DBRS Morningstar Confirms Ratings on All Classes of CSAIL 2015-C3 Commercial Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2015-C3 issued by CSAIL 2015-C3 Commercial Mortgage Trust 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 BBB (low) (sf)
-- Class X-E at BB (low) (sf)
-- Class E at B (high) (sf)
-- Class X-F at B (sf)
-- Class F at B (low) (sf)

All trends are Stable.

The rating confirmations and Stable trends reflect the overall stable performance of the pool, which has remained in line with expectations since DBRS Morningstar’s last rating action in November 2022. In January 2023, the 800 Chester Pike loan (Prospectus ID#52, previously 0.6% of the pool) was liquidated from the pool with a loss of $1.1 million (loss severity of 13.2%), compared with the DBRS Morningstar estimated loss of $1.4 million. Two additional loans, Millside Plaza (Prospectus ID#35, 0.9% of the current pool) and PA Rite Aid Portfolio (Prospectus ID#65, 0.4% of the current pool), were transferred to special servicing in April 2023 and May 2023, respectively. Both loans were analyzed with elevated probabilities of default (POD) for this review.

DBRS Morningstar’s primary concern continues to be the pool’s high exposure to loans secured by regional mall properties, two of which are being monitored on the servicer’s watchlist. Both The Mall of New Hampshire (Prospectus ID#3, 9.0% of the current pool) and Westfield Trumbull (Prospectus ID#7, 3.7% of the current pool) loans were analyzed with elevated PODs to reflect their current risk profiles and, for Westfield Trumbull, an elevated loan-to-value ratio (LTV) was applied given the recent sale of the property. Seven loans, representing 18.2% of the current pool, are secured by office properties. None of the seven office-backed loans are being monitored on the servicer’s watchlist, and they reported a weighted-average (WA) YE2022 debt service coverage ratio (DSCR) of 1.69 times (x). Given the shift in demand for office space following the Coronavirus Disease (COVID-19) pandemic, DBRS Morningstar anticipates upward pressure on vacancy rates in the broader office market. To account for the possibility of value declines and increased refinancing difficulties, DBRS Morningstar applied stressed LTV ratios to all seven loans.

As of the May 2023 remittance, 80 loans remain in the pool with a trust balance of $1.1 billion, representing a collateral reduction of 21.7% since issuance. Nineteen loans, representing 13.5% of the current pool, are fully defeased. In addition, 14 loans, representing 24.1% of the current pool, are being monitored on the servicer’s watchlist and three loans, representing 1.7% of the current pool, are in special servicing.

The Mall of New Hampshire is the largest loan on the servicer’s watchlist and is secured by 405,723 square feet (sf) of in-line space in an 811,573-sf Class B single-level enclosed regional mall in Manchester, New Hampshire. The mall, which is jointly owned by Simon Property Group and the Canadian Pension Plan Investment Board, is anchored by Macy’s, JCPenney, and Dick’s Sporting Goods—none of which act as collateral for the loan. Because of the business interruptions amid the Coronavirus Disease (COVID-19) pandemic, the loan transferred to special servicing and a cash trap was activated in December 2020. The cash trap remains active as of May 2023 and, according to the May 2023 reserve report, $1.4 million of lockbox receipts have been collected, in addition to $213,000 outstanding in a leasing reserve. The loan returned to the master servicer in May 2021 after a forbearance was executed to defer interest payments from May 2020 through December 2020. According to the September 2022 rent roll, the collateral was 84.8% occupied, an increase from the December 2021 occupancy of 83.0%. The largest collateral tenants include Best Buy (10.4% of the net rentable area (NRA), lease expires January 2024), Old Navy (4.6% of NRA, lease expired January 2022), and Ulta (2.9% of NRA, lease expires May 2025). DBRS Morningstar has inquired about the status of Old Navy’s lease and is awaiting response; however, according to the mall’s website, the tenant is still in occupancy. According to YE2022 tenant sales report, the mall reported in-line sales (excluding Apple) of $437 per square foot (psf), which is up from the in-line sale of $396 psf as of August 2021. As of the trailing nine-month financials ended September 30, 2022, the loan reported an annualized net cash flow of $11.6 million, equating to a DSCR of 1.85x compared with the DBRS Morningstar DSCR of 2.30x. Although the loan’s in-place coverage remains healthy, cash flow has not met DBRS Morningstar’s expectations. In the analysis for this loan, DBRS Morningstar applied a stressed POD, resulting in an expected loss more than 50.0% greater than the pool’s WA expected loss.

Westfield Trumbull is secured by 462,869 sf of a 1.1 million-sf regional mall in Trumbull, Connecticut. The collateral includes the Macy’s (18.8% of NRA, lease expired April 2023) anchor pad and all in-line space. Additional anchors, JCPenney, Target, and one pad that was previously occupied by Lord & Taylor but is now vacant, do not act as collateral for the loan. DBRS Morningstar inquired about the status of Macy’s lease but has not been provided an update from the servicer; however, the tenant is reportedly open according to the mall’s website. The loan was added to the watchlist in March 2022 for a declining DSCR and a cash sweep initiation. DSCR was reported at 1.39x with an occupancy rate of 93.2% as of September 2022, in line with the YE2021 DSCR of 1.36x and occupancy rate of 96.6% but well below the DBRS Morningstar DSCR of 2.47x. A lockbox was established after the loan’s debt yield fell below 7.5% and, according to servicer commentary, approximately $775,000 had been trapped as of January 2023. According to various news articles, the subject and another mall owned by Unibail-Rodamco-Westfield (URW) were sold in December 2022 to Mason Asset Management and Namdar Realty Group for a combined sales price of $196.0 million. As part of that transaction, the subject debt was assumed. This loan was previously been flagged by DBRS Morningstar as a loan of concern because of its exposure to Lord & Taylor (which has since closed) JCPenney, weakened sales, declining cash flow performance, and URW’s April 2022 announcement that it would sell all of its U.S. malls by 2024. Given this, DBRS Morningstar expects that the individual sale price for the subject property represents a significant discount from the issuance appraised value. To reflect the elevated refinance risk ahead of the loan’s March 2025 maturity, DBRS Morningstar analyzed this loan with an elevated POD and increased the loan’s LTV to 100.0%, resulting in an expected loss more than 250.0% greater than the pool’s WA expected loss.

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 (May 17, 2022) at https://www.dbrsmorningstar.com/research/396929.

Classes X-A, X-B, X-D, X-E, and X-F 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 the 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.

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].