DBRS Morningstar Upgrades Four Classes of LSTAR Commercial Mortgage Trust 2015-3

DBRS, Inc. (DBRS Morningstar) upgraded its ratings on four classes of the Commercial Mortgage Pass-Through Certificates, Series 2015-3 issued by LSTAR Commercial Mortgage Trust 2015-3 as follows:

-- Class B to AAA (sf) from AA (low) (sf)
-- Class C to AA (sf) from A (low) (sf)
-- Class X-C to A (high) (sf) from BBB (sf)
-- Class D to A (sf) from BBB (low) (sf)

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

-- Class A-S at AAA (sf)
-- Class E at BB (sf)
-- Class X-A at B (high) (sf)
-- Class X-B at B (high) (sf)
-- Class F at B (sf)

Classes E and F were removed from Under Review with Negative Implications, where they were placed on August 6, 2020. Classes E and F have Stable trends. DBRS Morningstar changed the trends on Classes X-A and X-B to Stable from Negative. The remaining classes have Stable trends.

The upgrades reflect the stable performance of the transaction, which has remained in line with DBRS Morningstar’s expectations, as well as the significant paydown since issuance. At issuance, the transaction consisted of 62 loans with an original trust balance of $281.4 million. As of the February 2021 remittance report, 14 loans remained in the transaction with a trust balance of $130.9 million, representing a collateral reduction of approximately 53.5% since issuance that resulted from amortization, the payoff of 42 loans, and the liquidation of six loans. These six liquidated loans resulted in a cumulative loss to the nonrated Class G of less than $65,000.

Dawson Village (Prospectus ID#9; 7.8% of pool) is the only loan in special servicing. This loan is secured by a grocery-anchored shopping center in Dawsonville, Georgia, approximately 50 miles northeast of the Atlanta central business district. The loan transferred to special servicing in December 2019 and became real estate owned in July 2020. The property’s physical occupancy decreased to 17% in 2017 after its largest tenant, Kroger (formerly 76.8% of the net rentable area), vacated prior to its December 2026 lease expiration. Kroger subsequently bought the remainder of its lease out for $3.7 million in 2020, which is held in reserve. Occupancy increased to its current level of 70% after the borrower was able to partially backfill the former Kroger space with Planet Fitness and Launch Trampoline Park. The property was reappraised in June 2020 at $9.75 million, which implies a loan-to-value ratio of 105%.

The largest loan on the servicer’s watchlist is the InterContinental Hotel Monterey (Prospectus ID#2; 27.4% of pool), which is secured by a full-service hotel along the Monterey Bay coast in California. The loan is being monitored on the servicer’s watchlist because of performance concerns related to the Coronavirus Disease (COVID-19) pandemic. Occupancy declined to 58%, and effective gross income dropped by 28% compared with 2019 because of the pandemic-related travel restrictions. The property had shown stable performance prior to the coronavirus pandemic as the YE2019 net cash flow was in line with issuance levels while posting a debt service coverage ratio of 2.98 times. The loan remains current and sponsors have not requested pandemic-related relief.

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.

DBRS Morningstar materially deviated from its North American CMBS Insight Model when determining the ratings assigned to Classes E and F as the quantitative results suggested higher ratings on the classes. The material deviations are warranted given the uncertain loan-level event risk with the loan in special servicing and on the servicer’s watchlist, in addition to the increased concentration of the pool in terms of the number of loans remaining.

Classes X-A, X-B, and X-C 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.

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform. For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes issuer and servicer date 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.

All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

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.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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