DBRS Morningstar Confirms Ratings on All Classes of MSCCG Trust 2015-ALDR

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

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class D at BBB (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, given the strong tenant sales, healthy in-place cash flows, and sponsor’s continued investment in the collateral property. These factors combine to suggest a refinance at maturity in 2025 (or relatively soon thereafter) should be achieved, as further outlined below.

The underlying first-mortgage loan, which has a 10-year term and a maturity date in 2025, is secured by the fee-simple interest in a 575,700-square-foot (sf) portion of Alderwood Mall, a super-regional mall in Lynnwood, Washington, approximately 18 miles north of Seattle. The mall is anchored by collateral tenant Loews Cineplex Entertainment (Loews; 13.6% of the net rentable area (NRA), lease expiry in December 2025) and noncollateral tenants JCPenney, Macy’s, and Nordstrom. The loan is sponsored by a joint venture between Brookfield Property Partners L.P (Brookfield; rated BBB (low) with a Stable trend by DBRS Morningstar as of May 2023) and the New York State Common Retirement Fund (doing business as Homart II LLC). A Brookfield affiliate manages the property.

Whole-loan proceeds of $355.0 million consisted of six separate notes at issuance, with the subject trust holding a total of $225.6 million of the pari passu balance, and the remainder contributed to three multiborrower conduit transactions, one of which (Morgan Stanley Capital I Trust 2015-MS1) is rated by DBRS Morningstar. As of the August 2023 remittance, the subject trust’s balance was $220.8 million, with collateral reduction of 13.6% since issuance.

A department store anchor in place at issuance, Sears, was closed in 2017. Sears owned its own improvements, which were purchased by the sponsor as part of a $179.0 million expansion and redevelopment plan for the mall. The project was expected to accommodate residential development and new anchor stores, with a target completion date at the end of 2022. As of August 2023, the servicer reported that two residential towers have been completed and are 93.0% leased. Retail leases have been signed with such notable tenants as Dave and Buster’s and Shake Shack, with the sponsor reporting another pending lease to be signed with a a restaurant for the remining 11,000 sf of space. Although the redevelopment space does not serve as collateral for this loan, DBRS Morningstar notes the significant investment suggests strong commitment by the loan sponsors, as well as the demand for the subject property within the market.

As per the June 2023 rent roll, the collateral portion of the property was 93.2% occupied, with an overall occupancy rate of 96.5%. These figures compare with the March 2022 figures of 88.6% and 96.6%, respectively. Loews is the largest collateral tenant, followed by Recreational Equipment, Inc. (REI; 4.4% of the NRA, lease expiry in January 2025) and Forever 21 (4.2% of the NRA, lease expiry in January 2027). Tenants representing 12.5% of the NRA are scheduled to roll within the next 12 months.

DBRS Morningstar notes that sales have steadily recovered in the years following the downturn during the Coronavirus Disease (COVID-19) pandemic. According to the tenant sales report for the trailing 12-month (T-12) period ended June 30, 2023, in-line tenants occupying less than 10,000 sf reported sales of $825 per square foot (psf), inclusive of Apple. Excluding Apple’s sales, in-line tenants averaged sales of $681 psf, a significant increase over the YE2021 figure of $602 psf, YE2020 sales of $520 psf, and YE2019 sales of $482 psf. During the same period, the 16-screen Loews reported sales of more than $712,000 per screen an improvement from the reported sales figure of $371,000 per screen for the T-12 period ended September 2021.

Based on the most recent financial statement, the servicer reported a YE2022 net cash flow (NCF) of $31.0 million, compared with the YE2021 NCF of $25.6 million and DBRS Morningstar’s NCF derived when ratings were assigned of $30.2 million. In addition, the loan reported a debt service coverage ratio (DSCR) of 1.62 times (x) at YE2022, which is relatively in line with the DBRS Morningstar DSCR of 1.58x.

In the analysis for this review, DBRS Morningstar derived an NCF based on a haircut to the YE2022 NCF of $31.0 million, resulting in an updated DBRS Morningstar NCF of $30.4 million. A cap rate of 7.5% was applied, resulting in a DBRS Morningstar value of $405.1 million. This value is generally in line with the DBRS Morningstar value of $401.7 million derived in 2020 and a variance of -41.6% from the appraised value of $693.5 million at issuance. The 2023 DBRS Morningstar value implies a loan-to-value ratio (LTV) of 72.4%, compared with the LTV of 45.8% on the appraised value at issuance. DBRS Morningstar also maintained positive adjustments to the LTV sizing benchmarks to give credit to property quality and desirable location within north Seattle, totalling 4%. Although the increase in interest rates could affect proceeds for a replacement loan at the 2025 maturity, the sponsor’s recent investment and the strong tenant sales should contribute to an increase in the appraised value for the owned portion of the mall, cushioning against significant challenges to repay the loan at or within a short time period of the maturity.

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-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 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 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
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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 Single-Asset/Single-Borrower Ratings Methodology (February 23, 2023)
https://www.dbrsmorningstar.com/research/410191

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

Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023) https://www.dbrsmorningstar.com/research/415687

North American Commercial Mortgage Servicer Rankings (September 8, 2022) https://www.dbrsmorningstar.com/research/402499

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].