Morningstar DBRS Confirms Credit Ratings on All Classes of LSTAR Commercial Mortgage Trust 2015-3

DBRS, Inc. (Morningstar DBRS) confirmed the credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2015-3 issued by LSTAR Commercial Mortgage Trust 2015-3 as follows:

-- Class B at AAA (sf)
-- Class C at AA (high) (sf)
-- Class X-C at AA (sf)
-- Class D at AA (low) (sf)
-- Class E at A (low) (sf)
-- Class X-A at BBB (high) (sf)
-- Class X-B at BBB (high) (sf)
-- Class F at BBB (sf)

All trends are Stable.

The credit rating confirmations and Stable trends reflect the transaction's performance, which remains in line with Morningstar DBRS' expectations at last review. Since the last Morningstar DBRS credit rating action, one loan, Hudson River Commons (Prospectus ID#10), has been paid off in full. As of the July 2024 remittance, seven of the original 62 loans remain in the pool, with a trust balance of $90.1 million, representing a collateral reduction of 68.0% since issuance. Of the remaining loans, the top four represent 99.1% of the remaining pool balance and have scheduled maturities in 2024 and 2025, with the remaining three loans scheduled to mature between 2035 and 2036. There are no loans in special servicing.

The first loss Class G certificate, which is not rated by Morningstar DBRS, has a current outstanding balance of $20.0 million. Though no losses are currently projected by Morningstar DBRS, the unrated certificate provides a significant amount of cushion should any of the remaining loans default at or before maturity. Given the stable performance and near-term maturity of the largest remaining loans, Morningstar DBRS expects most, if not all, of the outstanding rated bonds will be recovered within the next nine months.

The largest loan in the pool and the largest loan on the servicer's watchlist is 101 Redwood Shores (Prospectus ID#1, 41.1% of the pool), secured by a 100,328-square-foot (sf) office property in Redwood City, California. The loan is on the watchlist for upcoming maturity in October 2024. Per the May 2024 rent roll, the property was fully occupied by a single tenant, Zuora, with lease expiration in January 2030. All of the space is being marketed online for sublease. Morningstar DBRS requested an update from the servicer, who noted that Zuora was still in full occupancy and according to the Zuora website, this location is still cited as its Global Headquarters.

The subject has exhibited year-over-year improvements in net cash flow, related to annual rent increases for the sole tenant. Despite the cash flow improvements, recent market trends indicate declining demand and values for office properties. According to Reis, the Q1 2024 average vacancy for office properties in the South San Mateo submarket was 14.7%, in line with the year prior. At issuance, the appraised value of $108.2 million implied an LTV of 63.8%. Morningstar DBRS expects that the property's value has decreased since issuance, but does not view any rated bonds to be at risk of loss stemming from a potential default of this loan.

The second largest loan on the servicer's watchlist is Indian Hills Plaza (Prospectus ID#8, 15.1% of the pool), secured by a 229,893-sf anchored retail property in Mount Pleasant Michigan. The loan is currently on the servicer's watchlist for upcoming maturity in November 2024; however, the property's performance has been stable since issuance. As of the March 2024 rent roll, the property was 79.8% occupied with only 8% rollover in the next 12 months. The property was 81.4% occupied at issuance. Cash flow has also been stable year over year, and the most recently reported debt service coverage ratio and debt yield are 1.58 times and 11.4%, respectively, as of YE2023. Given these factors, Morningstar DBRS expect this loan to be a healthy candidate for refinance.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

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-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 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 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.

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 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 (June 28, 2024), https://dbrs.morningstar.com/research/435294
-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (June 28, 2024), https://dbrs.morningstar.com/research/435293
-- 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

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.