DBRS Morningstar Confirms Ratings on All Classes of Morgan Stanley Capital I Trust 2015-MS1

DBRS Limited (DBRS Morningstar) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2015-MS1 issued by Morgan Stanley Capital I Trust 2015-MS1 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 B at AA (sf)
-- Class C at A (high) (sf)
-- Class PST at A (high) (sf)
-- Class D at BBB (sf)
-- Class E at BB (high) (sf)
-- Class F at B (high) (sf)

All trends are Stable.

The rating confirmations and Stable trends reflect the overall stable risk profile, which remains in line with DBRS Morningstar’s expectations from last review. The transaction benefits from paydown since issuance of approximately $90 million, as well as a moderate level of defeasance and a low concentration of loans in special servicing, as further outlined below.

According to the June 2023 remittance, 51 of the original 54 loans remain in the pool with a pool balance of $793.9 million, representing a collateral reduction of 10.3% since issuance. There are 10 loans on the servicer’s watchlist, representing 31.9% of the pool, and one loan, representing 1.9% of the pool, is specially serviced and real estate owned. Additionally, 11 loans, representing 8.3% of the pool, are defeased. The pool is largely concentrated by retail properties, which represent 41.1% of the pool. Office concentration is low, at just under 6% of the pool balance. The pool benefits from the relatively low weighted-average loan-to-value (LTV) and balloon LTV ratios of 62.5% and 57.4%, respectively, based on the appraised property values and loan balances at issuance.

The specially serviced loan, HSBC Building – Brandon (Prospectus ID#16; representing 1.9% of the pool) is secured by an office property in Brandon, Florida, and is real estate owned. The sole tenant, HSBC, vacated the property in 2020, paying a lease termination fee of $3.7 million, which was allocated toward debt service reserves ($1.6 million) and rollover reserves ($1.5 million). According to the June 2023 reporting, there are no remaining reserves. The January 2023 appraisal showed an as-is value of $12.6 million, down 54.2% from $27.5 million at issuance. Based on a haircut to this value, DBRS Morningstar liquidated the loan in the analysis for this review, with the scenario resulting in an implied loss of $6.8 million, with a loss severity exceeding 40.0%.

The second-largest watchlisted loan, Waterfront at Port Chester (Prospectus ID#4; representing 6.7% of the pool), is a pari passu loan secured by a grocery-anchored retail property in Port Chester, New York. Port Chester is northeast of New York City, near Greenwich, Connecticut. The loan is being monitored for a decline in cash flows and an outstanding issue with the tax escrow account. The largest tenants include Stop & Shop (representing 20.9% of net rentable area (NRA), lease expiry in August 2030), AMC Theatres (representing 20.5% of NRA, lease expiry in December 2030), and Marshalls (representing 8.8% of NRA, lease expiry in January 2036). Former tenant Bed Bath and Beyond (previously 10.6% of NRA) vacated at lease expiration in January 2022, prior to the firm’s bankruptcy filing. That space remained vacant as of the December 2022 rent roll, bringing the occupancy rate down to 86.5% from 97.4% at YE2021. The resulting cash flow declines resulted in a drop in the debt service coverage ratio to 1.15 times (x) at YE2022, down from 1.34x at YE2021.

Although the occupancy decline is noteworthy, mitigating factors include the long-term lease to a grocery anchor, the concentration of national tenants, and the relatively minimal rollover scheduled through the next year. Given the performance declines at the property, DBRS Morningstar elevated the probability of default to increase the expected loss in the analysis with this review. In cases of other watchlisted loans showing performance declines since issuance, a similar approach was taken to increase the expected losses for each as applicable.

At issuance, 32 Old Slip Fee (Prospectus ID#3; representing 7.6% of the pool), Alderwood Mall (Prospectus ID#5; representing 4.7% of the pool), and 841-853 Broadway (Prospectus ID#6; representing 6.3% of the pool) were shadow-rated investment grade. With this review, DBRS Morningstar confirmed the performance of these loans remain consistent with investment-grade loan characteristics.

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.

Class X-A is an interest-only (IO) certificate that references 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 credit ratings assigned to Classes C and PST materially deviate from the ratings implied by the predictive model. DBRS Morningstar typically expects there to be a substantial likelihood that a reasonable investor or other user of the credit ratings would consider a three-notch or more deviation from the credit rating stress(es) implied by the predictive model to be a significant factor in evaluating the credit ratings. The rationale for the material deviations is uncertain loan-level event risk given the relatively near-term maturity date in 2025 for most of the remaining loans in the pool, as well as the performance declines for some of the loans on the servicer’s watchlist.

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 (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 (June 9, 2023; https://www.dbrsmorningstar.com/research/415687)

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].