DBRS Morningstar Upgrades Seven Classes of LSTAR Commercial Mortgage Trust 2015-3

DBRS Limited (DBRS Morningstar) upgraded the ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2015-3 issued by LSTAR Commercial Mortgage Trust 2015-3:

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

The remaining classes were confirmed as follows:

-- Class A-S at AAA (sf)
-- Class B at AAA (sf)

All trends are Stable.

The rating upgrades and trends reflect the significant paydowns since issuance as well as the stable performance of the remaining collateral, which has remained in line with DBRS Morningstar’s expectations. As of the January 2022 remittance, 11 of the original 62 loans remain in the pool, representing a collateral reduction of 63.3% since issuance with a current trust balance of $103.4 million. As of the most recent remittance, there are three loans on the servicer’s watchlist, representing only 6.0% of the current pool balance. Two of those loans were added for low debt service coverage ratios (DSCR) and one loan was added for a failure to submit its financials. There are no loans in special servicing, nor are any loans delinquent on debt service payments. To date, seven loans have been liquidated from the trust, although the relatively small $1.8 million in aggregate losses has been absorbed by the unrated Class G.

The largest loan in the pool, 101 Redwood Shores (Prospectus ID#1, 35.8% of the current pool) is secured by a 100,000 square foot office property in Redwood, California. At issuance, the property was leased to a single tenant, Perfect World Entertainment (Perfect World), with about half of its contractual space occupied and the remainder subleased. After issuance, Perfect World sublet the remainder of its space with a total of seven tenants on subleases in the building. Perfect World’s lease expired in February 2019 and all subleased tenants vacated upon lease expiry. The space was subsequently re-leased to Zuora, an enterprise software company, on a lease that expires in January 2030. Although the loss of the former single tenant has been a noteworthy development since issuance, the sponsor’s ability to quickly backfill the space with another headquarters tenant paying market rental rates speaks to the overall quality of the collateral and desirability within the submarket.

The second-largest loan in the pool, InterContinental Hotel Monterey (Prosectus ID#2, 34.2% of the pool) is secured by a 208-key full-service hotel in Monterey, California. The loan was added to servicer’s watchlist in October 2020 as performance declined during the Coronavirus Disease (COVID-19) pandemic; the loan was subsequently removed from the servicer’s watchlist in November 2021. The hotel is well located in Monterey Bay along Central California’s Pacific coast, adjacent to Monterey Bay Aquarium and in proximity to several other demand drivers related to tourism and leisure travel. The collateral has exhibited significant signs of improvement in performance given the increasing DSCR and strong 2021 STR metrics, specifically the revenue per available room (RevPAR) penetration figure of 155.3% as of the trailing 12 months ending November 2021. The property is in a unique setting along Monterey Bay with high barriers to entry, and DBRS Morningstar notes that the property is in a class by itself and does not compete with the surrounding convention center hotels.

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.

DBRS Morningstar materially deviated from its North American CMBS Insight Model when determining the ratings assigned to Classes E and F, as the quantitative results suggested a higher rating. The material deviation is warranted given the structural features (loan or transaction) and/or provisions in other relevant methodologies outweigh the quantitative model output.

Classes X-A, X-B, and X-C 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#1 – 101 Redwood Shores (35.8% of the pool)
-- Prospectus ID#2 – InterContinental Hotel Monterey (34.2% 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 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].

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