DBRS Morningstar Confirms All Classes of Morgan Stanley Capital I Trust 2015-XLF2

DBRS Limited (DBRS Morningstar) confirmed the ratings of the following Commercial Mortgage Pass-Through Certificates, Series 2015-XLF2 issued by Morgan Stanley Capital I Trust 2015-XLF2:

-- Class SNMA at CCC (sf)
-- Class SNMB at C (sf)
-- Class SNMC at C (sf)
-- Class SNMD at C (sf)

These ratings do not carry a trend. DBRS Morningstar has maintained the Interest in Arrears designations on all Classes.

The rating confirmations reflect DBRS Morningstar’s expectation that all rated classes are at risk of a realized loss given the value declines for the remaining underlying collateral (three regional malls) in the last few years. At issuance, the transaction was secured by two floating-rate, interest-only loans. One of the loans was secured by a hotel portfolio of seven full-service hotels (Ashford Full Service II Portfolio), and the second loan was secured by a retail portfolio (Starwood National Mall Portfolio) composed of three super-regional malls. The Ashford Full Service II Portfolio loan was repaid in June 2018, and the associated bonds, Classes AFSA, AFSB, AFSC, and AFSD, were retired. As of the March 2022 remittance, the trust balance of $120.7 million comprised the remaining $62.7 million senior note balance, which was paid down from the issuance balance of $103.0 million, and $58.0 million in subordinate notes. There are also nontrust subordinate notes in the amount of $77.0 million.

The Starwood National Mall portfolio loan had an initial maturity date in November 2017, with two one-year extension options available, both of which the sponsor exercised. The extension options were subject to principal paydowns and debt-yield hurdles, which were successfully met. In January 2020, the servicer granted a forbearance to allow additional time for securing a replacement loan. During this time, the servicer also continued discussions with the sponsor regarding a potential loan modification if takeout financing could not be secured. The loan ultimately transferred to special servicing in March 2020, where it has remained since.

As of the most recent appraisals obtained by the special servicer, dated August 2020 and provided in the servicer’s reporting in November 2020, the portfolio was valued at $89.0 million on an as-is basis, with a relatively moderate improvement to $112.8 million on a stabilized basis. This represents a significant decline from the values estimated as part of the February 2020 appraisals previously obtained by the special servicer, which estimated an as-is value of $165.8 million, compared with the issuance portfolio value of $345.2 million. Most recently, the special servicer reports that all three properties within the portfolio have been sold in two separate transactions expected to close in April 2022. The sale price remains confidential at this time; however, DBRS Morningstar analyzed 24 specially serviced regional malls that received new appraisals in 2020 and 2021 and found that on average those updated values reflected a median value decline of over 60%, reflecting a median loan to value over 180%. Based on these comparables, DBRS Morningstar believes the loss estimates initially assumed as part of the April 2021 rating actions (for further information, please see the DBRS Morningstar press release for this transaction dated April 27, 2021) remain valid, supporting the ratings confirmations with this review. It is noteworthy that the special servicer recently applied a $15.0 million principal curtailment with funds applied from an excess cash flow reserve; DBRS Morningstar did not give credit to that reserve in the analysis for the April 2021 rating action given the possibility those funds could have been used for property-related expenses.

The Shops at Willow Bend collateral, representing 48.4% of the allocated loan amount, is a 772,000-square foot (sf) portion of a 1.2 million-sf super-regional mall in Plano, Texas, approximately 20 miles north of the Dallas central business district (CBD). As of the December 2021 rent roll, the collateral portion of the subject was approximately 65.0% occupied, remaining in line with the November 2020 occupancy rate of 65.7%, but well below the figure of 94.0% at November 2018. The property is anchored by a noncollateral Dillard’s, Neiman Marcus, and Macy’s, in addition to a vacant Saks Fifth Avenue, which was previously slated to be renovated to house a movie theatre tenant in a deal that ultimately collapsed amid the Coronavirus Disease (COVID-19) pandemic.

The Fairlane Town Center collateral, representing 29.2% of the allocated loan amount, is a 681,000-sf portion of a 1.4-million-sf super-regional mall in Dearborn, Michigan, approximately 10 miles southwest of the Detroit CBD. As of the December 2021 rent roll, the collateral portion was 87.0% occupied, compared with 88.2% at November 2020 and 75.0% at December 2018. At issuance, the noncollateral anchors included Macy’s, JCPenney, Sears, and Lord & Taylor. The Sears space has remained vacant since 2018, while the former Lord & Taylor space was partially backfilled.

The Stony Point Fashion Park collateral, representing 22.3% of the allocated loan amount, is a 385,000-sf portion of a 675,000-sf open-air regional mall located in Richmond, Virginia, approximately 10 miles west of Downtown Richmond. As of the December 2021 rent roll, the collateral portion was 53.6% occupied, compared with 44.0% at December 2020 and well below the November 2019 occupancy rate of 81.0%. The property is anchored by noncollateral Saks Fifth Avenue, Dillard’s, and a collateral Dick’s Sporting Goods, the last of which has remained vacant since 2018.

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.

All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

The DBRS Morningstar 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. 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.

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

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