DBRS Morningstar Changes Trends on Five Classes, Confirms Ratings on All Classes of CSAIL 2015-C1 Commercial Mortgage Trust

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2015-C1 issued by CSAIL 2015-C1 Commercial Mortgage Trust 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 X-D at BBB (sf)
-- Class D at BBB (low) (sf)
-- Class X-E at BB (sf)
-- Class E at BB (low) (sf)
-- Class X-F at B (sf)
-- Class F at B (low) (sf)

DBRS Morningstar also changed the trends on Classes X-B, B, C, X-D, and D to Stable from Negative. Classes X-E, E, X-F, and F continue to carry Negative trends. All other trends are Stable.

The Negative trends reflect ongoing performance issues with select loans, particularly those secured by hotel and retail properties, some of which continue to exhibit performance issues associated with the effects of the Coronavirus Disease (COVID-19) pandemic. In total, 29 loans in this transaction are secured by hotel and retail properties, representing a combined 49.6% of the current pool balance.

At issuance, the transaction consisted of 82 fixed-rate loans, secured by 114 commercial and multifamily properties, with an original principal balance of $1.2 billion. As of the September 2021 remittance, 74 loans remain with a current pool balance of $1.1 billion, representing a collateral reduction of 11.4% since issuance. Sixteen loans have been defeased, including four top 10 loans, for a combined 17.0% of the pool. To date, one loan (Grand River Plaza; Prospectus ID #33) has been liquidated, resulting in a realized loss of $4.1 million contained to the Class NR certificate, which DBRS Morningstar does not rate.

As of the September 2021 reporting, five loans were in special servicing (representing 8.6% of the current pool balance) and 27 loans were being monitored on the servicer’s watchlist (representing 43.7% of the current pool.) The collateral for the specially serviced loans includes two retail properties, two lodging properties, and a single office property. Four of the five specially serviced loans were at least 90 days delinquent.

The largest loan in special servicing, 777 East 10th Street (Prospectus ID#8; 2.6% of the current pool balance), is secured by the borrower’s fee-simple interest in an 89,444 square foot (sf) mixed-use (retail showroom) property in the Fashion District of downtown Los Angeles. The ground floor space consists primarily of wholesale showrooms with glass storefronts similar to retail stores. The upper floors are a combination of office, showroom, and storage space and command much lower rates. At issuance it was noted that the property was home to 46 tenants, most of which were small, and all had fairly short remaining leases. As of the September 2021 reporting, the loan was more than 90 days delinquent. The loan transferred to special servicing in June 2020 after the borrower requested a coronavirus-related forbearance of loan payments. The borrower ultimately rejected the proposed forbearance terms offered by the special servicer, and a notice of default was sent in March of 2021. The court approved receivership in April 2021 and, as of September 2021, the servicer commentary indicated that foreclosure was expected within 45 to 60 days.

The effects of the pandemic appear to have exacerbated previous performance issues for the subject loan. The debt service coverage ratio (DSCR) for YE2019 was 1.11 times (x), down from 1.31x at YE2018 and 1.68x based on the issuance figures. No updated financials were provided for YE2020, but a December 2020 rent roll showed that the property was only 65% occupied, compared with 82% at YE2019 and 95% at issuance. The property was reappraised in August 2020 with a $33.6 million valuation, which was down 30% from the issuance appraised value, resulting in a loan to value (LTV) ratio of 84.1%. In the analysis for this review, DBRS Morningstar assumed a haircut to the August 2020 appraisal value and liquidated this loan from the trust, resulting in an assumed loss severity exceeding 15.0%.

The second-largest loan in special servicing, Bayshore Mall (Prospectus ID#14; 2.0% of the current pool balance) is secured by the borrower’s fee simple and leasehold interests in 516,000 sf of a larger 575,000 sf enclosed regional mall in Eureka, California. The property is located along Highway 101, approximately 100 miles south of the Oregon border, and is the only regional mall in a 155-mile radius. At issuance, anchors included Sears, Walmart, and a noncollateral Kohl’s. The trust loan represents a $23.5 million (at issuance) portion of a $46.5 million whole loan, with the pari passu companion loan contributed to the CSAIL 2015-C2 Commercial Mortgage Trust transaction, which DBRS Morningstar also rates. The loan transferred to the special servicer in October 2020 after falling delinquent and early on during discussions with the special servicer, the borrower, Brookfield Properties Retail Inc., expressed a desire to transition the property to the lender. However, in the time since the servicer shared that information, no material updates on the sponsor’s plans for the subject property have been relayed and, to date, the servicer has noted no foreclosure proceedings. As of the September 2021 reporting, the loan is tagged as 60 to 89 days delinquent, with the most recent servicer commentary indicating that the discussions with the borrower are ongoing.

Property performance began to suffer when Sears vacated its anchor pad at lease expiration in November 2019, reducing occupancy to 68% in June 2020 from 88% in June 2019. The March 2021 rent roll showed that the former Sears box remains empty, with a total occupancy rate of 67.7% compared with 88.9% at issuance. The top five remaining tenants are Walmart (14.2% of NRA; lease expiration June 2022), Sportsman’s Warehouse (5.5% of NRA; lease expiration June 2027), Bed Bath & Beyond (5.0% of NRA; recently renewed through January 2026), Ross Dress for Less (5.0% of NRA; lease expiration January 2025) and TJ Maxx (4.1% of NRA; lease expiration August 2023). In its analysis, DBRS Morningstar assumed a haircut to the issuance value and liquidated this loan from the trust, resulting in an assumed loss severity exceeding 45.0%.

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-D, 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.

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 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.

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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