DBRS Morningstar Confirms Ratings on All Classes of Houston Galleria Mall Trust 2015-HGLR

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2015-HGLR (the Certificates) issued by Houston Galleria Mall Trust 2015-HGLR (the Issuer) as follows:

-- Class A-1A1 at AAA (sf)
-- Class A-1A2 at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class X-CP at BB (high) (sf)
-- Class X-NCP at BB (high) (sf)
-- Class E at BB (sf)

All trends are Stable.

The rating confirmations reflect the stable performance of the underlying collateral, which has remained in line with DBRS Morningstar’s expectations.

The Certificates are backed by a $1.05 billion component of a $1.2 billion, 10-year, fixed-rate, interest-only (IO) mortgage loan. The remaining $150.0 million pari passu companion loan was securitized in the JPMBB 2015-C28 transaction, which is also rated by DBRS Morningstar.

The loan is secured by the fee interest in a 1.2 million-square foot (sf) portion of a 2.1 million-sf enclosed, super-regional mall in Houston, about 10 miles west of the central business district. The Galleria is the largest shopping center in Texas and the fourth-largest in the nation. The tenant roster includes approximately 400 retailers and restaurants, along with noncollateral tenants, including Macy’s, Nordstrom, Neiman Marcus, and Saks Fifth Avenue (Saks). Macy’s and Nordstrom own their sites and spaces, while Neiman Marcus and Saks own their respective improvements but are subject to ground leases. All anchor boxes at the property are occupied and operating as of August 2022.

According to the April 2022 rent roll, the mall reported an occupancy rate of 89.7% while the collateral portion of the subject reported an occupancy rate of 82.5% compared with the YE2021 and YE2019 collateral occupancy rates of 82.6% and 85.6%, respectively. The largest in-line tenants are Life Time Fitness (6.5% of the collateral net rentable area (NRA), lease expires in January 2038), Forever 21 (2.3% of the NRA, lease expires in January 2023), and H&M (1.9% of the NRA, lease expires in January 2025).

According to the December 2021 tenant sales report, Saks reported sales of $831 per square foot (psf), in-line tenants occupying less than 10,000 sf (excluding Apple) reported sales of $1,068 psf, and in-line tenants occupying more than 10,000 sf reported sales of $958 psf compared with sales at issuance of $557 psf, $883 psf, and $936 psf, respectively.

The servicer reported a YE2021 net cash flow (NCF) of $117.9 million and a debt service coverage ratio (DSCR) of 2.73 times (x). The YE2021 NCF increased compared with the YE2020 NCF of $113.2 million, but remained in line with the YE2019 NCF of $117.3 million. Despite the challenges arising from the Coronavirus Disease (COVID-19) pandemic, the loan continues to report NCF figures in excess of the Issuer’s NCF of $100.1 million.

The sponsors for the loan are Simon Property Group (SPG) and Institutional Mall Investors (IMI). SPG, considered the largest real estate investment trust in the United States, is also the loan’s guarantor. IMI is a regional shopping center investment platform that is ultimately co-owned by Miller Capital Advisory, Inc. (MCA), which acts as an investment manager for IMI and CalPERS, the largest public pension fund in the country. IMI owns or has interest in roughly 19 million sf of retail gross leasable area as well as one million sf of office space. IMI acquired an ownership interest in the subject in 2001, while SPG acquired an ownership interest in early 2002.

As noted in the press release “DBRS Morningstar Confirms Ratings on All Classes of Houston Galleria Mall Trust 2015-HGLR, Changes Trends to Stable,” dated September 28, 2021, the ratings assigned to Classes C, D, and E were lower than the results implied by the loan-to-value (LTV) sizing benchmarks. For this review, DBRS Morningstar did not update the LTV sizing given the performance remains in line with expectations at last review.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/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.

Classes X-CP and X-NCP 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.

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 the 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 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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