DBRS Morningstar Confirms All Ratings of Real Estate Asset Liquidity Trust, Series 2015-1

DBRS Limited (DBRS Morningstar) confirmed the ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2015-1 issued by Real Estate Asset Liquidity Trust, Series 2015-1 as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at AA (sf)
-- Class D at A (low) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (sf)
-- Class G at B (sf)
-- Class X at AA (sf)

All trends are Stable.

The rating confirmations and Stable trends reflect the overall consistent performance of the transaction. As of the December 2021 remittance, 33 of the original 46 loans remained in the pool, with an aggregate principal balance of $222.2 million, representing a collateral reduction of 33.6% since issuance as a result of loan amortization and repayment. Additionally, one loan, representing 10.7% of the current pool balance, is fully defeased. Over half the pool benefits from some level of material recourse to the respective loan sponsors. By property type, the pool is most heavily concentrated in retail, lodging, and industrial properties, representing 30.1%, 21.2%, and 14.6% of the current pool, respectively. There are seven loans (33.0% of the current pool) on the servicer’s watchlist.

The largest loan on the watchlist and in the deal, Alta Vista Manor Retirement Ottawa (Prospectus ID#1, 11.0% of the current pool balance) is secured by a 174-unit, luxury senior housing retirement residence in Ottawa. The property comprises a mix of independent living and assisted living units and is located near the Ottawa Hospital. The loan has been on the servicer’s watchlist since May 2018 because of declining revenue and a low debt service coverage ratio (DSCR). According to the YE2020 financials, the loan reported a net cash flow (NCF) of only $0.3 million (a DSCR of 0.07x), down from the YE2019 figure of $1.03 million (a DSCR of 0.56x) and well below the issuer’s NCF figure of $2.5 million (a DSCR of 1.40x). Occupancy dropped to 65.9% as of December 2020, down from 77.3% in YE2019 and 88.0% at issuance. According the servicer, the reason for the decline in performance has been multifaceted, including increased competition, delayed move-in dates, and restrictions put in place for new residents as a result of the coronavirus pandemic. The property has also incurred higher expenses from infection control measures, which have further strained cash flows, with the YE2020 operating expense ratio reported at 96.0%. The loan has full recourse to Regal Lifestyle Communities, which was purchased by Welltower (formerly known as Health Care REIT Inc.) and Revera, Inc. Welltower is the largest healthcare real estate investment trust in the United States, reporting cash equivalents of USD 2.1 billion as of Q3 2021, with significant financial wherewithal to weather the performance decline recently observed.

DBRS Morningstar is also monitoring the Hilton Mississauga Meadowvale loan (Prospectus ID#7, 5.1% of the current pool balance), a 374-key full-service hotel in the Meadowvale Business Park in Mississauga, Ontario. The trust loan is a pari passu participation in a $27.0 million whole loan, which is split into two notes held in the subject transaction and in IMSCI 2016-7 (also rated by DRBS Morningstar). The servicer added this loan to the watchlist in September 2020 after significant performance declines stemming from the restrictions brought on by the coronavirus. At issuance, demand segmentation was 49% meeting and group, largely driven by conferences held at the property, given its 46,518 square feet of meeting space. The borrower requested financial relief which was granted via a deferral of P&I payments for three months between September and November 2020 with repayment over six months beginning December 2020. The loan has consistently been current on payments since April 2021. Property financials show a decline in the DSCR from 3.74x in 2019 to well below breakeven as of YE2020. Occupancy trailed the subject’s competitive set between September 2020 and August 2021; however ADR metrics were superior, and RevPAR penetration was well above 100%. The sponsor, Manjis Holdings, is a real estate investment group with interests in Hilton Toronto and the senior living company, Amica Mature Lifestyles. The sponsorship group provides partial recourse of $10 million.

At issuance, DBRS Morningstar shadow-rated the U-Haul SAC 3 Portfolio loan as investment grade. The loan is secured by a portfolio of 10 individual loans backed by self-storage properties across Ontario. With this review, DBRS Morningstar has confirmed that the performance of the loan remains consistent with investment-grade loan characteristics.

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 is an IO certificate that references multiple rated tranches. When determining the rating assigned to Class X, consideration was given for actual loan, transaction, and sector performance where a rating based on the lowest-rated applicable reference obligation may not reflect the observed risk.

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#1 – Alta Vista Manor Retirement Ottawa (11.0% of the pool)
-- Prospectus ID#7 – Hilton Mississauga Meadowvale (5.1% 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 Canadian dollars unless otherwise noted.

The principal methodology 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.

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

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577