DBRS Morningstar Changes Trends on Three Classes, Confirms All Ratings of MSCCG Trust 2015-ALDR

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2015-ALDR issued by MSCCG Trust 2015-ALDR as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class D at BBB (sf)

With this review, DBRS Morningstar removed Classes B, C, and D from Under Review with Negative Implications, where they were originally placed on April 24, 2020. DBRS Morningstar also changed the trends on Classes A-1, A-2, and X-A to Stable from Negative. Classes B, C, and D have Negative trends.

The Negative trends reflect DBRS Morningstar’s concerns surrounding the collateral’s performance amid the Coronavirus Disease (COVID-19) pandemic. Cash flow declined 14.3% to $26.3 million at YE2020 from $30.7 million at YE2019. Although the collateral is well positioned for a post-pandemic recovery, in-place cash flow remains below DBRS Morningstar’s expectations at issuance, when a cash flow of $30.2 million was derived.

The first-mortgage loan is secured by the fee-simple interest in a 575,704-square-foot (sf) portion of the 1.1 million-sf Alderwood Mall in Lynnwood, Washington, approximately 18 miles north of the Seattle CBD. The Class A super-regional mall was constructed in 1979 and has undergone several renovations, the last of which was a $16.5 million upgrade completed in 2013. The mall is anchored by JCPenney, Macy’s, Nordstrom, and Loews Cineplex Entertainment. Additionally, there is a vacant Sears box at the property. The JCPenney, Macy’s, Nordstrom, and Sears boxes are not part of the loan collateral. The sponsor purchased the Sears store in 2017 after it became vacant and is in the early stages of a $179 million multiyear expansion and renovation plan, which is scheduled to be completed in 2022. The property is owned by a 50/50 joint venture between Brookfield Property Partners L.P. (Brookfield; rated BBB (low) with a Stable trend by DBRS Morningstar) and the New York State Common Retirement Fund (doing business as Homart II LLC). Brookfield assumed its ownership interest when it purchased GGP Inc. in 2018.

The sponsor is currently undertaking a $179 million expansion and renovation at the property, situated at the former Sears space, which has been demolished. Construction is under way, with plans including the addition of 328 multifamily units, 90,000 sf of retail, a Dave & Buster’s, additional restaurants, and subterranean parking. Construction was temporarily halted because of restrictions related to the pandemic but has resumed, with preliminary delivery dates beginning in late 2021 and throughout 2022. While the development will not serve as collateral for the loan, DBRS Morningstar views the sponsors’ continued investment in the property as a long-term positive for the mall, as it will bring more consumers to the area and likely increase the inherent value of the collateral.

The loan has a 10-year term, amortizing over a 30-year schedule with a maturity date of June 2025. The original $355.0 million first-mortgage loan consists of six separate notes, four of which are pari passu notes that comprise the trust collateral with the remaining two notes contributed to three other commercial mortgage-backed security (CMBS) transactions. As of the September 2021 remittance, the trust had a balance of $230.3 million, representing a collateral reduction via amortization of 9.9% since issuance. The loan remains current with a YE2020 net cash flow (NCF) of $26.3 million, equating to a debt service coverage ratio of 1.38 times and representing a -14.3% variance from the 2019 NCF, primarily because of an 8.9% decline in base rent year over year. As of YE2020, the property was 97.5% occupied, flat from YE2019 occupancy of 98.0%. According to the sales report for the trailing 12 months ended June 30, 2021, tenant sales were generally up from the 2020 figures. In-line stores less than 10,000 sf reported sales of $605 per sf (psf), up 29.0% from YE2020, and total mall sales reported sales of $433 psf, up 27.7% in the same period.

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.

The DBRS Morningstar ratings for Classes B, C, and D had variances that were generally higher than those results implied by LTV Sizing Benchmarks, which were based on a baseline valuation scenario. The variation is warranted because of going concerns with the impact of the coronavirus pandemic on the collateral assets.

Class X-A is an interest-only (IO) certificate that references 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.

The DBRS Viewpoint platform provides additional information on this transaction and underlying loans including DBRS Morningstar metrics, commentary, servicer-reported cash flows, and other performance-related data.

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 26, 2021), 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.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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.

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 [email protected].

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