DBRS Morningstar Confirms Ratings on All Classes of COMM 2015-CCRE27 Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed its credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2015-CCRE27 issued by COMM 2015-CCRE27 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 (sf)
-- Class X-B at A (high) (sf)
-- Class C at A (sf)
-- Class X-C at BBB (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class X-D at BB (low) (sf)
-- Class F at B (high) (sf)
-- Class X-E at B (sf)
-- Class G at B (low) (sf)

All trends are Stable.

The credit rating confirmations reflect DBRS Morningstar’s outlook and loss expectations for the transaction, which remain relatively unchanged from the last review. However, there are some challenges for the pool, including a moderate concentration of specially serviced loans, representing 11.5% of the pool balance. In addition, loans secured by office properties, represent nearly 18.0% of the pool balance. The office sector has faced challenges in recent years given increased vacancy rates in many submarkets as a result of changes in workplace dynamics. There are mitigating factors, including a sizable unrated first loss piece totaling $29.1 million. The transaction also benefits from defeasance collateral, totaling 29.7% of the current pool balance. Overall, the pool continues to exhibit healthy credit metrics, as evidenced by the weighted-average debt service coverage ratio (DSCR), which was approximately 2.0 times (x) based on the YE2022 financials.

As of the September 2023 remittance, 60 of the original 65 loans remain in the pool with an aggregate principal balance of $777.9 million, reflecting collateral reduction of 16.5% from issuance. There are 12 loans, representing 16.5% of the pool, on the servicer’s watchlist that are primarily being monitored for declines in occupancy and/or DSCR. Of the six loans in special servicing, the Evergreen Square loan (Prospectus ID#39, 0.8% of the pool), which is secured by an anchored shopping centre in Peoria, Illinois, is real estate owned. Occupancy continues to be significantly depressed and based on the March 2023 appraisal, the property was valued at $1.6 million, a steep decline from the issuance value of $9.9 million. For this review, the loan was analyzed with a liquidation scenario, resulting in a loss severity approaching 100.0%.

The largest loan in special servicing, Midwest Shopping Center Portfolio (Prospectus ID#6, 4.2% of the pool), is secured by six anchored retail properties totaling 889,413 square feet. The properties are located across four states: Iowa, Illinois, Oklahoma, and Missouri. The loan transferred to the special servicer in July 2020 for imminent monetary default and was last paid through May 2023. A receiver was appointed for two properties and the special servicer is working through foreclosure, but the proceedings have stalled because of legal challenges tied to the guarantor.

The borrower has not been responsive to multiple requests for updated rent rolls and financials; however, the most recent rent rolls provided in April 2020 indicated a consolidated occupancy rate of 81.9%. In addition, leases representing approximately 61.0% of net rentable area (NRA) are scheduled to roll prior to loan maturity in 2025, significantly increasing refinance risk. As of July 2023, the portfolio was valued at $46.4 million, 18.2% lower than the issuance appraised value of $54.6 million. Based on the lack of financial reporting, uncertainty surrounding the sponsor’s legal challenges, and the collateral’s decline in value, DBRS Morningstar assessed the loan with an increased probability of default (POD) penalty and a stressed loan-to-value (LTV) ratio, which resulted in an expected loss that was almost double the pool average.

The largest loan in the pool, 11 Madison Avenue (Prospectus ID#1, 9.0% of the pool), is secured by the fee, leasehold, and reversionary interest in the condominium units of 11 Madison Avenue, a Class A, 29-story, 2.3 million-square-foot office tower in Manhattan’s Midtown South submarket. The subject loan amount of $70.0 million is part of a whole loan of $1.1 billion that is secured across several transactions, including a single-asset/single-borrower (SASB) transaction, MAD 2015-11MD Mortgage Trust, that is also rated by DBRS Morningstar.

In March 2023, DBRS Morningstar placed all classes of MAD 2015-11MD Mortgage Trust Under Review with Negative Implications following the announcement that the collateral property’s largest tenant, Credit Suisse AG (Credit Suisse), would be acquired by UBS AG (UBS). DBRS Morningstar noted that these events could negatively affect the credit for the SASB transaction given the uncertainty regarding the tenant’s lease, which represents approximately half of the collateral property’s NRA. Credit Suisse’s acquisition by UBS closed on June 12, 2023, and to date nothing has been confirmed regarding the Credit Suisse lease for the collateral property. However, news outlets have reported that UBS is exploring possibilities for distributing team operations between the subject property and UBS’s offices at 1285 Avenue of the Americas, although additional reports indicate that the subject property may house UBS’s investment banking and trading operations. There were also reports of UBS planning to cut more than half of Credit Suisse’s workplace over three rounds, beginning in July 2023 through October 2023.

Credit Suisse is the largest tenant at the property, in place on a lease expiring in May 2037. The servicer reported the property was 97.0% occupied as of March 2023. Credit Suisse recently gave back a floor of space representing approximately 3.5% of the NRA in exchange for a termination fee of $6.1 million, which was deposited into a reserve account. Other major tenants at the property include Sony (24.5% of the NRA, lease expiry in January 2031) and Yelp (8.1% of the NRA, lease expiry in April 2025). Yelp previously announced its plans to reduce its office footprint across several cities, including the subject property, and based on an online leasing brochure, the entirety of Yelp’s space was listed for lease in May 2025. According to financial reporting for the trailing 12-month period ended June 30, 2023, the property generated net cash flow of $132.2 million (DSCR of 2.89x), marginally higher than the YE2022 figure of $130.2 million (DSCR of 2.84x). Credit Suisse has two remaining termination options, available in 2027 and 2032, exercisable for up to a full floor of space. Given the uncertainty surrounding the impact of the proposed layoffs on the subject property and the status of the Credit Suisse lease and/or UBS’s obligations given the acquisition, DBRS Morningstar removed the loan’s investment-grade shadow rating and assessed the loan with an increased POD penalty and a stressed LTV ratio, which resulted in an expected loss that was approximately 2.7x the pool average.

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, X-C, X-D, and X-E are interest-only (IO) certificates that reference a single rated tranche or multiple rated tranches. The IO credit 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
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 version 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 (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 analyses 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].