DBRS Morningstar Confirms Ratings on All Classes of Citigroup Commercial Mortgage Trust 2015-GC27

DBRS Limited (DBRS Morningstar) confirmed its ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2015-GC27 issued by Citigroup Commercial Mortgage Trust 2015-GC27 as follows:

-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-AB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (sf)
-- Class X-B at A (high) (sf)
-- Class C at A (high) (sf)
-- Class PEZ at A (high) (sf)
-- Class D at BBB (low) (sf)
-- Class X-E at B (high) (sf)
-- Class E at B (sf)
-- Class F at CCC (sf)
-- Class G at C (sf)

All classes have Stable trends, with the exception of Classes F and G, which have ratings that generally do not carry trends in commercial mortgaged-backed securities (CMBS) ratings.

The rating confirmations reflect the overall stable performance of the transaction, which remains in line with DBRS Morningstar’s expectations since its last review. At the last rating action in November 2022, DBRS Morningstar upgraded Classes C, X-B, and PEZ as a result of substantial collateral paydown and defeasance. The trends on Classes D, E, and X-E were changed to Stable from Negative because of the improved performance of some specially serviced loans that returned to the master servicer. The CCC (sf) and C (sf) ratings on Classes F and G, respectively, were maintained primarily because of loss projection suggested by the March 2022 appraisal for the specially serviced loan, Centralia Outlets (Prospectus ID#8), secured by a retail mall property in Centralia, Washington. Since that time, the loan was liquidated from the transaction in the January 2023 remittance, resulting in an actual loss to the pool of $6.4 million and proceeds of $22.0 million; the realized loss compares with DBRS Morningstar’s analyzed loss of $16.3 million at the November 2022 review.

Although the better-than-expected outcome for the Centralia Outlets loan and some additional defeasance since the November 2022 review have increased the upgrade pressure for some classes, DBRS Morningstar maintained a conservative approach with this review given the proximity to maturity for the remaining loans in the pool and the general disruptions to the commercial real estate market amid rising interest rates and lower investor demand for some property types. Approximately 39.4% of the pool has upcoming maturity dates in 2024 and 13.0% of the pool balance is made up of loans secured by office properties.

As of the August 2023 reporting, 89 of the original 100 loans remain in the pool, with a trust balance of $924.9 million, representing a collateral reduction of 22.5% since issuance. The transaction benefits from significant defeasance, with 34 loans representing 37.0% of the pool balance. Three loans are on the servicer’s watchlist, representing 3.4% of the pool balance, one of which was flagged for a low debt service coverage ratio (DSCR) and the other two were flagged for occupancy and rollover-related issues.

The pool has a high concentration of loans secured by retail property types, at 34.0% of the pool; however, in general, these loans are performing as expected with the largest retail loan, Twin Cities Premium Outlets (Prospectus ID#4, 5.4% of the pool), reporting cash flow growth from issuance as of the most recent reporting. As noted above, office loans represent a relatively small portion of the overall pool balance but notably include the largest loan in the pool, 393-401 Fifth Avenue (Prospectus ID#2, 10.3% of the pool balance), which is secured by two adjacent eight-story office buildings on Fifth Avenue in Midtown Manhattan, New York. The 10-year loan is interest-only (IO) with a maturity in January 2025. Per the March 2023 rent roll, the property was 92.2% occupied, which remains in line with occupancy rates reported over the last few years. The largest tenants include AEO Management Co. (88.2% of the net rentable area (NRA), lease expiry in May 2026) and Dorfman Pacific Inc. (2.3% of the NRA, lease expiry in December 2023). A DSCR of 1.97 times (x) was reported for YE2022, in line with the past few years. The property’s exposure to nearly single-tenant risk, with a lease expiration within 18 months of the scheduled loan maturity, significantly increases the refinance risk for this loan. The submarket dynamics are softening, with Reis reporting that the overall vacancy rate increased to 12.2% as of Q2 2023, up from 11.7% and 9.8% for the same quarter in 2022 and 2021, respectively. Given these factors, a stressed scenario was analyzed to increase the expected loss for this review.

There is one small loan in special servicing, representing 0.8% of the pool balance. Kohl’s Westerville (Prospectus ID#53, 0.8% of the pool balance) is secured by a 99,380-square-foot retail property in Westerville, Ohio. The loan transferred to special servicing in April 2023 for imminent default, with the loan reporting delinquent for that month. As of the August 2023 servicer commentary, the borrower and special servicer are working on a potential settlement and reinstatement of the loan. The loan was previously brought current with the June 2023 payment; however, it is once again showing 30 to 59 days delinquent with the August 2023 reporting. The property is occupied by a single tenant, Kohl’s, which has a lease expiration in October 2026 and is open according to internet searches as of August 2023. Despite the single-tenant lease, cash flows have recently declined, with the DSCR reported at 0.95x for YE2022 as compared with the YE2021 and YE2020 figures of 1.22x and 1.37x, respectively. Given the delinquency and declining cash flows, the loan was analyzed with a stressed scenario to increase the expected loss for this review.

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-E are 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 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 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 D and E materially deviate from the credit 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 for this pool, particularly for the largest loan as previously described.

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. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS Morningstar Long-Term Obligation Rating Scale definition indicates that credit ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

DBRS Limited
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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/North American CMBS Insight Model Version 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 (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

A description of how DBRS Morningstar analyzes structured finance transactions and how the methodologies are collectively applied can be found at https://www.dbrsmorningstar.com/research/417279.

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