DBRS Morningstar Downgrades Four Classes, Changes Trends to Negative on Two Classes, and Maintains Negative Trends for Four Classes of CSAIL 2015-C2

DBRS Limited (DBRS Morningstar) downgraded four classes of the Commercial Mortgage Pass-Through Certificates, Series 2015-C2 issued by CSAIL 2015-C2 Commercial Mortgage Trust as follows:

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

The remaining classes were confirmed 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)

DBRS Morningstar also discontinued its ratings on Class X-F as it now references a CCC (sf)-rated class. The trends on Classes B and X-B were changed to Negative from Stable and the trends for Classes C, D, E, and X-E remain Negative, reflective of the continued concerns surrounding select loans showing performance declines from issuance, as further described below. All other trends are Stable with the exception of Class F, which now has a rating that does not carry a trend. The Interest in Arrears designation has been removed from Class F with this review.

The rating downgrades and Negative trends reflect the overall decline in performance of the transaction since its last review, specifically in Westfield Trumbull (Prospectus ID#5, 2.8% of the current pool), The Depot (Prospectus ID#6, 2.3% of the current pool), and Bayshore Mall (Prospectus ID#17, 1.7% of the current pool). Although the Westfield Trumbull loan has not transferred to special servicing and remains current on its debt-service payments, the continued decline in net cash flow (NCF) since issuance and a likely significant decline in value has significantly increased the overall credit concerns for this loan. DBRS Morningstar also maintained its liquidation scenarios for the specially serviced loans, The Depot and Bayshore Mall, both of which are expected to take significant losses at resolution. DBRS Morningstar also remains cautious of the Soho-Tribeca Grand Hotel Portfolio (Prospectus ID#3, 5.3% of the current pool), the largest loan on the servicer’s watchlist, which despite being current has reported cash flows significantly below zero since the onset of the pandemic.

As of the January 2022 remittance, 109 of the original 118 loans remain in the trust, resulting in a collateral reduction of 11.0% since issuance as result of loan payoffs, amortization, and four loans that have been liquidated from the pool. Ten loans, representing 10.2% of the current pool balance, are in special servicing, and 24 loans, representing 21.6% of the current pool balance, are on the servicer’s watchlist. The pool does benefit from 18 defeased loans, representing 10.3% of the current pool balance.

Westfield Trumbull, is secured by a 1.1 million-square-foot (sf; including 462,869 sf of noncollateral improvements subject to ground leases that are collateral for the loan) regional mall in Trumbull, Connecticut. The collateral includes the Macy’s anchor and the in-line space, while the JCPenney, Target, and former Lord & Taylor anchors are ground leased and owned by the respective retailers. The loan was added to the DBRS Morningstar Hotlist in March 2020 following announcement of liquidation plans from Lord & Taylor, JCPenney tenant exposure, weakened sales performance, and reports that the sponsor, Unibail-Rodamco-Westfield, may offload its U.S.–based mall portfolio. The trust debt is a pari passu participation in a whole loan totalling $152.3 million. Of note, the lead transaction (CSAIL 2015-C1 Commercial Mortgage Trust) has added the loan to the servicer’s watchlist for a low debt-service coverage ratio as well as a servicing trigger event (although it’s not included on the watchlist for the subject transaction). Although the collateral continues to be well occupied, cash flows have continued to decline precipitously from issuance. According to YE2020 reporting, the NCF was reported at $9.8 million, a 39.0% decline from the $16.0 million figure at issuance. The borrower has noted that rental collections increased in 2021 but they are still below pre-pandemic figures. Although the loan remains current, the headwinds in the current retail environment, the significant prolonged cash flow declines, continued poor anchor tenant sales, dark Lord & Taylor space, and possible upcoming JCPenney vacancy will test the sponsor’s commitment to the property; a significant loss to the loan is likely in the event of a default.

The largest loan in special servicing, The Depot, is secured by a 624-unit student housing property in Akron, Ohio, situated less than a quarter mile from the University of Akron. The loan transferred to special servicing in July 2016 and became a real estate-owned asset in June 2020. The most recent appraisal reported by the servicer valued the property at $16.5 million as of April 2021, down 64% from the appraised value of $46.0 million at issuance. DBRS Morningstar liquidated this asset from the pool at a loss severity in excess of 80.0%.

Bayshore Mall is secured by a 515,912-sf regional mall in Eureka, California. The mall is owned and operated by Brookfield. The loan was transferred to special servicing in October 2020 after the loan fell delinquent and the borrower expressed a desire to transition the property to the lender. However, as of the January 2022 commentary, the servicer is currently discussing the curing of outstanding loan balances and other deficiencies and the workout strategy has changed from “Foreclosure” to “Other.” Despite historically stable cash flows, the subject is a regional mall in decline, driven by occupancy declines from 88.0% to 67.3% as of September 2021. The loan has been delinquent since November 2020 and the sponsor previously noted it was ready to give back the keys to the lender. While the workout for this loan has become somewhat uncertain, there has likely been a significant value decline from issuance. DBRS Morningstar liquidated this loan from the pool as part of this analysis at an implied loss severity approaching 50.0%.

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, and X-E 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#5 – Westfield Trumbull (2.8% of the pool)
-- Prospectus ID#6 – The Depot (2.3% of the pool)
-- Prospectus ID#17 – Bayshore Mall (1.7% of the pool)

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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