DBRS Morningstar Confirms All Ratings on COMM 2015-CCRE27 Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2015-CCRE27 issued by COMM 2015-CCRE27 Mortgage Trust as follows:

-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-M at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (sf)
-- Class X-B at A (high) (sf)
-- Class C at A (sf)
-- Class X-C at BBB (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class X-D at BB (low) (sf)
-- Class F at B (high) (sf)
-- Class X-E at B (sf)
-- Class G at B (low) (sf)

Classes X-D, X-E, F, and G continue to carry Negative trends. All other trends remain Stable.

DBRS Morningstar’s loss expectations remain in line with the prior review. The Negative trends are primarily driven by select loans that are showing increased risk from issuance, as further detailed below. In addition to factors at the loan level, these risks are mitigated by the increased credit support for the bonds, as a result of principal repayment since issuance. At issuance, the transaction consisted of 65 fixed-rate loans secured by 96 commercial and multifamily properties, with a trust balance of $931.6 million. As of the February 2022 remittance, 61 loans remain within the transaction with a trust balance of $802.3 million, reflecting collateral reduction of 13.9% since issuance. In addition, 10 loans, representing 10.8% of the pool, have fully defeased and one loan, NMS Los Angeles Multifamily Portfolio (Prospectus ID#2; 8.1% of the pool), has partially defeased. Seven loans, representing 19.6% of the pool, are currently in special servicing and 13 loans, representing 24.9% of the pool, are on the servicer’s watchlist.

The largest specially serviced loan, Midwest Shopping Center Portfolio (Prospectus ID#6; 4.2% of the pool), is secured by six anchored retail properties totalling 889,413 square feet. The properties are located across four states, with two each in Iowa and Illinois, one in Oklahoma, and one in Missouri. The loan transferred to the special servicer in July 2020 for monetary default. After providing the borrower with multiple notices of default, the special servicer was granted approval to appoint a receiver to the properties and begin the foreclosure process. As of October 2021, a receiver has been appointed to both properties in Iowa. A receivership hearing for the Missouri property was held in February 2022; however, no ruling was reached. A subsequent mediation meeting also proved unsuccessful. The borrower has not been responsive to multiple requests for financial reporting; however, the most recent rent rolls provided in April 2020 indicated a consolidated occupancy rate of 81.9%. Lease rollover is a concern, with leases representing 15.0% of net rentable area (NRA) scheduled to roll before YE2022. In addition, leases representing approximately 61.0% of NRA are scheduled to roll prior to loan maturity in 2025, significantly increasing refinance risk. As of the February 2022 remittance, the loan is current.

An appraisal of the collateral was conducted in May 2021, with a resulting value of $51.43 million, a reduction from the issuance value of $56.63 million but above the current whole loan exposure of $36.50 million. The loan’s sponsor, Natin “Nate” Paul, chief executive officer of World Class Holdings, has been under investigation by the FBI since 2019, and his firm has reportedly been in financial distress since then. According to multiple news sources, more than $100.0 million worth of properties owned by World Class Holdings has been foreclosed upon. While the relatively moderate value decline from issuance is noteworthy, DBRS Morningstar remains concerned about the portfolio’s overall stressed cash flows, lack of financial reporting, and the uncertainty surrounding the outcome of the sponsor’s legal challenges. For this review, DBRS Morningstar analyzed the loan with an elevated probability of default to reflect the current risk profile of the underlying collateral.

The second-largest loan on the servicer’s watchlist, The Drake (Prospectus ID#5; 5.4% of the pool), is secured by a 218-unit, Class A multifamily apartment building in the Dupont Circle submarket of Washington, D.C. The loan has been on the servicer’s watchlist intermittently since 2016, with the most recent addition in March 2022. According to September 2021 financial reporting, the property was 97.8% occupied with a debt service coverage ratio of 1.08 times (x), compared with 68.9% and 1.66x at YE2020, respectively. Despite the increase in occupancy driven by the execution of 68 new leases, effective gross income declined over the period as a result of increases in vacancy loss and concessions. As of September 2021, the property was achieving average rents of approximately $2,100 per unit, generally in line with average market rents for comparable assets. The subject benefits from its desirable location in Washington, D.C., as well as the submarket’s historically low vacancy rate, which is expected to rebound in the near to moderate term. Given recent leasing momentum and the expected stabilization in cash flows, DBRS Morningstar expects performance at the property to improve in the near to moderate term.

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-C, X-D, 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#6– Midwest Shopping Center Portfolio (4.2% 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 4, 2022), 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 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.

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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