DBRS Morningstar Downgrades Class A of BWAY 2015-1740 Mortgage Trust, Places Class Under Review With Negative Implications

DBRS Limited (DBRS Morningstar) downgraded the rating on the Commercial Mortgage Pass-Through Certificates, Series 2015-1740 issued by BWAY 2015-1740 Mortgage Trust as follows:

-- Class A to A (sf) from AAA (sf)

DBRS Morningstar has also placed this rating Under Review with Negative Implications. As such, there is no trend for this rating. These rating actions reflect the $382,856 interest shortfall first affecting the Class A Certificate as of the August 2023 remittance. Given DBRS Morningstar’s interest shortfall tolerance at the AAA (sf) rating category and the size of the shortfall, the downgrade to A (sf) is warranted. At the A (sf) rating category, the interest shortfall tolerance is one to two remittance periods; should the shortfalls remain outstanding beyond the tolerance threshold, DBRS Morningstar will evaluate accordingly. The interest shortfalls that appeared for the deal in August 2023 are the result of a significantly depressed appraised value for the collateral property, as further described below. Based on the significant delta between that figure and the DBRS Morningstar value derived when ratings were assigned, the rating has been placed Under Review with Negative Implications.

At the last DBRS Morningstar rating action in January 2023, the transaction’s underlying loan was in special servicing following the departure of the collateral office property’s former largest tenant, L Brands (70.9% of the net rentable area). During that review, DBRS Morningstar determined that there remained sufficient cushion below the Class A Certificate to absorb losses should the loan ultimately be liquidated. However, since that time, a new appraised value was made available with the August 2023 remittance report, which valued the property on an as-is basis at $175.0 million as of April 2023. This represents a loan-to-value (LTV) ratio of 90.0% on the rated portion of the total debt and is sharply below the DBRS Morningstar value of $321.4 million derived in 2020, which represented an LTV of 49.0% on the rated portion of the total debt. The appraiser's relatively low as-is value is based on a significant cost to lease-up the nearly vacant building and suggests the current value is below the land value of $220.0 million in the issuance appraisal.

The 10-year interest-only underlying loan is secured by a 26-story office and retail tower at 1740 Broadway in Manhattan, New York, with a scheduled maturity date in January 2025. The sponsor undertook a complete modernization of the lobby, which was completed in spring 2020. The property comprises 572,645 square feet (sf) of office space, 16,587 sf of ground-floor retail space, and 14,696 sf of storage space. The loan transferred to the special servicer in March 2022. As of the August 2023 remittance, the loan remains more than 90 days delinquent. The borrower was previously granted a short-term forbearance in 2022 and had been funding shortfalls out of pocket, but has since notified the servicer that additional capital will not be contributed. The special servicer is evaluating workout options, and DBRS Morningstar will closely monitor for developments.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) 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 (July 4, 2023) https://www.dbrsmorningstar.com/research/416784.

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.

This credit rating is Under Review with Negative Implications. Generally, the conditions that lead to the assignment of reviews are resolved within a 90-day period; however, given the complexity of the issues at hand and the unknowns with regard to the special servicer’s status in light of the most recent appraised value, DBRS Morningstar notes that the Under Review period could be extended beyond that timeline.

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)

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 (August 23, 2023; https://www.dbrsmorningstar.com/research/419592)

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].