Morningstar DBRS Downgrades Credit Ratings on Three Classes of COMM 2015-CCRE23 Mortgage Trust, Changes Trends on Four Classes to Negative from Stable

DBRS, Inc. (Morningstar DBRS) downgraded its credit ratings on three classes of Commercial Mortgage Pass-Through Certificates, Series 2015-CCRE23 issued by COMM 2015-CCRE23 Mortgage Trust as follows:

-- Class D to BB (sf) from BBB (low) (sf)
-- Class E to B (low) (sf) from B (high) (sf)
-- Class X-C to BB (high) (sf) from BBB (sf)

In addition, Morningstar DBRS confirmed the following credit ratings:

-- Class A-3 at AAA (sf)
-- Class A-4 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 (sf)
-- Class X-B at A (sf)
-- Class C at A (low) (sf)
-- Class X-D at B (sf)
-- Class F at C (sf)

Morningstar DBRS changed the trends on Classes C, D, X-B and X-C to Negative from Stable. Classes E and X-D continue to carry Negative trends. There is no trend on Class F, which has a credit rating that does not typically carry a trend in commercial mortgage-backed securities (CMBS). The trends on all other classes are Stable.

The credit rating downgrades and Negative trends reflect Morningstar DBRS' concerns regarding increased default risk as the deal enters its maturity year. Four loans, representing 3.4% of the pool, are already in special servicing. All but four loans, representing 0.3% of the pool, are scheduled to mature within the next nine months. While it is expected that the majority of these loans will repay as scheduled, Morningstar DBRS has identified nine non-specially serviced loans, representing 15.8% of the pool, that are at increased risk of maturity default given poor performance, increased rollover risk, and unfavorable market fundamentals. If additional defaults were to occur, or should performance of the loans of concern decline further and Morningstar DBRS' expected loss for the pool increase, classes could be downgraded. Additionally, as performing loans repay and the pool becomes more concentrated with defaulted assets, there is increased propensity for interest shortfalls on the remaining bonds. The credit rating confirmations are supported by the continued stable performance of the majority of the loans in the pool, which Morningstar DBRS believes will successfully pay off or refinance at maturity.

As of the August 2024 remittance, 70 of the original 83 loans remain in the pool, representing a collateral reduction of 27.9% since issuance. The pool benefits from a significant amount of defeasance with 24 loans, representing 39.3% of the pool balance, having been fully defeased. Since the last review, two formerly specially serviced loans were liquidated from the pool, resulting in losses of approximately $25.6 million, which further eroded the unrated Class G to approximately 31.0% of its original balance. As noted above, four loans, representing 3.4% of the pool, are currently in special servicing and 15 loans, representing 22.0% of the pool, are on the servicer's watchlist, eight of which are flagged for performance concerns.

Excluding the defeased loans, the pool is most concentrated by office and multifamily properties, which represent 27.3% and 11.5% of the pool balance, respectively. Morningstar DBRS has a cautious outlook on the office sector given the anticipated upward pressure on vacancy rates in the broader office market, challenging landlords' efforts to backfill vacant space, and, in certain instances, contributing to value declines, particularly for assets in noncore markets and/or with disadvantages in location, building quality, or amenities offered. Outside of the loans in special servicing, Morningstar DBRS' analysis includes an additional stress for seven office loans exhibiting weakened performance, which resulted in loan-level weighted-average (WA) expected losses (ELs) that are more than 45% higher than the pool average.

In its analysis, Morningstar DBRS utilized liquidation scenarios for three of the loans in special servicing: Champaign Portfolio (Prospectus ID#21; 1.7% of the pool), One Tower Creek (Prospectus ID#43; 0.7% of the pool), and Holiday Inn Express - Poughkeepsie (Prospectus ID#47; 0.6% of the pool). Morningstar DBRS' liquidation scenarios were based on a haircut to the most recent appraised value, which ranged from 10% to 50% based on the appraisal date, property type, and condition.

The largest contributor to the Morningstar DBRS pool EL is Sherman Plaza (Prospectus ID# 6; 4.4% of the pool), which is secured by a 267,648 square foot (sf) Class A, suburban office park comprising two office towers in Van Nuys, California,. The property's occupancy rate has continued to decline year over year and was reported at 45% as of the March 2024 rent roll, down from 59.2% in March 2023 and 93.0% at issuance. Exacerbating the property's lack of leasing activity is the San Fernando Valley Central submarket, which, according to Reis, continues to exhibit a high vacancy rate, reported at 17.6% as of Q2 2024. Reis expects the submarket vacancy rate to increase to nearly 22% in the next five years. As a result of the declines in occupancy, performance has also declined significantly, with the YE2023 net cash flow (NCF) and debt service coverage ratio (DSCR) reported at $1.7 million and 0.6 times (x), respectively. Despite the low in-place cash flows, the loan has remained current. Morningstar DBRS expects the borrower will not be able to refinance the loan ahead of its April 2025 maturity without contributing significant equity or signing a large tenant(s) and views the loan as being a high maturity default risk. As such, the loan was analyzed with a stressed loan-to-value ratio (LTV) and probability of default resulting in an EL that was nearly three times the pool average.

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 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 Factors in Credit Ratings (August 13, 2024) at https://dbrs.morningstar.com/research/437781.

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 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, 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 dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.