DBRS Morningstar Confirms Ratings on All Classes of COMM 2015-LC19

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2015-LC19 issued by COMM 2015-LC19 Mortgage Trust as follows:

-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-M at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class X-B at AA (low) (sf)
-- Class C at A (high) (sf)
-- Class PEZ at A (high) (sf)
-- Class X-C at BBB (high) (sf)
-- Class D at BBB (sf)
-- Class E at BB (sf)
-- Class F at B (sf)
-- Class G at B (low) (sf)

All trends are Stable.

The rating confirmations and Stable trends reflect DBRS Morningstar’s current outlook and loss expectations for the transaction, which remains relatively unchanged from last review. While pool performance is generally stable, there is a noteworthy concentration of loans collateralized by office properties, representing 17.7% of the current pool balance, including three top-10 loans.

According to the June 2023 remittance, 51 of the original 59 loans remain in the pool, with a collateral reduction of 14.2% since issuance. There are 18 loans, representing 29.3% of the pool, secured by collateral that has been fully defeased. Additionally, nine loans, representing 8.6% of the pool, are on the servicer’s watchlist, the majority of which are being monitored for deferred maintenance and occupancy declines. There is only one loan in special servicing.

The specially serviced loan, 56-15 Northern Boulevard (Prospectus ID#34; representing 0.6% of the pool) is secured by an anchored retail property in Woodside, New York. The loan transferred to special servicing in January 2020 for imminent monetary default and is now a nonperforming matured balloon loan. The borrower has not been complying with cash management and has not provided updated financial reports. A February 2023 appraisal reported an as-is value of $12.7 million, relatively in line with the issuance appraised value of $13 million. In its analysis, DBRS Morningstar liquidated the loan based on a haircut to the most recent value, resulting in an implied loss severity of less than 10.0%.

Most of the office loans in the transaction continue to perform as expected, based on the most recent financial reporting available. However, DBRS Morningstar has a cautious outlook on office properties as sustained vacancy rates across the broader office markets may result in difficulty backfilling vacant space, and in certain instances, contribute to value declines, particularly for assets in noncore markets. With this review, DBRS Morningstar identified three office loans, representing 13.7% of the pool combined and all of which are in the top 10, as having exhibited low occupancy and/or increased credit risk. In its analysis, DBRS Morningstar increased the probability of default penalties and stressed loan-to-value (LTV) adjustments. These adjustments resulted in the expected loss on each of the loans to be twice the pool level adjusted expected loss. The largest of these loans is discussed in further detail below.

Central Plaza (Prospectus ID#4; representing 6.9% of the pool) is secured by the borrower’s fee-simple interest in four Class B office buildings totaling 880,035 square feet in Los Angeles. The property benefits from its location in the Koreatown neighbourhood, approximately four miles west of downtown Los Angeles, along Wilshire Boulevard with easy access to the Hollywood Freeway (US 101) and Santa Monica Freeway (Interstate 10), in addition to public transportation. The annualized net cash flow based on the September 30, 2022, financials was $8.0 million, compared with $7.4 million at YE2021 and $8.3 million at issuance. While financial performance remains in line with issuance, the property has historically experienced higher-than-average vacancy. The property is currently 54.0% occupied, down from 64.2% at issuance. According to Reis, the Q1 2023 Mid-Wilshire submarket vacancy rate was 21.2% for office space. In its analysis, DBRS Morningstar elevated the probability of default and applied a stressed LTV adjustment.

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/416784 (July 4, 2023).

Classes X-A, X-B, and X-C 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
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 (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].