Morningstar DBRS Confirms All Credit Ratings of Morgan Stanley Capital I Trust 2015-MS1, Changes Trends to Negative from Stable on Two Classes

DBRS, Inc. (Morningstar DBRS) confirmed its credit ratings on all the classes of Commercial Mortgage Pass-Through Certificates, Series 2015-MS1 issued by Morgan Stanley Capital I Trust 2015-MS1 as follows:

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

In addition, Morningstar DBRS changed the trends on the Class E and Class F certificates to Negative from Stable. All other classes continue to have Stable trends.

The credit rating confirmations reflect the stable performance of the transaction as exhibited by a healthy weighted-average (WA) debt service coverage ratio (DSCR) of 2.0 times (x) based on the most recent financial reporting available. Twelve loans, representing 8.8% of the pool, have been fully defeased. As the pool enters its maturity year in 2025, Morningstar DBRS expects the vast majority of loans to repay from the pool. The Negative trends on the Class E and Class F certificates reflect the transaction's exposure to several loans (representing more than 15.0% of the pool) that Morningstar DBRS has identified as being at increased risk of maturity default given recent performance challenges, weakening submarket fundamentals, and unfavorable lending conditions for certain property types. For these loans, Morningstar DBRS applied an elevated probability of default (POD) penalty and/or loan-to-value ratio (LTV), resulting in a weighted-average (WA) expected loss for these loans that is triple the WA expected loss for the pool.

As of the May 2024 remittance, 50 of the original 54 loans remain in the pool, with a trust balance of $782.0 million, representing a collateral reduction of 11.7% since issuance. To date, the trust has not incurred any losses, however there are almost $600,000 in interest shortfalls that have been contained to the nonrated Class G certificate. Eleven loans, representing just less than 25% of the pool balance, are on the servicer's watchlist for declining performance metrics, lack of updated financial statements, and/or lack of compliance with provisions in the loan documents. There is one loan in special servicing, HSBC Building (Prospectus ID#16; 1.9% of the pool), which is secured by an office property in suburban Tampa. The sole tenant, HSBC, vacated in 2018 although its lease extended to 2020. The loan is currently real estate owned and based on the January 2024 appraisal, the property's as-is value was $7.2 million, down more than 40% from the January 2023 value of $12.6 million, noting deterioration in the outlook for office property demand given the emergence of a trend for tenants to either seek well-located, new and high quality buildings or downsize and switch to a full or partial remote working environment. Morningstar DBRS liquidated the loan in the analysis for this review, applying a haircut to the most recent appraisal value. This resulted in an implied loss of $10.9 million, with a loss severity of nearly 75%.

Waterfront at Port Chester (Prospectus ID#4; representing 6.8% of the pool), the largest loan on the servicer's watchlist, is secured by a grocery-anchored retail property in Port Chester, New York. The pari passu loan is being monitored for its low debt service coverage ratio (DSCR), which fell below breakeven as of the Q3 2023 reporting to 0.78 times (x), compared with 1.15x at YE 2022 and 1.34x at YE 2021 as a result of a decline in occupancy. The occupancy rate, which remains unchanged, declined to 86.5% when former major tenant Bed Bath and Beyond (previously 10.6% of net rentable area (NRA) and 9.4% of base rent) vacated in January 2022. Given the performance declines and the inability to find a replacement tenant, Morningstar DBRS elevated the POD to increase the expected loss in its analysis for this review, resulting in an expected loss that is more than four times the pool level expected loss.

At issuance, 32 Old Slip Fee (Prospectus ID#3; representing 7.7% of the pool), Alderwood Mall (Prospectus ID#5; representing 4.5% of the pool), and 841-853 Broadway (Prospectus ID#6; representing 6.4% of the pool) were shadow-rated investment grade. With this review, DBRS Morningstar confirmed the performance of these loans remains consistent with investment-grade loan characteristics.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS   
There were no Environmental/Social/Governance factors 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 is an interest-only (IO) certificate that references 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 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.

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, Inc.
22 West Washington Street
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://dbrs.morningstar.com/about/methodologies.

--North American CMBS Multi-Borrower Rating Methodology, (March 01, 2024), North American CMBS Insight Model v 1.2.0.0
https://dbrs.morningstar.com/research/428797
 
--DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria, (September 22, 2023),
https://dbrs.morningstar.com/research/420982/dbrs-morningstar-north-american-commercial-real-estate-property-analysis-criteria
 
--North American Commercial Mortgage Servicer Rankings, (August 23, 2023),
https://dbrs.morningstar.com/research/419592/north-american-commercial-mortgage-servicer-rankings

--Rating North American CMBS Interest-Only Certificates, (December 13, 2023),
https://dbrs.morningstar.com/research/425261/rating-north-american-cmbs-interest-only-certificates
 
--Legal Criteria for U.S. Structured Finance, (April 15, 2024),
https://dbrs.morningstar.com/research/431205/legal-criteria-for-us-structured-finance
 
For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at [email protected].