DBRS Morningstar Changes Trends on Two Classes, Confirms All Ratings on COMM 2015-CCRE24 Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed the following ratings of the Commercial Mortgage Pass-Through Certificates, Series 2015-CCRE24 issued by COMM 2015-CCRE24 Commercial Mortgage Trust:

-- Class A-4 at AAA (sf)
-- Class A-5 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 (low) (sf)
-- Class X-B at A (sf)
-- Class C at A (low) (sf)
-- Class X-C at BBB (sf)
-- Class D at BBB (low) (sf)
-- Class X-D at B (high) (sf)
-- Class E at B (sf)
-- Class F at B (low) (sf)
-- Class G at CCC (sf)

DBRS Morningstar changed the trends on Classes X-C and D to Stable from Negative, primarily reflecting the recent modification and upcoming reinstatement of the largest specially serviced loan, Palazzo Verdi (Prospectus ID#4; 5.1% of the pool). The non-investment-grade ratings on Classes X-D, E, and F continue to have Negative trends given the ongoing potential for further credit deterioration based on exposure to the three remaining specially serviced loans (5.1% of the pool), particularly the Westin Portland (Prospectus ID#8; 4.2% of the pool). All remaining trends are Stable, excluding Class G, which has a rating that does not carry a trend. In addition, DBRS Morningstar has removed the Interest in Arrears designation on Class F, as shorted interest has been repaid, while Class G carries the Interest in Arrears designation because of an ongoing shortfall.

As of the April 2022 remittance, 76 of the original 81 loans remain in the pool, with an aggregate principal balance of $1.22 billion, reflecting a collateral reduction of 11.8% since issuance as a result of loan repayment and scheduled loan amortization. Nine loans (6.4% of the pool) are secured by fully defeased collateral. There are also four loans (10.2% of the pool) in special servicing. DBRS Morningstar assumed a liquidation scenario for three of the four loans in special servicing, resulting in a loss forecast of approximately $21.5 million.

The largest loan in special servicing is Palazzo Verdi, which is secured by a Class A office building totalling 302,245 square feet in Greenwood Village, Colorado, approximately 15 miles southeast of the Denver central business district (CBD). The loan transferred to special servicing in November 2020 for delinquency after the property’s largest tenant, Newmont Mining (59.8% of net rentable area (NRA)), vacated upon lease expiration, causing the occupancy rate to drop to 27.0%. The decline in occupancy occurred concurrently with the loan’s conversion to amortizing debt service payments following the burn off of its interest-only (IO) period.

At closing, the property was owned by the John Madden Company, a full-service real estate development and management group in Greenwood Village; however, according to a December 2021 BusinessDen article, the property had been sold to Schnitzer West for $72.5 million. Per the terms of the loan modification, the new sponsor provided a $10.0 million principal pay down upon assuming the debt, paid all past due interest and expenses, and funded reserves for future leasing costs. In addition, the sponsor negotiated a new lease with Starz Entertainment (31.5% of NRA) on a 12-year term, implying a leased rate for the property of 61.0%. The tenant will pay an initial rate of $25.50 per square foot beginning in January 2024, following 18 months of free rent. The high submarket vacancy, reported at 18.0% by Reis as of Q1 2022, could continue to present a challenge to the sponsor’s plans for stabilizing performance; however, DBRS Morningstar views the recent loan modification as a credit positive for the transaction. Despite this, DBRS Morningstar’s analysis includes an increased probability of default given the increased implied loan-to-value ratio (LTV) and potential for ongoing underperformance.

The second-largest loan in special servicing, Westin Portland, is secured by a 19-storey, full-service, 205-key luxury hotel in the CBD of Portland, Oregon. The loan was transferred to the special servicer in June 2020 for payment default and has since remained delinquent. The borrower has indicated they will not be able to make debt service payments going forward and has requested a loan modification. The special servicer is dual-tracking foreclosure as it continues to negotiate possible modification terms.

The hotel’s performance declined in 2017 because of a combination of new hospitality properties delivered to the submarket and the sponsor’s conversion of the hotel to the Dossier boutique brand from the original Westin flag, which was completed in 2018. Rooms were taken off line during the rebranding, and performance and never restabilized. The hotel was also closed for a much of 2020 and into 2021 because of market disruption resulting from the Coronavirus Disease (COVID-19) pandemic but reopened in October 2021. The property’s restaurant tenant remains closed and is not expected to reopen. The property was reappraised in December 2021 at $50.2 million, reflecting a 40% decline from the $83.6 million appraised value at issuance and indicating an LTV of 120.3% based on the total loan exposure. DBRS Morningstar’s analysis included a liquidation scenario based on a stressed value, resulting in a projected loan-level loss severity in excess of 40.0%.

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, X-C, and X-D are 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.

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/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.

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

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