Morningstar DBRS Confirms Credit Ratings on All Classes of CSAIL 2015-C3 Commercial Mortgage Trust

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2015-C3 issued by CSAIL 2015-C3 Commercial Mortgage Trust (the Issuer) 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 BBB (low) (sf)
-- Class X-E at BB (low) (sf)
-- Class E at B (high) (sf)
-- Class X-F at B (sf)
-- Class F at B (low) (sf)

All trends are Stable.

The credit rating confirmations and Stable trends reflect the overall performance of the pool, which has remained in line with expectations since Morningstar DBRS' last credit rating action in June 2023. Although the pool's overall performance remains stable, Morningstar DBRS notes one area caution in the pool's high exposure to the loans secured by regional mall properties, namely The Mall of New Hampshire (Prospectus ID#3, 9.3% of the pool) and Westfield Trumbull (Prospectus ID#7, 3.8% of the pool), which are both on the servicer's watchlist and have experienced precipitous net cash flow (NCF) declines since issuance. While both loans are current, updated value projections indicate sizable value deficiencies as the loans approach their respective maturities in Q2 2025 and Q1 2025.

The pool also has a meaningful concentration of loans secured by office properties, representing nearly 18.0% of the pool balance; however, the largest of those loans, Charles River Plaza North (Prospectus ID#1, 9.3% of the pool), benefits from long-term, single-tenancy and healthy performance metrics, most recently reporting a debt service coverage of 1.94 times (x). Where applicable, Morningstar DBRS increased the probability of default (POD) penalties and/or increased loan-to-value ratios (LTVs) to reflect the increased risk of maturity default. As the pool begins to wind down in 2025, Morningstar DBRS notes increased refinance risk for a few office-backed loans that could face difficulty securing replacement financing in the near to moderate term as performance declines from issuance and decreased tenant demands have likely eroded property values.

Mitigating these risks is the sizable remaining balance of $42.4 million in the unrated first loss certificate, as well as the significant balance currently rated below investment grade by Morningstar DBRS across Classes D and E of approximately $108.3 million. Excluding the three aforementioned loans and collateral that has been fully defeased, the pool reported a WA debt service coverage ratio (DSCR) of 1.80x based on the most recent year-end financials.

As of the April 2024 remittance, 79 loans remain in the pool with a trust balance of $1.1 billion, representing a collateral reduction of 23.1% since issuance. In June 2023, the Best Western Plus at the Falls loan (Prospectus ID#69, previously 0.3% of the pool) was liquidated from the pool with a loss of $3.0 million (loss severity of 62.4%), compared with the Morningstar DBRS-projected liquidated loss of $3.3 million. There are 22 loans, representing 15.2% of the pool, that are fully defeased. In addition, 19 loans, representing 32.5% of the pool, are being monitored on the servicer's watchlist and two loans, representing 1.4% of the current pool, are in special servicing.

The largest loan on the servicer's watchlist, Mall of New Hampshire is the backed by a regional mall in Manchester, New Hampshire. A cash trap was implemented following the loan's return from special servicing in 2021, with $1.2 million of lockbox receipts collected, in addition to $0.5 million in an outstanding leasing reserve as of April 2024. While the loan continues to perform, most recently reporting a healthy in-place DSCR of 1.74x as of YE2023, this is a significant decline from the Issuer's underwritten figure of 2.50x, representing a 28.5% decline in NCF since issuance. The loan benefits from institutional sponsorship in Simon Property Group and the Canadian Pension Plan Investment Board; however, given the sustained decline in performance, Morningstar DBRS believes the property's as-is value has declined significantly since issuance, with a stressed value scenario indicating an LTV ratio in excess of 150.0%, significantly elevating the refinance risk at maturity in 2025.

The collateral is 405,723 square feet (sf) of in-line space in an 811,573-sf Class B single-level enclosed regional mall, anchored by Macy's, JCPenney, and Dick's Sporting Goods—none of which serve as collateral for the loan. As of December 2024, the collateral was 84.0% occupied, indicating moderate improvement from 82.0% at YE2022 following the departure of Olympia Sports (3.2% of the net rentable area (NRA)). The largest collateral tenants include Best Buy (10.4% of NRA, lease expires January 2024), Old Navy (4.6% of NRA, lease expires January 2027), and Ulta (2.9% of NRA, lease expires May 2025). Morningstar DBRS has inquired about the status of Best Buy's lease and is awaiting response; however, according to the subject mall's website, the tenant is still in occupancy. According to the most recent tenants sales report provided ending YE2022, the subject mall reported in-line sales (excluding Apple) of $437 per square foot (psf), an improvement from the in-line sales of $396 psf as of August 2021. In the analysis for this loan, Morningstar DBRS applied an elevated LTV and a stressed POD penalty, resulting in an expected loss nearly twice the pool's WA expected loss.

Westfield Trumbull is secured by 462,869 sf of a 1.1 million-sf regional mall in Trumbull, Connecticut. The loan was added to the servicer's watchlist in March 2022 for cash management as a result of a low DSCR of 1.36x, reflecting nearly a 50% decline in NCF when compared with the Issuer's underwritten figure of 2.73x. In December 2022, the subject and another mall owned by Unibail-Rodamco-Westfield were sold to Mason Asset Management and Namdar Realty Group for a combined sales price of $196.0 million. As part of that transaction, the subject debt was assumed. No individual sales prices have been disclosed; however, the subject mall had an appraised value of $262.0 million at issuance, suggesting the purchase price was well below the issuance valuation. While performance has shown improvement since the acquisition, with an annualized Q3 2023 DSCR of 1.92x, Morningstar DBRS believes value has declined significantly since issuance, with a stressed value scenario indicating a LTV ratio approaching 200.0%.

The collateral includes the Macy's (18.8% of NRA, lease expired April 2023—the store remains open and the servicer's commentary has stated a five-year renewal is in process) anchor pad and all in-line space. Additional noncollateral anchors in JCPenney and Target are open, and one noncollateral pad that was previously occupied by Lord & Taylor is now vacant. As of March 2024, occupancy was reported at 93.7%, with all collateral tenants excluding Macy's, representing less than 4.0% of the NRA. Forever 21 (1.9% of NRA) and Hollister (0.6% of NRA) have recently signed lease extension through January 2028 and January 2027, while the servicer indicates the borrower is engaged in lease negotiations with a handful of other tenants including Old Navy (1.3% of NRA, lease expiring January 2025) and Mandee (0.9% of NRA, lease expiring January 2024). In the analysis for this loan, Morningstar DBRS applied an elevated LTV and a stressed POD penalty, resulting in an expected loss nearly two and half times the pool's WA expected loss.

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, X-D, X-E, and X-F 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.

This are solicited credit ratings.

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

-- North American CMBS Multi-Borrower Rating Methodology (March 1, 2024)/North American CMBS Insight Model version 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.

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