DBRS Morningstar Confirms All Ratings on Real Estate Asset Liquidity Trust, Series 2015-1

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2015-1 issued by Real Estate Asset Liquidity Trust, Series 2015-1 as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at AA (sf)
-- Class X at AA (sf)
-- Class D at A (low) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (sf)
-- Class G at B (sf)

All trends are Stable.

The rating confirmations reflect the overall performance of the transaction, which remains in line with DBRS Morningstar’s expectations since its last review with no changes to the pool composition. There remain no delinquent or specially serviced loans, with five loans, representing 20.6% of the pool, on the servicer’s watchlist exhibiting generally consistent to improved performance. All of the loans on the servicer’s watchlist, excluding the U-Haul SAC 3 Portfolio, which is shadow-rated investment-grade, have some level of meaningful recourse.

Per the July 2023 reporting, 32 of the original 46 loans remain in the pool with an aggregate principal balance of $205.1 million, representing a collateral reduction of 38.8% since issuance as a result of loan amortization and loan repayment. Additionally, one loan, representing 11.2% of the current pool balance, is fully defeased. By property type, the pool is most heavily concentrated in loans secured by retail, lodging, and industrial properties, representing 30.9%, 21.5%, and 14.6% of the current pool, respectively.

The largest loan on the watchlist and in the deal, Alta Vista Manor Retirement Ottawa (Prospectus ID#1, 11.4% of the pool), is secured by a 174-unit luxury senior housing retirement residence in Ottawa. The property comprises a mix of independent-living and assisted-living units located near the Ottawa Hospital. The loan has been on the servicer’s watchlist since May 2018 as a result of declining revenue and a low debt service coverage ratio (DSCR). Given the challenging market conditions for senior housing in Ottawa in general, which were further exacerbated by the effects of the Coronavirus Disease (COVID-19) pandemic, the property has experienced a steady decline in occupancy levels and a significant increases in expenses. As of the YE2021 financials (the most recent reporting available), the loan reported a negative net cash flow (NCF), reflecting an operating expense ratio of 105.0%, well above the Issuer’s underwritten figure of 66.0% at issuance.

According to the December 2022 rent roll, property occupancy remained subdued at 68.2% from the pre-pandemic figure of 77.3% in December 2019 and 88.0% at issuance. In addition, the property reported an average rental rate of $3,191 per unit, well below the average rental rate of $4,270 per unit at issuance. According to Cushman & Wakefield’s 2023 Senior Housing Overview, properties in the Ottawa market reported a median vacancy rate of 29% and median rental rate of $4,581 per unit as of YE2022, respectively, compared with the figures from YE2019 of 17.8% and $4,471 per unit, respectively. On the upside, 19 new tenants have signed leases at the property within the last 12 months. The loan has full recourse to Regal Lifestyle Communities, which was purchased by Welltower (formerly known as Health Care REIT Inc.) and Revera, Inc.

The second-largest loan on the servicer’s watchlist, Hilton Mississauga Meadowvale (Prospectus ID#7, 5.3% of the pool) is secured by a 374-key full-service hotel in the Meadowvale Business Park in Mississauga, Ontario. The trust loan is a pari passu participation in a $27.0 million whole loan, which is split into two notes held in the subject transaction and in IMSCI 2016-7 (also rated by DRBS Morningstar). The loan was added to the servicer’s watchlist in September 2020 stemming from significant performance declines as a result of the pandemic. At issuance, demand segmentation was 49% meeting and group, largely driven by conferences held at the property, given its 46,518 square feet of meeting space. Given the halt in demand, the borrower requested and was granted short-term relief in 2020. The loan has remained current since April 2021.

Property financials show a significant decline in the DSCR from 3.74x in 2019 to well below breakeven as of YE2021, however, NCF has shown improvement from YE2020, increasing by approximately $1.3 million year-over-year. In addition, performance metrics have rebounded, nearly in line with pre-pandemic figures. Per the May 2023 STR report, the property reported T-12 occupancy, average daily rate (ADR), and revenue per available room (RevPAR) figures of 73.9% (+91.3% year-over-year (YoY) growth), $188 (+30.2% YoY growth), and $139 (+149.1% YoY growth), respectively, reflecting a RevPAR penetration rate of 104.9%. In October 2019, the property reported comparable T-12 figures of 74.6%, $165, and $123, respectively. The sponsor, Manjis Holdings, is a real estate investment group with interests in Hilton Toronto and senior living company Amica Mature Lifestyles. The sponsorship group provides partial recourse of $10 million.

At issuance, DBRS Morningstar shadow-rated the U-Haul SAC 3 Portfolio loan as investment grade. The loan is secured by a portfolio of 10 individual loans backed by self-storage properties across Ontario. With this review, DBRS Morningstar has confirmed that the performance of the loan remains 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 at https://www.dbrsmorningstar.com/research/416784 (July 4, 2023).

Class X 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 credit ratings are subject to surveillance, which could result in credit ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

Notes:
All figures are in Canadian 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 credit rating was initiated at the request of the rated entity.

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

This is a solicited credit rating.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

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

The credit 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 Canadian Structured Finance (June 20, 2023; https://www.dbrsmorningstar.com/research/416101)

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/410863.

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