DBRS Morningstar Confirms Ratings on All Classes of Morgan Stanley Bank of America Merrill Lynch Trust 2015-C27, Changes Trends on Six Classes to Stable from Negative

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2015-C27 issued by Morgan Stanley Bank of America Merrill Lynch Trust 2015-C27 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 AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class X-D at BBB (high) (sf)
-- Class D at BBB (sf)
-- Class X-E at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class X-F at BB (high) (sf)
-- Class F at BB (sf)
-- Class G at B (sf)
-- Class X-GH at B (sf)
-- Class H at B (low) (sf)

DBRS Morningstar changed the trends on Classes D, E, F, X-D, X-E, and X-F to Stable from Negative. Classes G, H, and X-GH continue to carry Negative trends to reflect the ongoing concerns with a top five loan in the pool in Granite 190 (Prospectus ID#5, 5.6% of the pool), as well as a large hotel loan that was formerly in special servicing, as further detailed below.

At issuance, the transaction consisted of 55 loans secured by 167 commercial and multifamily properties, with an aggregate principal balance of $822.3 million. As of the July 2022 remittance, 51 of the original 55 loans remain in the trust, with an aggregate balance of approximately $703.3 million, representing a collateral reduction of 14.5% since issuance. The transaction is concentrated by property type as 23 properties are secured by retail and hotel properties, collectively representing 40.9% of the pool balance. Seven loans, representing 5.0% of the current pool balance, are fully defeased. Two loans are in special servicing and 16 loans are on the servicer’s watchlist, representing 1.8% and 41.7% of the pool balance, respectively.

The two loans in special servicing are Fairfield Inn & Suites Kansas City (Prospectus ID#25, 1.0% of the pool) and La Quinta Russellville (Prospectus ID#35, 0.7% of the pool). Both of the collateral hotel properties are owned by the trust, with the Fairfield Inn & Suites Kansas City reporting a March 2022 value of $5.5 million, which is a 54.2% decrease from the issuance value of $12.0 million. The La Quinta Russellville property reported a January 2022 value of $5.7 million, which is a 38.7% decrease from the issuance value of $9.3 million. DBRS Morningstar anticipates a moderate loss to the trust upon the disposition of these loans, with loss severities ranging between 20.0% and 55.0%, which DBRS Morningstar expects will be contained to the nonrated Class J.

The Granite 190 loan is secured by two, three-storey office buildings in Richardson, Texas. The loan is on the servicer’s watchlist because the largest tenant, United Healthcare (UHC; 56.1% of the net rentable area (NRA)) has a lease expiring in June 2023. The tenant previously downsized its space in 2021 to 172,604 square feet (sf) (56.2% of the NRA) from 197,957 sf (64.4% of the NRA), and a lease amendment to further downsize as part of a short-term lease extension to June 2026 is currently pending the lender’s approval. Furthermore, the second-largest tenant, Parsons Services Company (Parsons; 14.4% of the NRA, lease expires in March 2023), has exercised its termination option. The loan includes a cash flow sweep provision tied to the leases for both Parsons and UHC, and according to the servicer, the implementation of cash management is in progress.

The servicer reported a YE2021 occupancy rate of 76.1% for the property; this compares with YE2020 and YE2019 occupancy rates of 95.7% and 93.3%, respectively. The YE2021 debt service coverage ratio (DSCR) was 1.18 times (x), compared with the YE2020, YE2019, and DBRS Morningstar DSCRs of 1.26x, 1.59x, and 1.18x, respectively. When adjusting the YE2021 net cash flow to reflect the departure of Parsons, the implied DSCR is approximately 0.85x. Coverage will fall even further when UHC further downsizes; however, some of that lost rental revenue may be recovered in the near to moderate term as the servicer has noted leases for two new prospective tenants, accounting for approximately 16% of the NRA, are pending servicer approval. Per Reis, office properties in the Plano/Allen submarket reported a Q2 2022 vacancy rate of 24.3%, compared with the Q2 2021 and Q2 2020 vacancy rates of 26.7% and 25.0%, respectively. Given the weak submarket and that DSCR will decline as tenants vacate or downsize, the risks for this loan are significantly increased, as reflected in the Negative trends on Classes G, H, and X-GH.

The largest loan on the servicer's watchlist, Crowne Plaza - Hollywood (Prospectus ID#2, 7.6% of the pool), is secured by a 311-key, full-service hotel along Ocean Drive in Hallandale Beach, Florida. The loan was previously in special servicing because of challenges arising from the Coronavirus Disease (COVID-19) pandemic but has since returned to the master servicer upon finalizing a forbearance agreement. Approximately $3.3 million of default interest and fees that were accrued were forborne and can be waived upon the full repayment of the debt at or prior to loan maturity. In addition, the borrower was allowed to defer furniture, fixtures, and equipment deposits between April 2020 and December 2020 but is required to repay these deferred amounts over a 24-month period until December 2022.

The servicer’s analysis of the financial statement for the trailing 12 months (T-12) ended March 31, 2022, resulted in a DSCR of 1.05x, an improvement from the YE2021 DSCR of 0.78x and YE2020 DSCR of -0.14x. According to the June 2022 STR report, the property reported a T-12 ended June 2022 occupancy rate of 58.8%, average daily rate of $213.12, and revenue per available room (RevPAR) of $125.22, representing a RevPAR penetration of 57.7%. According to the February 2021 appraisal, the property’s value was $65.7 million, down slightly from the June 2020 appraisal value of $65.8 million but down 26.2% from the issuance appraisal value of $89.0 million. While the sponsor appears to be committed to the property and is in compliance with the forbearance agreement, the performance lags in comparison to its competitive set, suggesting stabilization could take longer than anticipated. This will elevate the risks for the loan through the near to moderate term, providing additional support for the Negative trends on the two lowest-rated classes, as previously noted.

The U-Haul Portfolio loan (Prospectus ID#4, 2.6% of the current trust balance) is shadow rated investment grade. With this review, DBRS Morningstar confirmed the loan’s performance remains consistent with the investment-grade loan characteristics.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no environmental, social, and governance factors that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

Classes X-A, X-B, X-D, X-E, X-F, and X-GH 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 this transaction.

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.

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.

The conditions that lead to the assignment of 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].

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577