Press Release

DBRS Morningstar Removes Four Classes of CSAIL 2015-C3 From Under Review with Negative Implications; Confirms Ratings on All Classes

CMBS
December 08, 2020

DBRS, Inc. (DBRS Morningstar) confirmed the ratings the Commercial Mortgage Pass-Through Certificates, Series 2015-C3 issued by CSAIL 2015-C3 Commercial Mortgage Trust (the Issuer) as follows:

-- Class A-2 at AAA (sf)
-- 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 D at BBB (low) (sf)
-- Class X-D at BBB (low) (sf)
-- Class X-E at BB (low) (sf)
-- Class E at B (high) (sf)
-- Class X-F at B (sf)
-- Class F at B (low) (sf)

With this review, DBRS Morningstar removed Classes X-E, E, X-F, and F from Under Review with Negative Implications, where they were placed on August 6, 2020. The trends on these classes are Negative. In addition, DBRS Morningstar changed the trends on Classes X-D and D to Negative from Stable. All other trends remain Stable.

The Negative trends are reflective of DBRS Morningstar’s concerns as a result of ongoing performance issues with select loans, specifically those in special servcing and those secured by hotel and retail properties, which have been disproportionately affected by the ongoing Coronavirus Disease (COVID-19) pandemic. In total, there are 39 loans in the transaction that are secured by hotel and retail properties, representing 54.8% of the outstanding transaction balance. As of the November 2020 reporting, there are ten loans in special servicing, representing 17.9% of the current pool balance, and 18 loans on the servicer’s watchlist, representing 17.2% of the current pool balance.

Nine of the ten loans in special servicing are secured by either hotel and retail properties, including the second-largest loan in the transaction (The Mall of New Hampshire; 8.2% of the pool), which is currently on the DBRS Morningstar Hotlist. There are two additional loans secured by regional malls in the transaction, including Westfield Wheaton (8.0% of the pool) and Westfield Trumbull (3.4% of the pool), with Westfield Trumbull also currently on the DBRS Morningstar Hotlist as the loan was identified as having increased credit risk in advance of the onset of the pandemic.

As of November 2020, the transaction comprises 84 loans totaling $1.2 billion, as five of the original 89 loans have been repaid from the trust, resulting in collateral reduction of 14.4% inclusive of payoffs and loan amortization. The transaction benefits from a concentration of office collateral, as nine loans, representing 19.0% of the pool, are secured by office properties, which have shown greater resiliency to cash flow declines thus far amid the pandemic. This includes the largest loan in the transaction, secured by an office property in Boston, Massachusetts (Charles River Plaza North; 9.4% of the pool). The transaction also includes 13 loans secured by multifamily and MHC properties, representing 12.4% of the pool balance. Additionally, nine loans, representing 5.9% of the pool, have been defeased.

The largest loan in special servcing, The Mall of New Hampshire (Prospectus ID#3; 8.2% of the pool balance), is secured by a Class B, single-level enclosed regional mall totalling 811,573 square feet (sf), 405,723 sf of which is part of the collateral. Simon Property Group (Simon) owns and operates the property. At issuance, the largest tenants were the noncollateral Macy’s, Sears, and JCPenney. Sears was closed in 2018 and later backfilled by Dick’s Sporting Goods and Dave & Buster’s. The loan transferred to special servicing in May 2020 at Simon’s request, who cited imminent monetary default because of coronavirus pandemic-driven difficulties.

According to the November 2020 remittance report, the borrower last paid debt service in March 2020. An October 2020 appraisal obtained by the special servicer indicated an as-is value of $243.5 million, a relatively minor -4.9% variance from the issuance valuation of $256.0 million, with an implied loan-to-value ratio of 61.6%. Financial performance had declined prior to the pandemic. The year-end 2019 net cash flow (NCF) decreased 8.8% compared with the 2018 NCF and was down 21.6% from the Issuer’s NCF. Although the October 2020 appraisal suggests only a small value decline from issuance, DBRS Morningstar believes that valuation may be aggressive and notes the significantly increased risks in the extended delinquency and the exposure to struggling retailers, including JCPenney and Macy’s as well as Dave & Buster’s, which has been particularly challenged amid the social-distancing impacts of the pandemic. Given these factors, as well as the decline in performance prior to the pandemic, DBRS Morningstar applied a stressed probability of default (POD) for this loan in the analysis for this review, increasing the expected loss.

The bulk of the other nine loans in special servicing have not reported an updated appraisal since issuance, with those files expected to be forthcoming over the near to moderate term for those loans past the 60 days delinquent mark. For those loans that have been in special servicing for longer periods of time, such as the WPC Department Store Portfolio loan (which is backed by a portfolio of six department stores formerly occupied by affiliates of The Bon Ton companies, which liquidated in 2018) DBRS Morningstar assumed a liquidation scenario in the analysis for this review. For newer transfers without updated appraisals and/or much new information available, a stressed POD was assumed to increase the expected loss in the analysis.

The largest loan on the servicer’s watchlist is 21 Astor Pace (Prospectus ID#10; 2.2% of the pool balance). The collateral is a retail property that spans the ground floor and a basement level condominium unit of an 11-story multifamily property located in lower Manhattan’s NoHo neighborhood. The loan is being monitored for the March 2021 lease expiry for the largest tenant, FedEx, which represents 61.0% of the net rentable area. The servicer commentary suggests a lease renewal is in process. In general, the watchlisted loans are concentrated in those secured by retail and hospitality property types, with many loans being monitored for coronavirus-driven performance declines. Where merited, these loans were analyzed with an increased POD to increase the expected loss for this review.

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#3 – The Mall of New Hampshire (8.2% of the pool)
-- Prospectus ID#5 – Arizona Grand Resort & Spa (4.0% of the pool)
-- Prospectus ID#6 – Soho-Tribeca Grand Hotel Portfolio (4.1% of the pool)
-- Prospectus ID#7 – Westfield Trumbull (3.4% 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 the 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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