Morningstar DBRS Downgrades Credit Ratings on Five Classes of COMM 2015-LC21 Mortgage Trust

DBRS Limited (Morningstar DBRS) downgraded its credit ratings on five classes of Commercial Mortgage Pass-Through Certificates, Series 2015-LC21 issued by COMM 2015-LC21 Mortgage Trust as follows:

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

In addition, Morningstar DBRS confirmed the following credit ratings:

-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-M at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class X-A at AAA (sf)
-- Class X-B at A (sf)

The trends on Classes D and X-C are Negative. The trends on the remaining classes are Stable with the exception of Classes E, F, and X-D, which have credit ratings that do not typically carry trends in commercial mortgage-backed securities (CMBS) credit ratings.

The credit rating downgrades on Classes E and F reflect Morningstar DBRS' recovery expectations for the two loans, representing 6.6% of the pool, in special servicing and concerns surrounding the refinancing prospects of select loans in the pool, as loans representing 92.8% of the pool have maturity dates in the next 12 months. To date, there have been realized losses of approximately $18.4 million, eroding the nonrated Class G certificate by approximately 45.0% to $22.9 million. In its analysis, Morningstar DBRS applied a 15.0% haircut to the most recent value on the real estate owned Honeywell Building loan (Prospectus ID#27, 2.0% of the pool), resulting in an implied loss of $12.4 million (loss severity of 77.0%) and applied a 70.0% haircut on the issuance appraised value on the Meridian at Brentwood loan (Prospectus ID#3, 4.6% of the pool), resulting in implied losses of $22.3 million (loss severity of approximately 60.0%). The results of the liquidation scenarios suggest that realized losses would be contained to the Class F certificate, supporting the credit rating downgrades to CCC (sf) and C (sf).

In addition to the estimated losses on the two specially serviced loans, Morningstar DBRS identified loans representing approximately 30.0% of the pool that are exhibiting increased refinance risk. To account for the loans' increased risk profile, Morningstar DBRS increased the probability of default (POD) and/or applied stressed loan-to-value ratios (LTVs), resulting in a weighted-average expected loss approximately 1.6 times (x) greater than the pool average. The credit rating downgrade and Negative trend on Class D reflects the increased credit risk for the identified loans and the potential for further value deterioration in the event they are unable to pay off at maturity.

As of the February 2025 remittance, 76 of the original 103 loans remain in the pool, reflecting a collateral reduction of 39.6% since issuance. The pool benefits from 20 loans, representing 18.8% of the pool, that are fully defeased. In addition to the two loans in special servicing, there are 28 loans, representing 40.2% of the pool, on the servicer's watchlist, the majority of which are being monitored for low debt service coverage ratio (DSCR) and upcoming loan maturity. Seven loans, representing 16.4% of the pool, are secured by office properties. While the pool's office concentration is moderate, the majority of the office loans report net cash flow declines from issuance, suggesting that the prospect of successful loan pay offs is unlikely. The pool's two largest office loans being monitored on the servicer's watchlist are Santa Monica Clock Tower (Prospectus ID#8, 3.3% of the pool) and Delaware Corporate Center I & II (Prospectus ID#9, 2.9% of the pool).

Santa Monica Clock Tower, secured by a 55,000-square-foot (sf) office property in Santa Monica, California, has been monitored on the watchlist since September 2023 due to low DSCR. Occupancy continues to decline year-over-year, most recently reported at 42.7% as of June 2024, after its second-largest tenant (previously 16.1% of net rentable area (NRA)) vacated in early 2024. DSCR has dropped below breakeven as of the June 2024 financials, with the loan scheduled to mature in May 2025. Morningstar DBRS believes the loan will default at its maturity and analyzed the loan with a stressed POD and LTV of 109.0%, which reflects a 50.0% haircut to its issuance value. The resulting expected loss is approximately 1.8x greater than the pool average.

Delaware Corporate Center I & II, secured by a 200,000-sf suburban office property in Wilmington, Delaware, continues to be monitored for low DSCR following the departure of its former largest tenant in 2022. Occupancy has declined to 72.0% as of September 2024 and DSCR has fallen below breakeven. Backfilling the vacant space will likely be challenging given the submarket's vacancy rate exceeds 20.0%, according to Reis, Inc. Additionally, the property's value has likely declined, as a nearby comparable property securitized in the WFCM 2015-C28 transaction (rated by Morningstar DBRS) was re-appraised in February 2024 at a value of approximately $73 per square foot (psf). Morningstar DBRS believes the loan is unlikely to pay off at its May 2025 maturity and analyzed this loan with an elevated POD and stressed LTV exceeding 150.0%, in line with the value psf of the identified comparable property. The resulting expected loss is approximately 3.5x greater than the pool average.

The largest loan in special servicing, Meridian at Brentwood, is secured by a 242,000-sf mixed use property in Brentwood, Missouri. The loan transferred to special servicing in June 2023 as a result of nonmonetary default related to the borrower's noncompliance with the initiation of cash management, which was triggered after the property's largest tenant, BJC Health System (BJC), failed to renew its lease prior to its original 2022 expiration. BJC opted to sign a short-term lease, downsizing its space to 39.4% of NRA, with a lease expiry in December 2025. According to the September 2024 rent roll, BJC now occupies 51.8% of the NRA after it signed a lease for 30,000 sf (12.4% of NRA) through 2035, temporarily increasing occupancy to 94.0%. It is unclear whether BJC will extend its lease for the space that is scheduled to expire in December 2025; however, if that space is vacated, occupancy would decline to approximately 54.6%. Given the property's low YE2023 DSCR of 0.27x and the potential for occupancy to decline further, Morningstar DBRS analyzed the loan using a liquidation scenario, applying a 70.0% haircut to the loan's issuance value, resulting in implied losses exceeding $22.0 million (loss severity of approximately 60.0%).

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 Class 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 (December 13, 2024), https://dbrs.morningstar.com/research/444617.

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 info-DBRS@morningstar.com.

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 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/ North American CMBS Insight Model v 1.2.0.0 (December 13, 2024), https://dbrs.morningstar.com/research/444616

-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (September 19, 2024), https://dbrs.morningstar.com/research/439702

-- North American Commercial Mortgage Servicer Rankings (August 23, 2024), https://dbrs.morningstar.com/research/438283

-- Legal Criteria for U.S. Structured Finance (December 3, 2024), https://dbrs.morningstar.com/research/444064

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.