DBRS Morningstar Downgrades Ratings on Five Classes of Citigroup Commercial Mortgage Trust 2015-GC27, Removes Five Classes From Under Review with Negative Implications

DBRS, Inc. (DBRS Morningstar) downgraded the ratings on five classes of Commercial Mortgage Pass-Through Certificates, Series 2015-GC27 issued by Citigroup Commercial Mortgage Trust 2015-GC27 as follows:

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

DBRS Morningstar also confirmed the ratings on the following classes as follows:

-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-5 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 (sf)
-- Class X-B at A (sf)
-- Class C at A (low) (sf)
-- Class PEZ at A (low) (sf)
-- Class D at BBB (low) (sf)

As part of its review, DBRS Morningstar removed Classes E, F, G, X-E, and X-F from Under Review with Negative Implications where it had placed them on August 6, 2020. The trends on Classes E, F, X-E, and X-F are Negative. Class G no longer carries a trend, given its CCC (sf) rating, and DBRS Morningstar designated this class as having Interest in Arrears. The trends on all remaining classes are Stable.

The downgrades and Negative trends generally reflect the overall weakened performance of the collateral since the last review, specifically the increased likelihood of losses to the trust upon the ultimate resolutions of the Highland Square (Prospectus ID#5 – 3.5% of the trust balance) and Centralia Outlets (Prospectus ID#8 – 2.7% of the trust balance) loans. At issuance, the trust comprised 100 fixed-rate loans secured by 116 commercial properties with a total trust balance of $1.19 billion. Per the February 2021 remittance report, there are 95 loans secured by 111 commercial properties remaining in the trust with balance of $1.08 billion, representing a 9.8% collateral reduction from scheduled amortization and the payoff of five loans. Over the previous 12 months, two loans, totaling $19.0 million, were repaid in full and four loans, amounting to $47.3 million, were fully defeased. Two loans, totaling 7.5% of the trust balance, transferred to the special servicer during the Coronavirus Disease (COVID-19) pandemic.

Per the February 2021 remittance report, 13 loans (10.1% of the trust balance) were fully defeased. The pool is relatively diverse based on loan size with the largest 15 loans representing 53.0% of the trust balance. The pool is concentrated by property type as the trust comprises 42 loans, totaling 37.4% of the trust balance, that are secured by retail properties. The trust also features a relatively high number of loans backed by collateral in tertiary and low-density markets with 41 loans, comprising 64.2% of the trust balance, secured by properties with a DBRS Morningstar Market Rank of 3 or lower. However, the pool is somewhat insulated from lodging properties (which have shown the highest cash flow volatility during the pandemic) with only five loans (7.0% of the trust balance) secured by hotels. In addition, there are 11 loans, representing 23.0% of the trust balance, that feature full interest-only (IO) terms.

Five loans, comprising 12.1% of the trust balance, were in special servicing as of the February 2021 remittance report. DBRS Morningstar is most concerned about the Highland Square and Centralia Outlets loans. Highland Square is secured by a 753-bed student housing complex in Oxford, Mississippi, approximately two miles northeast of the main campus of the University of Mississippi. The loan transferred to the special servicer in November 2018 after an extended period on the watchlist for cash flow declines. New competitive properties have been delivered since issuance, which significantly affected the subject’s performance given its inferior location with regard to proximity to campus. The property became real estate owned in October 2019 following foreclosure. A November 2020 rent roll noted the property was 73.7% occupied with an average rent of $505 per bed, compared with the issuance figures of 94.8% and $593 per bed, respectively. Special-servicer commentary as of February 2021 noted the subject was 6% pre-leased for the upcoming 2021/2022 academic year. The property was reappraised in June 2020 at a value of $30.2 million, a continuous decline from the $39.0 million appraised value in July 2019 and $51.0 million appraised value at issuance. The loan was liquidated from the trust as part of this analysis based on the updated appraised value, resulting in an implied loss severity in excess of 35.0%.

Centralia Outlets is secured by the fee interest in an outlet mall in Centralia, Washington, approximately 85 miles southwest of Seattle. The loan is sponsored by a seasoned regional investor who developed more than 1.2 million square feet of commercial space in the Seattle area. The loan transferred to the special servicer in July 2020 for monetary default as a result of the pandemic, and debt service payments were last remitted in May 2020. The special servicer is in discussions with the borrower to determine next steps and relief. The property was reappraised in September 2020 for a value of $21.6 million, down 54.0% from the $47.0 million appraised value at issuance. The appraiser indicated very limited collateral value upside with an “as-stabilized” value that remained below the outstanding loan principal balance. A September 2020 rent roll noted the property was 79.6% occupied, down from the 87.4% occupancy rate at issuance. The largest tenants are Ralph Lauren (6.6% of net rentable area (NRA); lease expiration of January 2024) and Nike Clearance (5.8% of NRA; lease expiration of March 2022). VF Outlet, which had been the largest tenant with 14.2% of the NRA, and Van Heusen both appear to have vacated at the end of their lease terms, and the property is projected to be 63.2% leased as of February 2021. Per the appraiser, the subject’s leases have typical co-tenancy requirements and termination clauses for an outlet center. With respect to co-tenancy clauses, 12 of the in-place tenants require an occupancy rate of at least 65% to 75%. The projected occupancy rate is expected to trigger co-tenancy clauses, which could result in additional vacancies in the near term. The loan was hypothetically liquidated from the trust based on the updated appraised value, resulting an implied loss severity in excess of 40.0%.

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 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#5 – Highland Square (3.5% of the pool)
-- Prospectus ID#8 – Centralia Outlets (2.7% 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 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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