DBRS Morningstar Confirms All Classes of Real Estate Asset Liquidity Trust, Series 2015-1

DBRS Limited (DBRS Morningstar) confirmed all ratings on the Commercial Mortgage Pass-Through Certificates, Series 2015-1 issued by Real Estate Asset Liquidity Trust, Series 2015-1 as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at AA (sf)
-- Class D at A (low) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (sf)
-- Class G at B (sf)
-- Class X at AA (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since issuance. As of the February 2021 remittance, 36 of the original 46 loans remained in the pool, with an aggregate trust balance of $248.2 million, representing a collateral reduction of 25.9% since issuance as a result of loan repayment and scheduled loan amortization. One loan, representing 10.2% of the current trust balance, has been fully defeased. There are 22 loans, representing 71.8% of the current trust balance, that benefit from some level of material recourse to the loan’s sponsor.

The transaction is concentrated by property type, as eight loans, representing 27.5% of the current trust, are secured by retail assets, while three loans, representing 19.6% of the current trust balance, are secured by lodging properties. In addition, the largest loan, representing 10.4% of the pool, is secured by a retirement home. While the Coronavirus Disease (COVID-19) pandemic has affected these property types most severely, the servicer has offered short-term forbearance for those borrowers requesting relief, while the remainder of the loans continue to perform. According to the February 2021 remittance report, there are no loans that are in special servicing or delinquent, although there are five loans on the servicer’s watchlist, representing 25.2% of the current trust balance. Four of these loans, representing 14.8% of the current trust balance, were on the watchlist as a result of the ongoing difficulties caused by the coronavirus. All four loans have received forbearance in the form of deferred payment of principal following an interest-only (IO) term of three to six months.

The largest loan, Alta Vista Manor Retirement Ottawa (Prospectus ID#1, 10.4% of the current pool balance) is secured by a 174-unit, luxury senior housing retirement residence in Ottawa. The property comprises a mix of independent living and assisted living units and is ideally near the Ottawa Hospital. The loan has been on the servicer’s watchlist since May 2018 because of declining revenue and a low debt service coverage ratio (DSCR). As of YE2019, the loan reported a net cash flow (NCF) of $1.1 million (a DSCR of 0.56 times (x)), a 60.0% decline from the Issuer’s NCF figure of $5.6 million (a DSCR of 1.40x). According the servicer, the reason for the decline in performance has been multifaceted, including increased competition, delayed move-in dates, and restrictions put in place for new residents as a result of the coronavirus pandemic. The property has also incurred higher expenses from infection control measures, which have further strained cash flows. The loan has full recourse to Regal Lifestyle Communities, which was purchased by Welltower (formerly known as Health Care REIT Inc.) and Revera, Inc. Welltower is the largest healthcare real estate investment trust in the United States, reporting cash equivalents of USD 2 billion as of December 31, 2020, and has significant financial wherewithal to weather the performance decline recently observed.

DBRS Morningstar is also monitoring the Hilton Mississauga Meadowvale loan (Prospectus ID#7, 4.8% of the current pool balance), a 374-key full-service hotel in the Meadowvale Business Park in Mississauga, Ontario. The trust loan is a pari passu participation in a $27.0 million whole loan, which is split into two notes held in the subject transaction and in IMSCI 2016-7 (also rated by DRBS Morningstar). The servicer added this loan to the watchlist in September 2020 after significant performance declines stemming from the restrictions brought on by the coronavirus. At issuance, demand segmentation was 49% meeting and group, largely driven by conferences held at the property, given its 46,518 square feet of meeting space. While the province of Ontario is in a period of transition, Peel Region, where the subject is located, is still in the Grey Zone, which is the most restrictive of measures across the province. The loan was granted three months of IO payments beginning in September 2020, with principal payments to be repaid over the following six months beginning in December 2020. Based on the most recent reporting, the borrower is honouring the loan modification. The sponsor, Manjis Holdings, is a real estate investment group with interests in Hilton Toronto and the senior living company, Amica Mature Lifestyles. The sponsorship group provides partial recourse of $10 million.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Class X is an IO certificate that references multiple rated tranches. When determining the rating assigned to Class X, consideration was given for actual loan, transaction, and sector performance where a rating based on the lowest-rated applicable reference obligation may not reflect the observed risk.

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 – Alta Vista Manor Retirement Ottawa (10.4% of the pool)
-- Prospectus ID#7 – Hilton Mississauga Meadowvale (4.9% 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 Canadian 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 [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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