DBRS Morningstar Downgrades Ratings on Two Classes of Banc of America Merrill Lynch Commercial Mortgage Trust 2015-UBS7

DBRS, Inc. (DBRS Morningstar) downgraded two classes of Commercial Mortgage Pass-Through Certificates, Series 2015-UBS7 issued by Banc of America Merrill Lynch Commercial Mortgage Trust 2015-UBS7 as follows:

-- Class F to C (sf) from CCC (sf)
-- Class G to C (sf) from CCC (sf)

In addition, DBRS Morningstar confirmed the following ratings:

-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class X-D at BBB (sf)
-- Class D at BBB (low) (sf)
-- Class X-E at B (sf)
-- Class E at B (low) (sf)

DBRS Morningstar discontinued the rating on Class X-FG as its reference classes are rated CCC (sf) or below. Classes X-D, D, X-E, and E carry Negative trends. The ratings on Classes F and G do not carry trends. The trends on the remaining classes are Stable. In addition, Classes E, F, and G still carry an Interest in Arrears designation.

The Negative trends and downgrades reflect DBRS Morningstar’s concerns with the largest loan in special servicing, which is likely to be liquidated with meaningful losses to the trust. DBRS Morningstar’s liquidation scenario for the loan in question shows losses contained to the Class F certificate. However, because of the structure of the transaction, Classes F and G have small balances that provide relatively low cushion against loss for the classes immediately senior in the waterfall.

As of the November 2021 remittance reporting, 41 of the original 42 loans remain in the pool, representing a collateral reduction of 7.3% from issuance. This includes one loan, Lockport Square (Prospectus ID #32; 0.6% of issuance pool balance), which was liquidated from the pool in May 2018, resulting in a nominal loss to the non-rated Class H.

As of the November 2021 reporting, two loans (representing 3.5% of the current pool balance) were in special servicing and nine loans (representing 35.1% of the current pool balance) were on the servicer’s watchlist. The largest loan in special servicing is the WPC Department Store Portfolio loan (Prospectus ID #12; 2.8% of the current pool balance). The trust debt represents a $19.7 million pari passu participation in a $57.2 million whole loan secured by a portfolio of six now-vacant department store boxes with a combined area of 1,002,731 square feet (sf) across three states, with four of the properties concentrated in Wisconsin. At issuance, the boxes were fully occupied by affiliates of Bon-Ton Stores, Inc., which filed for bankruptcy and was ultimately liquidated in 2018, leaving the properties vacant. The loan transferred to special servicing in August 2018 and became real estate owned in October 2019. The most recent appraisal reported by the servicer valued the collateral for the whole loan at $25.3 million, down 72% from the issuance appraised value of $89.5 million.

Of the original six collateral properties, two have been sold. According to the special servicer commentary, the Bay Park property (which represents 14.2% of the loan by allocated balance) was sold for $3.0 million in November 2020 and the Southridge property (which represents 20.1% of the loan) was sold for $3.3 million in July 2021. The sale prices of $3.0 million and $3.3 million for the Bay Park and Southridge properties represent value declines of 76% and 82%, respectively, compared with their appraised values at issuance. The proceeds from these property sales were used to repay outstanding servicer advances, with no principal recovery applied to the senior bonds to date. DBRS Morningstar expects similar dispositions for the remaining collateral properties and analyzed this loan using a liquidation scenario that resulted in a loss severity slightly in excess of 100%.

The largest loan on the servicer’s watchlist is the Westin Hotel at the Domain (Prospectus ID#3; 8.8% of the current pool balance), which is secured by a 341 key full-service hotel in Austin, Texas. While the loan was initially transferred to special servicing in June 2020 as a result of pandemic-related performance declines, it was returned to the master servicer in December 2020 following the execution of a modification. The terms of the modification included interest-only (IO) payments between June and August 2020, with deferred principal to be repaid between September 2020 and March 2021 but this was extended to September 2021. The loan is currently on the servicer’s watchlist being monitored for a low debt service coverage ratio (DSCR) attributed to pandemic-related performance declines. The servicer has reported a net cash flow DSCR of 0.34 times (x) for the trailing 12 months ended June 30, 2021 (T-12), which is a slight improvement from the DSCR of 0.28x for YE2020, but still dramatically below the DSCR of 2.86x for YE2019. The servicer commentary reports T-12 occupancy, average daily rate (ADR), and revenue per available room (RevPAR) of 53.9%, $129.41, and $69.75, respectively, reflecting a slight improvement from STR’s reported YE2020 figures of 43.6%, $147.46 and $64.29, respectively. Though performance has shown some improvement from YE2020, overall, the performance metrics remain well below the pre-pandemic YE2019 occupancy, ADR, and RevPAR of 72.4%, $231.03, and $167.19, respectively.

Also on the servicer’s watchlist is The Mall of New Hampshire loan (Prospectus ID#5; 7.1% of the current pool balance), secured by a Class B single-level enclosed regional mall totaling 811,573 sf, of which 405,723 sf are part of the collateral. The trust loan in the original amount of $50.0 million represents a pari passu piece of a larger $150.0 million whole loan. The $100.0 million controlling A-1 Note was contributed to the DBRS Morningstar-rated CSAIL 2015-C3 Commercial Mortgage Trust transaction. DBRS Morningstar added this loan to its Hotlist in May 2020, while monitoring performance concerns stemming from the YE2019 financials that reported cash flow declines of 21.6% from the net cash flow at issuance. The loan transferred to special servicing in May 2020 at the borrower’s request because of pandemic-related cash flow declines, but it was returned to the master servicer with the June 2021 servicer reporting after successfully executing a forbearance agreement. The terms of the forbearance agreement allowed for the forbearance of debt service payments from May 2020 to December 2020 to be repaid in 13 equal installments beginning in January 2021. The loan was returned to the master servicer with the June 2021 servicer reporting, but remains on the watchlist for an active cash trap and monitoring of the forbearance. Occupancy stands at 83% as of June 2021 while the annualized DSCR for the trailing six months ended June 31, 2021, was recorded at 1.71x, compared with 96% and 2.52x, respectively, at issuance.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Classes X-A, X-B, X-D, X-E, and X-FG 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 ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:

-- Prospectus ID#3 – Westin Hotel at the Domain (8.8% of the pool)
-- Prospectus ID#5 – The Mall of New Hampshire (7.1% of the pool)
-- Prospectus ID#12 – WPC Department Store Portfolio (2.8% of the pool)

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com The platform includes issuer and servicer data for most outstanding CMBS transactions (including non-DBRS Morningstar rated), as well as loan-level and transaction-level commentary for most DBRS Morningstar-rated and -monitored transactions.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is the North American CMBS Surveillance Methodology (March 26, 2021), which can be found on dbrsmorningstar.com under Methodologies & Criteria. For a list of the structured-finance-related methodologies that may be used during the rating process, please see the DBRS Morningstar Global Structured Finance Related Methodologies document, which can be found on dbrsmorningstar.com in the Commentary tab under Regulatory Affairs. Please note that not every related methodology listed under a principal structured finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS Morningstar long-term rating scale definition indicates that 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.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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