Morningstar DBRS Changes Trends on Five Classes of COMM 2015-CCRE24 Mortgage Trust to Negative from Stable, Confirms Credit Ratings on All Classes

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2015-CCRE24 issued by COMM 2015-CCRE24 Mortgage Trust as follows:

-- Class A-4 at AAA (sf)
-- Class A-5 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)
-- Class X-D at B (high) (sf)
-- Class E at B (sf)
-- Class F at B (low) (sf)
-- Class G at CCC (sf)

Morningstar DBRS changed the trends on Classes X-C, D, X-D, E, and F to Negative from Stable. All other classes carry Stable trends with the exception of Class G, which carries a credit rating that does not typically carry a trend in commercial mortgage-backed securities (CMBS).

The trend changes reflect Morningstar DBRS' increased loss projections, attributed to the two loans in special servicing, one of which reported an updated appraisal for the collateral property since the prior rating action, indicating further value decline. In its analysis for this review, Morningstar DBRS liquidated both loans, with cumulative losses exceeding $33.0 million. Those losses would erode the non-rated Class H balance by approximately 82.0%, significantly reducing credit support for the lowest-rated principal bonds in the transaction, supporting the Negative trends for those classes. The increased risks for the pool also include a sizeable concentration of loans secured by office or mixed-use properties, representing 14.4% of the pool, facing elevated refinance risk. Morningstar DBRS notes that these loans could see reduced commitment from the respective borrowers and/or face difficulty securing replacement financing as performance declines from issuance and softening market conditions have likely eroded property values. For these loans, Morningstar DBRS applied probability of default (POD) penalties and/or stressed the loan-to-value (LTV) ratio assumptions, as applicable. These factors further support the Negative trends assigned with this review. The credit rating confirmations and Stable trends otherwise reflect the continued performance of the remaining loans in the transaction, which have generally experienced minimal changes since the last credit rating action and reported a weighted-average (WA) debt service coverage ratio (DSCR) of approximately 1.79 times (x) based on the most recent year-end financials available.

As of the May 2024 remittance, 72 of the original 81 loans remain in the pool, representing a collateral reduction of 22.0% since issuance as a result of scheduled loan amortization, loan repayments, and one loan liquidation. There are 16 loans, representing 14.0% of the pool, that are fully defeased. The pool is concentrated by retail and hotel properties, with loans representing 23.3% and 22.4% of the pool, respectively. There are two loans, representing 5.4% of the pool, in special servicing, and 10 loans, representing 18.3% of the pool, on the servicer's watchlist, generally being monitored for low DSCRs. There have been minimal changes to the transaction's composition since the last rating; however, updated appraisals were received for both specially serviced loans.

The largest specially serviced loan, Westin Portland (Prospectus ID#8; 4.7% of the pool), is secured by a 19-story, full-service, 205-key luxury hotel in the CBD of Portland, Oregon. The loan was transferred to the special servicer in June 2020 for payment default following sustained performance declines, which were exacerbated by the Coronavirus Disease (COVID-19) pandemic. A loan modification was executed in September 2022, including $5.0 million of new borrower equity to cure the loan. While the loan was reinstated in December 2022, performance continued to struggle, and the borrower requested the loan be returned to the special servicer, which occurred in October 2023 as a result of payment default. The loan remains delinquent as of the May 2024 reporting, and discussions regarding workout remedies remain ongoing. The hotel's performance has declined since 2017 due to a combination of new hospitality properties delivered to the submarket and the sponsor's rebranding of the hotel to the Dossier boutique brand from the original Westin flag in 2018, followed by the temporary closure of the hotel between March 2020 and October 2021. The property's restaurant tenant remains closed and is not expected to reopen.

For the trailing 12-month (T-12) period ending February 29, 2024, the property reported occupancy, average daily rate, and revenue per available room (RevPAR) figures of 41.1%, $126, and $52, respectively. The RevPAR penetration rate for the T-12 period was 55.3%, a further decline from the T-12 ending January 31, 2023, rate of 59.6%, indicating the property continues to underperform relative to its competitive set. According to the June 30, 2023, T-12 financials, the loan reported a net cash flow of -$1.3 million (reflecting a DSCR of -0.37 times (x)). Morningstar DBRS notes that this is a further decline from the YE2022 figure of -$0.5 million and coverage has been below breakeven since YE2017. The February 2024 appraised value of $33.2 million, represents a 26.1% and 60.3% decline from the August 2022 and issuance values of $44.9 million and $83.6 million, respectively. Based on the total loan exposure, the loan has an LTV in excess of 150.0%. Morningstar DBRS' analysis includes a stressed haircut to the most recent appraised value, indicating a loss severity of nearly 60.0%.

The largest loan on the servicer's watchlist is Two Chatham Center & Garage (Prospectus ID#6, 4.8% of the pool), secured by a mixed-use property consisting of a 290,501 square foot (sf) Class B office building, a 2,284 capacity parking garage, and a 5.3 acre land parcel in downtown Pittsburg. The property is part of a larger multiuse complex, which in addition to the collateral, consists of two other office towers, a hotel, and a residential condominium. The loan was added to the servicer's watchlist in October 2020 for a low DSCR and occupancy and has remained on the watchlist since given the precipitous decline in performance. As of December 2023, the property was 32.8% occupied, a further drop from 45.0% at YE2022, and 60.0% at issuance. The December 2023 DSCR was 1.07x, a slight increase from the YE2022 DSCR of 1.00x, as a result of a year-over-year increase in parking revenue; however, it is well below the issuance DSCR of 1.53x. The year-over-year drop in occupancy is mainly due to the departure of the previous largest tenant, Special Counsel Inc. (formerly 9.8% of the NRA) at its lease expiration in January 2023.

According to the servicer's most recent commentary, while the leasing market remains weak, the borrower has been aggressively marketing the vacant spaces in hopes of increasing occupancy to refinance the loan, with $1.6 million available in leasing reserves. Parking revenue has also recently improved significantly following the reopening of the hotel, and as such, the borrower expects parking revenue to surpass the pre-pandemic level by 2025. Although the rebounded parking revenue, which is a signification portion to the property's revenue, has somewhat offset the low office occupancy rate, Morningstar DBRS remains concerned with the borrower's ability to re-lease the vacant office space given the construction of a new mixed-use project across the street from the collateral. In addition, approximately five tenants, representing 10.1% of the NRA, will have lease expirations prior to the loan's maturity in July 2025. Given the continued concerns with performance, lack of leasing activity, and the soft submarket, Morningstar DBRS expects a considerable decline in value for these assets. In the analysis for this review, Morningstar DBRS analyzed the loan with an elevated POD penalty and a stressed LTV ratio, resulting in an expected loss that was 3.5x the pool average.

The second-largest loan on the watchlist is the Donald J. Trump-sponsored 40 Wall Street (Prospectus ID#7, 4.2% of the current pool balance). It is secured by the 71-story, 1.2 million sf office building at 40 Wall Street in Lower Manhattan, New York, one block from the New York Stock Exchange. The loan is pari passu, with accompanying notes secured in two other CMBS transactions, including one other transaction (WFCM 2015-LC22) that is also rated by Morningstar DBRS. The loan had a brief stint with the special servicer after the borrower allegedly engaged in fraudulent activity, which is currently being appealed by the defendants, and was returned to the master servicer in March 2024 for continued monitoring of occupancy and a low DSCR, reported at 1.13x as of YE2023.

As of the December 2023 rent roll, the property reported an occupancy of 79.2% and an office rental rate of $35.15 psf. The occupancy rate has been declining year over year, with YE2022, YE2021, and issuance occupancy rates of 82.9%, 86.0%, and 97.8%, respectively. In 2023, Duane Reade (formerly 6.8% of the NRA), vacated its office space in March and its retail space in October, although the tenant continues to pay rent on the retail portion. The tenant terminated its lease ahead of its March 2028 expiration date and, based on the prospectus, was responsible for an approximate $500,000 fee. According to a leasing update, the borrower was able to sign eight new leases between May 2023 and March 2024 for 49,300 sf of space in total; however, the WA rental rate of these leases amounted to $42.46 psf, below the in-place average rental rate and well below the average asking rent of $61.60 psf for the Downtown submarket as of 2023 per Reis. In addition, these tenants were also granted a WA free rent period of eight months. There are also tenants, with leases totaling 12.7% of the NRA, scheduled to expire prior to loan maturity in July 2025, and Thornton Tomasetti (5.2% of the NRA; lease expiration in January 2033) has publicly indicated its plans of relocating to another building in the area. Per Thornton Tomasetti's website, the subject property is no longer listed as one of its office locations. It is not clear if Thornton Tomasetti had a termination option available.

Given the sustained decline in performance and heightened vacancy, Morningstar DBRS estimates that the collateral's as-is value has declined significantly from issuance, with a balloon LTV ratio well over 100.0%, suggesting high refinance risk. Other areas of concern include the borrower and guarantor's ongoing litigation and the loan's ground lease payment that is scheduled to reset to fair market value in 2033, further elevating refinancing risk. Morningstar DBRS analyzed the loan with an elevated POD penalty and stressed LTV ratio, resulting in an expected loss that is nearly twice the pool average.

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 at (January 23, 2024; https://dbrs.morningstar.com/research/427030).

Classes X-A, X-B, X-C, 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 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.

Morningstar DBRS 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.

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.

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

DBRS Limited
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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 (April 15, 2024; https://dbrs.morningstar.com/research/431205)

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 (July 17, 2023)

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