Morningstar DBRS Downgrades Credit Ratings on Five Classes of COMM 2015-CCRE26 Mortgage Trust, Changes Trends on Four Classes to Stable from Negative

DBRS Limited (Morningstar DBRS) downgraded its credit ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2015-CCRE26 issued by COMM 2015-CCRE26 Mortgage Trust as follows:

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

Morningstar DBRS changed the trends on Classes B, C, D, and X-C to Stable from Negative. All other trends are Stable.

The credit rating downgrades, concentrated within certificates positioned at the bottom of the capital stack, reflect Morningstar DBRS' increased loss expectations for select loans in the pool, the largest of which is the pool's top loan, Prudential Plaza (Prospectus ID#1, 11.7% of the pool). In addition to that office-backed loan, there are others exhibiting performance declines, which suggest value deterioration and overall increased risks since issuance. Stressed loan-to-value ratios (LTV) and probability of default (POD) adjustments were applied to 11 of the 12 office-backed loans, which account for a little more than 40.0% of the pool balance, to reflect declines in occupancy, debt service coverage ratios (DSCR) and/or near-term rollover risk. The resulting expected loss (EL) figures were 30% higher than the overall pool average EL.

The credit rating confirmations elsewhere in the capital stack reflect an otherwise healthy pool of loans, as evidenced by the weighted-average, pool-level DSCR of 1.76 times (x) and the sizeable $91.1 million unrated balance insulating the most junior Class D from future potential losses and interest shortfalls. With the credit rating downgrades with this review, there is now $152.5 million between unrated and below-investment-grade credit rated proceeds cushioning against loss. Given these factors and the lack of loans currently in special servicing or otherwise in default, the Stable trends are supported.

As of the August 2024 remittance, 52 of the original 60 loans remained in the pool with a trust balance of $914.3 million, representing a collateral reduction of 16.2% since issuance. Ten loans, representing 28.2% of the pool balance, are on the servicer's watchlist being monitored for deferred maintenance items, tenant rollover risk, or low DSCR triggers¿and 10 loans, representing 6.9% of the pool balance, are defeased. There are no delinquent or specially serviced loans. The transaction is concentrated by property type, with loans representing 40.2%, 13.4%, and 13.3% of the pool collateralized by office, lodging, and retail properties, respectively.

The Prudential Plaza loan, which is secured by a 2.3 million-square-foot (sf) office complex in the East Loop submarket of Chicago, was in special servicing before being returned to the master servicer as a corrected mortgage in March 2024. A loan modification closed in December 2023, which included a conversion to interest-only (IO) debt service payments, a two-year maturity extension to August 2027 (structured with two, one-year extension options with a final maturity in August 2029), and a $35.0 million borrower equity injection to fund various reserves. The rent roll is relatively granular with no tenant representing more than 6.0% of net rentable area (NRA) paying an average rental rate of $25.6 per sf (psf). According to Reis, office properties in the East Loop submarket reported Q2 2024 average rental and vacancy rates of $35.1 psf and 12.6%, respectively, compared with the Q2 2023 figures of $34.5 psf and 13.5%, respectively. As a result of tenant departures throughout 2022 and 2023, occupancy has declined to 72.9% as of June 2024 from 82.6% at YE2022. The servicer notes tenants combining for another 10.4% of the NRA are expected to depart in the near term. Because of the occupancy declines, the loan is underwater, most recently reporting a June 2024 DSCR of 0.89x. Morningstar DBRS believes the as-is value has likely deteriorated significantly given the occupancy declines and general stress for the office property type in today's environment. As such, Morningstar DBRS applied a stressed LTV and POD in its analysis for this review and the resulting EL exceeded the pool average by approximately 120.0%.

Morningstar DBRS also notes increased risks for another large office loan, Rosetree Corporate Center (Prospectus ID#6, 4.4% of the pool), secured by two Class B office buildings totaling 290,000 sf in the Philadelphia suburb of Media, Pennsylvania. The loan transferred to special servicing in November 2023 for imminent monetary default and returned as a corrected mortgage in February 2024 when the borrower paid all outstanding loan payments. The loan is currently on the servicer's watchlist for a low DSCR, reported at just 0.90x and 0.73x as of the YE2023 and YE2022 financials, respectively, due to a gradual decline in occupancy to 76.4% as of the YE2023 reporting from 89.0% at issuance. Although an updated rent roll was not provided, the five largest tenants, which account for 25.7% of total NRA, are on long-term leases expiring beyond the loan's maturity date in September 2025. Morningstar DBRS expects that the suburban location and performance declines have likely contributed to a significant decline in the property's as-is value. As a result, Morningstar DBRS applied a stressed LTV ratio and POD in its analysis, with a resulting EL which was approximately 2.5x higher than 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 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 Factors in Credit Ratings at https://dbrs.morningstar.com/research/437781 (August 13, 2024).

Classes X-A, X-B, and X-C are 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 01, 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 assigned to the Class A-M certificate materially deviates from the credit rating implied by the predictive model. Morningstar DBRS typically expects there to be a substantial likelihood that a reasonable investor or other user of the credit rating would consider a three-notch or more deviation from the credit rating stress(es) implied by the predictive model to be a significant factor in evaluating the credit rating. The rationale for the material deviation is uncertain loan-level event risk. Morningstar DBRS analyzed loans of concern with elevated POD penalties and/or stressed LTVs, as outlined above, increasing the pool's baseline EL and a recoverability analysis for the most challenged of those loans suggests any realized losses would be well contained to the unrated and below investment grade credit rated certificates.

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 info-DBRS@morningstar.com.

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 Limited
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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), 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, 2024), https://dbrs.morningstar.com/research/438283
-- 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 info-DBRS@morningstar.com.