Morningstar DBRS Confirms All Credit Ratings of Morgan Stanley Capital I Trust 2015-UBS8

DBRS Limited (DBRS Morningstar) confirmed the credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2015-UBS8 issued by Morgan Stanley Capital I Trust 2015-UBS8 as follows:

-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class X-D at B (sf)
-- Class E at B (low) (sf)
-- Class F at C (sf)
-- Class G at C (sf)

All trends are Stable, with the exception of Classes F and G, which have credit ratings that do not typically carry a trend in commercial mortgage-backed securities (CMBS) credit ratings.

The credit rating confirmations reflect minimal changes to Morningstar DBRS’ performance expectations since the last credit rating action. As indicated by their C (sf) credit rating, Morningstar DBRS continues to project losses to classes F and G, driven by loans in special servicing, the largest of which is discussed in greater detail below. The remaining pool has generally exhibited stable performance since the prior review. Since last credit rating action, two loans have been fully repaid and one loan, which was previously in special servicing, was liquidated from the pool with a realized loss of $4.9 million, relatively in line with Morningstar DBRS’ projection. As of the March 2024 remittance, realized trust losses total $24.4 million and have eroded the entirety of the nonrated Class J and approximately 20.9% of Class H, the credit rating for which was previously withdrawn by Morningstar DBRS.

The pool is considered concentrated by property type, with loans backed by retail properties representing approximately 42.3% of the pool balance, including three (25.9% of the pool) of the top five loans. The pool benefits from minimal office exposure, with only three nondefeased loans (11.9% of the pool) being secured by office properties. Given the continued challenges faced by the office sector, Morningstar DBRS analyzed several loans backed by office and other properties that were showing declines from issuance or otherwise exhibiting increased risks from issuance with stressed scenarios and/or elevated probability of defaults (PODs) to increase expected losses as applicable. Outside of a small concentration of loans of concern, the overall performance of the remaining loans in the pool is generally healthy, with the majority reporting a debt service coverage ratio (DSCR) that remains in line with its respective issuance figures, according to the most recent financials.

According to the March 2024 remittance, 50 of the original 57 loans remain in the pool, representing a collateral reduction of 16.6% since issuance. Ten loans, representing 17.1% of the pool, are fully defeased, while 12 loans, representing 28.7% of the pool, are on the servicer’s watchlist, and are predominantly being monitored for low DSCR and occupancy rates. In addition, three loans, representing 5.6% of the pool, are in special servicing. For this review, Morningstar DBRS analyzed each specially serviced loan with a liquidation scenario, which resulted in a weighted-average projected loss severity of 52.4%.

The largest loan in special servicing, Mall de las Aguilas (Prospectus ID#6; 3.3% of the pool balance), is secured by a 350,000-square-foot (sf) portion of a 450,000-sf regional mall in Eagle Pass, Texas, which is on the United States–Mexico border. The loan transferred to special servicing in June 2020 because of imminent default as a result of the coronavirus pandemic-related closure of the border, and the property became real estate owned in July 2021. According to the most recent commentary, the special servicer continues to work toward stabilizing the property, and is currently assessing sale options. According to the financials for the trailing nine months (T-9) ended September 30, 2023, the collateral’s occupancy rate remains at 73.1%, which is the same rate reported as of September 30, 2022, while DSCR increased to 1.05 times (x) from 0.71x over the same period, as a result of a year-over-year decrease in operating expenses. The mall is anchored by JCPenney (collateral tenant, 18.0% of the net rentable area (NRA)), which has a lease expiration in May 2024. However, as the tenant had previously exercised three of its six renewal options, Morningstar DBRS believes the tenant will likely exercise its fourth five-year renewal option. The property is also anchored by a noncollateral Burlington.

An updated appraisal dated June 2023 valued the property at $9.3 million. Although the most recent value represents a slight increase from the November 2022 value of $7.4 million, this figure remains well below the issuance appraised value of $40.0 million. Given the sustained low performance, lack of leasing activity, short-term renewals, and the significant value decline from issuance, Morningstar DBRS used a liquidation scenario based on a stress to the June 2023 value, resulting in a projected loss severity in excess of 75%.

The largest loan on the servicer’s watchlist, 525 Seventh Avenue (Prospectus ID#1; 9.8% of the pool balance), is secured by a 23-story, 505,273-sf office building in Midtown Manhattan. The loan was added to the watchlist in February 2022 because of a decline in net cash flow (NCF). According to the most recent financials, the servicer’s annualized NCF for the T-9 ended September 30, 2023, was reported at $11.7 million, reflecting a DSCR of 1.14x. Although this figure is relatively in line with the YE2022 NCF of $11.3 million (DSCR of 1.10x), it is well below the issuer’s NCF figure of $16.6 million (DSCR of 1.75x) at issuance. Per the November 2023 rent roll, the property occupancy increased to 92.9% from the YE2022 figure of 86.7% as a result of several new lease commencements. However, there is concentrated scheduled rollover in the near term. Based on the November 2023 rent roll, more than 40 tenants, representing more than 25.0% of the NRA, have lease expirations scheduled through the loan maturity in November 2025. Although the subject’s recent leasing activity is a positive development, Morningstar DBRS maintained a stressed loan-to-value ratio and elevated POD adjustment given the property’s age, upcoming rollover and upcoming maturity, resulting in an expected loss that was approximately 49.0% higher than the weighted-average expected loss for the pool.

ENVIRONMENTAL, SOCIAL, AND 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 Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024) at https://dbrs.morningstar.com/research/427030.

Classes X-A, X-B, and X-D 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 Morningstar DBRS.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology (March 1, 2024), https://dbrs.morningstar.com/research/428798.

Other methodologies referenced in this transaction are listed at the end of this press release.

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 ratings were initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for these credit rating actions.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with these credit rating actions.

These are solicited credit ratings.

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 Morningstar DBRS 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
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://dbrs.morningstar.com/about/methodologies.

-- North American CMBS Multi-Borrower Rating Methodology (March 1, 2024)/North American CMBS Insight Model v 1.2.0.0, https://dbrs.morningstar.com/research/428797

-- Rating North American CMBS Interest-Only Certificates (December 13, 2023), https://dbrs.morningstar.com/research/425261

-- DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 22, 2023), https://dbrs.morningstar.com/research/420982

-- North American Commercial Mortgage Servicer Rankings (August 23, 2023), https://dbrs.morningstar.com/research/419592

-- Legal Criteria for U.S. Structured Finance (December 7, 2023), https://dbrs.morningstar.com/research/425081

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

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