DBRS Morningstar Downgrades Four Classes of CSAIL 2015-C2 Commercial Mortgage Trust

DBRS Limited (DBRS Morningstar) downgraded its ratings on four classes of the Commercial Mortgage Pass Through Certificates, Series 2015-C2 issued by CSAIL 2015-C2 Commercial Mortgage Trust as follows:

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

These four classes were removed from Under Review with Negative Implications, where they were placed on August 6, 2020. These classes have Negative trends. DBRS Morningstar also designated Class F as having Interest in Arrears.

DBRS Morningstar also confirmed its ratings on the remaining classes as follows:

-- 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)

DBRS Morningstar changed the trends on Classes C and D to Negative from Stable. All other trends are Stable.

The rating downgrades and Negative trends reflect the increased risk of loss to the trust for some of the loans in the pool, including several that are currently in special servicing. As of the February 2021 remittance, the initial trust balance of $1.38 billion had been reduced by 9.3% to $1.25 billion, with 110 of the original 118 loans remaining in the pool. Additionally, there are nine loans, representing 6.9% of the pool, that are fully defeased. The transaction is concentrated by property type. There are 49 loans, representing 40.9% of the pool, secured by retail properties or mixed-use portfolios that are primarily composed of retail assets, and there are 17 loans, representing 19.8% of the pool, secured by office assets.

As of the February 2021 remittance, 29 loans, representing 25.2% of the pool, were on the servicer’s watchlist and there were nine loans, representing 8.4% of the pool, in special servicing. The loans on the watchlist are being monitored for various reasons, including a low debt service coverage ratio (DSCR), occupancy-related issues, tenant rollover risk, and deferred maintenance issues.

Two loans in the top 10 are on the servicer’s watchlist for performance-related issues. The largest of these, Residence Inn Beverly Hills (Prospectus ID#4; 3.5% of the pool), is secured by a 186-key extended-stay hotel, and the loan has been flagged for a low DSCR. The coverage was reported at 1.0 times (x) as of the trailing-12 months (T-12) ended September 30, 2020, down from its YE2019 DSCR of 2.14x. The second-largest watchlisted loan is Little Tokyo Galleria (Prospectus ID#10; 1.9% of the pool), backed by a 192,000-square-foot (sf) enclosed shopping centre in downtown Los Angeles, has requested relief because of the ongoing Coronavirus Disease (COVID-19) pandemic. The loan was previously as much as 59 days delinquent but was brought current in November 2020.

DBRS Morningstar notes that there is one loan that appears to meet the servicer’s watchlist criteria but has yet to be added: the Soho-Tribeca Grand Hotel Portfolio loan (Prospectus ID#3; 5.2% of the pool), which is secured by two hotel properties in New York City’s SoHo and Tribeca neighbourhoods and most recently reported a DSCR of 0.17x. In addition, there is another top five loan not on the servicer’s watchlist but on the DBRS Morningstar Hotlist in Westfield Trumbull (Prospectus ID#5; 2.7% of the current pool balance), which is secured by a portion of a regional mall in Trumbull, Connecticut, and is being monitored for the loss of Lord & Taylor and exposure to JCPenney.

The largest loan in special servicing, The Depot (Prospectus ID#6, 2.3% of the pool), is secured by a 642-bed student housing property in Akron, Ohio, serving the students of the University of Akron, situated approximately a quarter mile from the subject. The loan has been in special servicing since July 2016 and the property has been real estate owned since February 2020. Prior to the loan’s transfer to special servicing, performance declines related to supply increases in the market were noted and the property continues to underperform issuance expectations, with a 57.0% occupancy rate as of the beginning of the 2020–21 academic year. The most recent appraisal obtained by the special servicer, dated July 2020, showed an as-is value of $16.9 million, down from the $24.0 million value as of the August 2019 appraisal and well below the issuance value of $46.0 million. This loan was liquidated in the analysis for this review, resulting in a loss severity in excess of 70.0%.

The second-largest loan in special servicing, Bayshore Mall (Prospectus ID#17; 1.7% 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 November 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, T-12 sales for in-line tenants occupying less than 10,000 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 a loan-to-value ratio of 63.4% 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.—will be 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 35.0%.

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.

Classes X-A, X-B, 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 – Westfield Wheaton (7.6% of the pool)
-- Prospectus ID#3 – Soho-Tribeca Grand Hotel Portfolio (5.2% of the pool)
-- Prospectus ID#5 – Westfield Trumbull (2.7% of the pool)
-- Prospectus ID#6 – The Depot (2.3% of the pool)
-- Prospectus ID#10 – Little Tokyo Galleria (1.9% of the pool)
-- Prospectus ID#17 – Bayshore Mall (1.7% 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.

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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