DBRS Morningstar Downgrades Three Classes and Changes Trends on Four Classes of COMM 2015-CCRE23 Mortgage Trust

DBRS Limited (DBRS Morningstar) downgraded the ratings of the Commercial Mortgage Pass-Through Certificates, Series 2015-CCRE23 issued by COMM 2015-CCRE23 Mortgage Trust as follows:

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

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

-- Class A-2 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-M 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 X-C at BBB (sf)
-- Class D at BBB (low) (sf)

DBRS Morningstar changed the trends on Classes D, E, X-C, and X-D to Negative from Stable while Class F now has a rating that does not carry a trend. The downgrades and Negative trends are reflective of DBRS Morningstar’s loss projections and/or views on the increased credit risks for some loans in the pool, most notably for the six loans in currently in special servicing.

According to the October 2021 remittance, 78 of the original 83 loans remain in the trust, with loan repayments and scheduled amortization resulting in a collateral reduction of 15.4% since issuance. Fifteen loans, representing 25.4% of the current pool balance, are defeased, including the second- and third-largest loans, DFW/Raleigh Portfolio (Prospectus ID#3; 7.8% of the pool) and 3 Columbus Circle (Prospectus ID#4; 7.8% of the pool). As of the October 2021 remittance, six loans, representing 5.9% of the current pool balance, are in special servicing and 20 loans, representing 22.3% of the current pool balance, are on the servicer’s watchlist.

The largest specially serviced loan, Holiday Inn Manhattan View, is secured by the leasehold interest in a 136-key limited-service hotel in Long Island City, New York. The loan transferred to the special servicer in February 2020 because of a balloon payment default at loan maturity in January 2020. The hotel was forced to close in March 2020 because of the coronavirus pandemic and lost its Holiday Inn flag in June 2021. According to online searches conducted by DBRS Morningstar as of October 2021, the property is listed as permanently closed. The servicer’s progress in determining a workout strategy has been stalled by foreclosure moratoriums in place for New York amid the pandemic. The hotel was re-appraised in July 2021 for $11.5 million, down from the $12.7 million valuation as of November 2020 and the $29.5 million appraised value at issuance. Given the sharp value decline and the property’s apparent closure, DBRS Morningstar expects a significant loss will be realized at disposition and therefore analyzed the loan with a liquidation scenario that resulted in a loss severity in excess of 75.0%.

DoubleTree Norwalk, the second-largest specially serviced loan, is secured by a 265-key full-service hotel in Norwalk, Connecticut. The loan has been in special servicing for several years and the property became real estate owned in September 2018. An effort to sell the property in late 2019 was unsuccessful and, as of the most recent information provided, the servicer continues to work to stabilize the asset and plans to re-market the property for sale in Q4 2021. The property was re-appraised in July 2021 for an as-is value of $13.5 million, compared with the April 2020 valuation of $11.7 million and relative to the issuance appraised value $30.0 million. The August 2021 STR report showed the subject continues to underperform relative to its competitive set, with some improvements in performance for the trailing three months ended August 31, 2021, which showed the occupancy, average daily rate (ADR), and revenue per available room (RevPAR) reported at 69.4%, $94.22, and $45.75, respectively, compared with the occupancy, ADR, and RevPAR figures of 48.6%, $94.22, and $45.75, respectively, for the trailing 12 months ended August 31, 2021. A loss of 60.0% was assumed as part of this review, based on a haircut to the most recent appraised value.

The Champaign Portfolio loan is secured by a portfolio of 10 properties containing eight office properties and two unanchored retail properties. The loan was being monitored for decline in debt service coverage ratio (DSCR) at last review and was transferred to the special servicer in April 2021 for imminent monetary default. The loan reported 121+ days delinquent as of the October 2021 remittance report and the servicer filed a foreclosure complaint in June 2021. A receiver is in place and as of the August 2021 consolidated rent roll, the portfolio was 58.6% occupied. The most recent financial reporting for the loan noted a DSCR of 0.97 times (x) as of YE2020, which is a slight increase compared with the YE2019 DSCR of 0.86x, but still well below the DBRS Morningstar DSCR of 1.25x. Given the lack of an updated appraisal, DBRS Morningstar assumed a conservative adjustment to the issuance valuation that reflected the performance declines for the collateral portfolio, with a liquidation scenario that resulted in a loss severity in excess of 50.0%.

One loan, Sherman Plaza (Prospectus ID #6; 3.9% of the pool) was placed on the DBRS Morningstar Hotlist in July 2019 because of its highly fluctuating occupancy rate since issuance. The loan was also added to the servicer’s watchlist in December 2020 because of a low DSCR. As of the July 2021 rent roll, the collateral property, an office building located in Van Nuys, California, was 51.6% occupied relative to the May 2020 occupancy rate of 53.0% and the issuance occupancy rate of 93.2%. The performance decline began in 2018 following the unexpected loss of the primary tenant, Brightwood College. As of a Q2 2021 Reis report, the San Fernando Valley Central submarket reported an average vacancy rate of 18.1%, compared with the pre-pandemic vacancy rate for the submarket of 15.2% at YE2019. Given the sustained performance declines, this loan was analyzed with a probability of default penalty that significantly increased the expected loss for this review.

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-A, X-B, X-C, and X-D are an interest-only (IO) certificate 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.

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 the 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.

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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