DBRS Morningstar Changes Trends on Two Classes, Confirms Ratings on All Classes of Morgan Stanley Capital I Trust 2015-UBS8

DBRS Limited (DBRS Morningstar) confirmed the ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2015-UBS8 issued by Morgan Stanley Capital I Trust 2015-UBS8 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 AA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class X-D at B (sf)
-- Class E at B (low) (sf)
-- Class F at C (sf)
-- Class G at C (sf)
-- Class H at C (sf)

DBRS Morningstar changed the trends on Classes E and X-D to Stable from Negative. All other Classes have Stable trends, with the exception of Classes F, G, and H, which have ratings that do not typically carry a trend in commercial mortgage-backed securities (CMBS) ratings.

The rating confirmations reflect the overall stable performance of the transaction, which remains in line with DBRS Morningstar’s expectations. The C (sf) rating on Classes F, G, and H reflects the loss expectations for the specially serviced loans in the pool, which are discussed in detail below. Since last review, the Radisson – Buena Park (Prospectus ID#11), which was previously in special servicing, has repaid from the trust in full, with no loss to the trust. In terms of the pool concentration, loans backed by retail properties represented approximately 44.0% of the pool, including three (25.0% of the pool) of the top five loans. Office concentration is relatively low, representing 12.5% of the pool. In general, the office sector has been challenged, given the low investor appetite for the property type and high vacancy rates in many submarkets given the shift in workplace dynamics. In the analysis for this review, loans backed by office and other properties that were showing declines from issuance or otherwise exhibiting increased risks from issuance were analyzed with stressed scenarios to increase expected losses as applicable. The credit risk profile of the loans of concern are reflected in the C (sf) ratings, while the overall performance of the remaining loans is generally healthy, thereby supporting the trend change on Classes E and X-D from Negative to Stable.

As per the April 2023 remittance, 55 of the original 57 loans remain in the pool, representing a collateral reduction of 13.3% since issuance. Ten loans, representing 13.9% of the pool, are fully defeased. Five loans, representing 7.7% of the pool, are in special servicing. In addition, thirteen loans, representing 30.6% of the pool, are on the servicer’s watchlist, and are being monitored for low occupancy rates, cashflows, and debt service coverage ratios (DSCR).

The largest loan in special servicing, Mall de las Aguilas (Prospectus ID#6; 3.2% of the pool balance), is secured by a 350,000-square foot (sf) portion of a 450,000-sf regional mall in Eagle Pass, Texas, which is on the United States–Mexico border. The loan transferred to special servicing in June 2020 because of challenges arising from the pandemic-related closure of the border, and the property became real estate owned in July 2021. The servicer will attempt to stabilize the property before marketing it for sale. According to the financials for the trailing nine months ended September 30, 2022, the collateral’s occupancy rate was 73.1% with a DSCR of 0.71 times (x), compared with the YE2021 occupancy rate of 68.5% and DSCR of 1.05x. The mall is anchored by JCPenney (18.0% of the net rentable area (NRA)), which recently extended its lease to May 2024 from November 2022 and is paying an annual rental rate of $3.11 per square foot (psf) compared with the previous rate of $3.85 psf. The property is also anchored by a noncollateral Burlington. Given the sustained low performance and the significant value decline from issuance, DBRS Morningstar analyzed this loan with a liquidation scenario, resulting in a loss severity in excess of 75.0%.

The largest loan on the servicer’s watchlist, 525 Seventh Avenue (Prospectus ID#1; 9.6% of the pool balance), is secured by a 23-story 505,273-sf office building in Midtown Manhattan. The loan was added to the watchlist in February 2022 because of a decline in net cash flow (NCF). According to the most recent financials, the annualized NCF for the trailing nine months ended September 30, 2022, was reported at $12.0 million (reflecting a DSCR of 1.17x), unchanged from the YE2021 figure and below the issuance figure of $16.6 million (a DSCR of 1.75x). As of September 2022, the property occupancy rate of 86.0% was slightly higher than the YE2021 figure of 85.0% but below the 96.0% occupancy rate at issuance.

Per the leasing update, two of the top five tenants, representing 9.3% of the NRA, had lease expirations scheduled through to YE2023, including Beyond Inc. (5.7% of NRA, lease expires in May 2023) and B&J Fabrics Inc. (3.6% of NRA, lease expired in March 2023); however, according to the servicer, Beyond Inc. extended its lease for an additional 10-year term and expanded into the 20th floor, while B&J Fabrics Inc. extended its lease for an additional eight years. The servicer also confirmed the lease renewal of 10 other tenants (6.2% of NRA) for at least three additional years. Although the leasing traction at the subject is a positive development, given the decline in performance from issuance, DBRS Morningstar took a conservative approach in its review and applied a stressed loan-to-value ratio, resulting in an expected loss that was approximately 45.0% above the weighted-average expected loss for the pool.

ENVIRONMENTAL, SOCIAL, 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 (May 17, 2022).

Classes X-A, X-B, and X-D 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.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology (March 16, 2023) https://www.dbrsmorningstar.com/research/410912.

Other methodologies referenced in this transaction are listed at the end of this press release.

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 rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process for this rating action.

DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is a solicited credit rating.

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].

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

The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

North American CMBS Multi-Borrower Rating Methodology (March 16, 2023)/North American CMBS Insight Model v 1.1.0.0 (https://www.dbrsmorningstar.com/research/410913)

Rating North American CMBS Interest-Only Certificates (December 19, 2022; https://www.dbrsmorningstar.com/research/407577)

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 12, 2022; https://www.dbrsmorningstar.com/research/402646)

North American Commercial Mortgage Servicer Rankings (September 8, 2022; https://www.dbrsmorningstar.com/research/402499)

Interest Rate Stresses for U.S. Structured Finance Transactions (August 30, 2022; https://www.dbrsmorningstar.com/research/402153)

Legal Criteria for U.S. Structured Finance (December 7, 2022;
https://www.dbrsmorningstar.com/research/407008)

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