DBRS Morningstar Changes Trend on Four Classes of COMM 2015-CCRE26 Mortgage Trust to Negative from Stable, Confirms Ratings on All Classes

DBRS, Inc. (DBRS Morningstar) confirmed the following credit ratings on the Commercial Mortgage Pass-Through Certificates, Series 2015-CCRE26 issued by COMM 2015-CCRE26 Mortgage Trust:

-- 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 (low) (sf)
-- Class X-B at A (sf)
-- Class C at A (low) (sf)
-- Class X-C at BBB (sf)
-- Class D at BBB (low) (sf)

DBRS Morningstar also changed the trends on Classes B, C, X-C, and D to Negative from Stable. The trends on all other classes are Stable.

The Negative trends reflect DBRS Morningstar’s concern surrounding the pool’s concentration of office properties, which totals 39.9% of the current pool balance, including the largest loan in the pool, Prudential Plaza (Prospectus ID#1, 11.5% of the pool), which recently transferred to special servicing for imminent monetary default. In addition, the largest loan on the servicer’s watchlist, Rosetree Corporate Center (Prospectus ID#6, 4.4% of the pool), a suburban Class B office property in Media, Pennsylvania, has struggled with low occupancy and a low debt service coverage ratio (DSCR) dating back to 2020 and remains a loan of concern. In general, the performance of the office sector has deteriorated in recent months with increasing vacancy rates in many submarkets because of a shift in workplace dynamics, leading companies opting for remote and hybrid environments to vacate their spaces entirely or reduce their footprint. In the analysis for this review, DBRS Morningstar applied stress scenarios to loans backed by office and other properties that were showing performance declines from issuance or otherwise exhibiting heightened risks from issuance to increase the expected losses, as applicable. As a result, loans secured by office properties have a weighted-average expected loss that is approximately 45.0% higher than the pool’s expected loss.

While the office sector is facing headwinds, the credit rating confirmations reflect the overall stable performance of the majority of the loans in the pool, evidenced by a healthy weighted-average DSCR of 1.76 times (x). As of the August 2023 remittance, 52 of the original 60 loans remained in the trust with an outstanding trust balance of $930.8 million, reflecting a collateral reduction of 14.7% since issuance. Nine loans, representing 6.5% of the trust balance, are defeased. There are 13 loans, representing 22.4% of the trust balance, on the servicer’s watchlist, primarily because of low DSCRs, tenant rollover risk, and/or deferred maintenance.

Prudential Plaza, the largest loan in the pool, recently transferred to special servicing in June 2023 because of imminent monetary default. This loan is secured by a 2.3 million-square-foot office property in Chicago’s East Loop submarket. Occupancy declined to 78% as of June 2023 from 83% as of YE2022 and, similarly, DSCR dropped to 1.31x from 1.66x over the same period. According to media reports, the owner requested an extension on the loan's maturity (scheduled for August 2025) by four to five years given the tenant rollover risk during the remaining term of the loan, further weakening the loan’s position to refinance at maturity. The borrower intends to improve the property’s common areas and focus on a leasing strategy to attract new tenants and bolster occupancy. The rent roll is relatively granular with no tenant representing more than 5.0% of net rentable area (NRA), and tenants occupying more than 10.0% of NRA in aggregate have leases that are scheduled to expire during the remaining loan term. According to Reis, office properties in the East Loop submarket reported a Q2 2023 vacancy rate of 13.5%, compared with the Q2 2022 vacancy rate of 14.1%. Reis forecast vacancy to increase to 15.0% by 2025 before declining to 13.5% by 2028. Given the performance decline and general challenges with the office sector, DBRS Morningstar applied a stressed loan-to-value (LTV) ratio in its analysis, resulting in an expected loss that was nearly double the pool average.

The second-largest loan in the pool, 11 Madison Avenue (Prospectus ID#2, 7.5% of the pool), is secured by the fee, leasehold, and reversionary interest in the condominium units for 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 secured across several transactions, including a single-asset/single-borrower (SASB) transaction, MAD 2015-11MD Mortgage Trust (MAD 2015-11MD), which is also rated by DBRS Morningstar.

The trust asset of $70.0 million is part of a whole mortgage loan structure with an aggregate principal amount of $1.1 billion. The loan is evidenced by 19 promissory notes consisting of 16 senior notes and three junior notes. Nine senior stand-alone notes plus the three junior stand-alone notes were contributed to the MAD 2015-11MD trust, a single-borrower deal representing the controlling interest in the 11 Madison Avenue loan.

In March 2023, DBRS Morningstar placed all classes of MAD 2015-11MD 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 subject SASB transaction given the uncertainty with regard to the tenant’s lease, which represents approximately half of the collateral property’s NRA. UBS’s acquisition of Credit Suisse closed on June 12, 2023; 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 and have more recently reported 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 that 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; based on an online leasing brochure, the entirety of Yelp’s space was listed as available for lease in May 2025. According to the financials for the trailing 12-month period ended June 30, 2023, the loan reported a net cash flow of $132.2 million, which remains in line with the YE2022 figure of $130.2 million. For those same periods, the DSCR was reported at 2.89x and 2.84x, respectively. Financial performance has been stable and continues to improve year over year since issuance. Credit Suisse has two remaining termination options, available in 2027 and 2032; each may be exercised for up to a full floor of space. Given the uncertainty surrounding the impact of the proposed layoffs to the subject, the status of the Credit Suisse lease, and UBS’s obligation given the acquisition’s closing, DBRS Morningstar removed the investment-grade shadow rating and applied a stressed LTV and probability of default (POD) penalty in its analysis.

As previously mentioned, the largest loan on the servicer’s watchlist is Rosetree Corporate Center, which is secured by two Class B office buildings in Media, Pennsylvania. The loan was previously in special servicing but was returned to the master servicer as a corrected mortgage in January 2022 and continues to be monitored for low DSCR and occupancy. Occupancy has been depressed since the loss of the former largest tenant, FXI, Inc. (15.9% of NRA), at its September 2019 lease expiration, resulting in an occupancy drop to about 68.0% at YE2020. Occupancy further declined to 65.0% at YE2021 before improving to 76.0% by YE2022. Despite this improvement, the DSCR continues to be below breakeven, with the YE2022 DSCR at 0.73x.

While the borrower has made progress in executing new leases, there is still notable tenant rollover risk with 12.5% of NRA rolling in the next 12 months and an additional 10.0% of NRA rolling over the next 24 months, ahead of the loan’s maturity in September 2025. DBRS Morningstar applied a POD penalty and a stressed LTV in its analysis, resulting in an expected loss that was nearly triple 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, and X-C are interest-only (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 rating assigned to Class B materially deviates from the credit rating 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 rating 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 rating. The rationale for the material deviation is uncertain loan-level event risk, primarily driven by the stressed approach applied to the loans backed by office properties. The Negative trend on several classes, including Class B, is reflective of the downward pressure; however, DBRS Morningstar also recognizes the overall stable performance of the remaining loans in the transaction, as illustrated by the pool’s weighted-average DSCR.

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 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.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and credit ratings are monitored.

DBRS, Inc.
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Chicago, IL 60602 USA
Tel. +1 312 332-3429

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)

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