DBRS Morningstar Confirms Ratings on All Classes of CSAIL 2015-C3 Commercial Mortgage Trust

DBRS, Inc. (DBRS Morningstar) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2015-C3 issued by CSAIL 2015-C3 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 D at BBB (low) (sf)
-- Class X-D at BBB (low) (sf)
-- Class X-E at BB (low) (sf)
-- Class E at B (high) (sf)
-- Class X-F at B (sf)
-- Class F at B (low) (sf)

Classes D, X-D, X-E, E, X-F, and F continue to carry Negative trends because of concerns associated with loans in special servicing as well as the pool’s high percentage of loans secured by hotel and retail properties, which have been disproportionately affected by the ongoing Coronavirus Disease (COVID-19) pandemic. The other rated classes have Stable trends. In total, there are 38 loans in the transaction that are secured by hotel and retail properties, representing 54.2% of the current pool balance. As of the October 2021 reporting, there are five loans in special servicing, representing 5.3% of the current pool balance, and 12 loans on the servicer’s watchlist, representing 18.0% of the current pool balance.

At issuance, the transaction consisted of 89 loans secured by commercial and multifamily properties, with an aggregate trust balance of $1.4 billion. As of the October 2021 remittance, 83 loans remain in the pool with a trust balance of $1.2 billion, which represents a collateral reduction of 17.1% since issuance. All of the rated classes are receiving their full interest payments. Class NR (not rated by DBRS Morningstar) reported an interest shortfall of $3.2 milion as of the October 2021 remittance. Since the last DBRS Morningstar rating action, the Hilton Arden West (Prospectus ID#13; 1.8% of the issuance trust balance), which was previously in special servicing, has been repaid in full.

The largest loan currently in special servicing, Hampton Inn - Point Loma (Prospectus ID#12; 1.9% of the pool), is secured by the borrower's fee-simple interest in a 207-room full-service hotel in San Diego. The loan was showing signs of weakness prior to the pandemic as the YE2019 net cash flow was down 27% compared with issuance, leading to a below breakeven debt service coverage ratio of 0.97 times. The loan transferred to special servicing in May 2020 because of imminent default. As of September 2021, a forbearance agreement was approved, which included deferring interest payments and late fees as well as suspending the seasonality reserve. As a result, the borrower paid outstanding debt service payments through August 2021. According to the special servicer’s commentary, the loan will return to the master servicer once cash management has been implemented. The most recent appraisal, dated January 2021, valued the property at $15.6 million, down 55% from the appraised value of $34.7 million at issuance. The updated appraisal reflects a loan-to-value ratio (LTV) of 144.0%.

The second-largest loan in special servicing is the WPC Department Store Portfolio loan (Prospectus ID#22; 1.4% of the pool). The trust debt represents a $16.8 million pari passu participation in a $56.0 million whole loan secured by a portfolio of six now-vacant department store boxes with a combined 1,002,731 square feet (sf) throughout multiple states, with the largest concentration in Wisconsin. At issuance, the boxes were occupied by affiliates of The Bon-Ton Stores, Inc., which filed for bankruptcy and was ultimately liquidated in 2018. The loan transferred to special servicing in August 2018 and became real estate owned in October 2019. The most recent appraisal valued the collateral at $25.3 million, down 72% from the appraised value of $89.5 million at issuance.

The Mall of New Hampshire (Prospectus ID#3; 8.5% of the pool), which was in special servicing at the time of our previous review, is the largest loan on the servicer’s watchlist. The loan is secured by the borrower's fee and leasehold interest in a Class B single-level enclosed regional mall in Manchester, New Hampshire, totaling 811,573 sf, of which 405,723 sf are part of the collateral. The mall is shadow-anchored by Macy’s, JCPenney, and Dick’s Sporting Goods. Collateral anchors include Best Buy, representing 11% of the net rentable area (NRA) with a lease through January 2024, followed by Old Navy, 5% of the NRA, through January 2022, and Olympia Sports, 3% of the NRA, through March 2022. The loan previously transferred to special servicing in May 2020 at the borrower’s request because of pandemic-related cash flow declines. The loan returned to the master servicer in May 2021 after a forbearance was agreed upon to defer interest payments from May through December 2020. Occupancy was reported at 83.0% in March 2021, which is down from 87% as of YE2020 and 96% at issuance. The mall had in-line sales of $396 per square foot (psf) as of August 2021, which is up from in-line sales of $254 psf in 2020. An updated appraisal in October 2020 valued the property at $243.5 million, a relatively minor decline of 4.9% from the issuance valuation of $256.0 million, with an implied LTV of 61.6%.

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.

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:

-- Prospectus ID#3 – The Mall of New Hampshire (8.5% of the pool)
-- Prospectus ID#12 – Hampton Inn - Point Loma (1.9% of the pool)
-- Prospectus ID#22 – WPC Department Store Portfolio (1.4% 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 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/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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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