Q2 2020, in line with historical reporting.
The largest loan on the servicer’s watchlist and in the pool, 135 South LaSalle (Prospectus ID#1; 14.6% of the current pool balance) is being monitored because the Bank of America (63.1% of the net rentable area) has an upcoming lease expiration in July 2021 and it is unclear if the tenant will renew. The property is secured by a 1.3 million-sf, Class A office property in Chicago. A Crain’s Chicago Business article published in July 2018 indicated that the company would be looking to vacate its 135 South LaSalle Street space, while expanding its footprint at 540 West Madison Street over time to approximately 405,000 sf, and moving into an estimated 500,000 sf space at 110 North Wacker Drive in 2020. The loan was structured with cash flow sweep provisions, which would be triggered 12 months prior to lease expiration and would accumulate to $15.0 million ($18 per sf (psf)). These funds were to be used for tenant improvement/leasing commission (TI/LCs) costs to retenant the Bank of America space (if the balance in the TI/LC account is insufficient) or to be held as additional collateral for the loan and used to pay down principal after the anticipated repayment date in 2025. Notwithstanding the cash flow sweep provisions, the sweep is subject to a debt yield threshold of 10.0%. As the year-end 2019 debt yield was well above this threshold, it seems unlikely that this sweep will be triggered in the near term.
There is potential upside at the property. The Bank of America currently pays a blended rental rate of approximately $34.0 psf, below the average asking rate of $40.61 psf for comparable Class A office properties within a 0.5-mile radius of the subject as of Q3 2020. In addition, vacancy is reported at 8.9% for these properties and the borrower will have the standard TI/LC reserves available, which are expected to reach approximately $3.3 million ($4 psf) by lease expiration. While the rollover risk will occur at a challenging time, with heightened vacancy in the submarket of 15.1% and companies reevaluating their operational needs amid the ongoing pandemic, the loan’s sponsor, AmTrust Realty Corp., has market experience and is well capitalized. Based on the issuance appraised value of $330.0 million, the sponsor had roughly $230.0 million of implied equity behind the transaction, reflecting a low loan leverage of $76 psf.
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.
Class X-A is an interest-only (IO) certificate that references 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 loan in the transaction:
-- Prospectus ID#1 – 135 South LaSalle (14.6% 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 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 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 info@dbrsmorningstar.com.
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 info@dbrsmorningstar.com.
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