DBRS Morningstar Confirms Ratings on All Classes of CSAIL 2015-C2 Commercial Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2015-C2 issued by CSAIL 2015-C2 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 BB (sf)
-- Class X-E at B (sf)
-- Class E at B (low) (sf)
-- Class F at CCC (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since DBRS Morningstar’s last review. The CCC (sf) rating on Class F is reflective of the ongoing concerns with the loans in special servicing. The transaction is concentrated by property type with approximately 20.0% of the loans in the pool secured by office properties. In the analysis for this review, office loans were generally stressed to increase the expected loss amounts given the proximity to maturity and generally increased risks for the office sector in the current environment. As a result of these stressed scenarios, the office loans in the pool had a weighted-average (WA) expected loss that was approximately 140.0% of the WA pool expected loss.

As of the May 2023 remittance, 105 of the original 118 loans remain in the trust, with an aggregate principal balance of $1.1 billion, representing a collateral reduction of 17.3% since issuance. The pool benefits from 25 loans that are fully defeased, representing 20.0% of the pool. There are 26 loans, representing 27.7% of the pool, on the servicer’s watchlist that are primarily being monitored for declines in occupancy and/or debt service coverage ratios (DSCRs), or deferred maintenance items. Six loans, representing 6.5% of the pool, are in special servicing.

The largest loan in special servicing, California Corporate Center (Prospectus ID#11; 1.9% of the current pool balance), is secured by two mid-rise office buildings in the financial district of Bakersfield, California. The loan transferred to special servicing in December 2021 after a major tenant, ManageCare Systems (formerly 43.9% of the net rentable area (NRA)), signaled its intent to downsize. As of the March 2023 rent roll, the tenant now occupies 20.3% of the NRA with a lease expiration date in January 2030. After the loan transferred to special servicing, the special servicer discovered an event of default (EOD) related to cash management provisions and misappropriation of rents. The EOD breached the special-purpose entity covenants, thereby triggering full recourse to the guarantor. The loan has been accelerated and the borrower consented to a third-party fiduciary that will comply with the cash management. The special servicer’s May 2023 commentary states that a notice of default has been recorded and foreclosure will be pursued.

The March 2023 rent roll reported an occupancy rate of 75.2%, with minimal near-term rollover risk. After ManageCare Systems, the largest tenants are City of Bakersfield (20.4% of the NRA, lease expiry in January 2025) and General Services Admin - Federal Bureau of Investigation (6.1% of the NRA, lease expiration in April 2025). The loan reported a YE2022 DSCR of 1.35 times (x), compared with the YE2021 and YE2020 DSCRs of 1.34x and 1.28x, respectively. The submarket vacancy rate has actually improved for 2023, with Reis reporting the non-CBD submarket had a Q1 2023 vacancy rate of 9.4%, compared with the Q1 2022 and Q1 2021 vacancy rates of 14.1% and 15.4%, respectively. However, DBRS Morningstar notes availability rates may be higher when sublease availability is factored in. Given the increased risk of lost occupancy, the EOD that led to a foreclosure action being considered, and the uncertain demand for space in the market, DBRS Morningstar analyzed this loan with a liquidation scenario and applied a significant haircut to the appraised value at issuance, resulting in a loss severity in excess of 50.0%.

Another pivotal loan in the transaction is the second-largest loan on the servicer’s watchlist, Westfield Trumbull (Prospectus ID#5; 3.0% of the current pool balance), which is secured by a 1.1 million-square foot regional mall in Trumbull, Connecticut. This is a pari passu loan, with other loan pieces in the CSAIL 2015-C1 and CSAIL 2015-C3 transactions, which are also rated by DBRS Morningstar. The collateral includes anchor Macy’s (18.8% of NRA, lease expired April 2023) and the in-line space. Additional anchors—JCPenney, Target, and one pad that was previously occupied by Lord & Taylor but is now vacant—are not collateral. DBRS Morningstar requested a leasing update for Macy’s and, as of the date of this press release, the response is pending. As of a June 2023 Google search, the store remains open. The loan was added to the servicer’s watchlist in March 2022 for declining DSCR and a cash sweep initiation. The DSCR was reported at 1.39x with an occupancy rate of 99.9% 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 Unibail-Rodamco-Westfield-owned mall were sold in December 2022 to Mason Asset Management and Namdar Realty Group for a combined sale price of $196.0 million. According to the servicer, the subject’s sales price was reportedly $153.3 million, a 41.5% decline from the issuance value of $262.0 million, resulting in an implied loan-to-value (LTV) ratio of just under 100.0%. Although the collateral continues to be well occupied, the precipitous decline in cash flows from issuance and the significant decline in value suggest elevated refinance risk ahead of the loan’s March 2025 maturity. For this review, DBRS Morningstar analyzed this loan with an elevated probability of default and stressed the LTV based on the 2022 sales price, with the resulting expected loss nearly three times the pool’s WA expected loss.

Although the aforementioned loans and the relatively high concentration of office space suggest increased risks for the pool as a whole, the transaction also benefits from a significant cushion of more than $140 million rated BB (sf) and below by DBRS Morningstar. The liquidated losses assumed by DBRS Morningstar with this review remain contained to the unrated Class NR certificate and the increased expected losses for the loans stressed to reflect increased risks from issuance combine with the sizeable defeasance and paydown since issuance to support the rating confirmations with this 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 (May 17, 2022) at https://www.dbrsmorningstar.com/research/396929.

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

DBRS Limited
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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/North American CMBS Insight Model v 1.1.0.0 (March 16, 2023), 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].