DBRS Morningstar Confirms All Ratings on Morgan Stanley Bank of America Merrill Lynch Trust 2015-C20

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2015-C20 issued by Morgan Stanley Bank of America Merrill Lynch Trust 2015-C20 as follows:

-- Class A-SB at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AA (high) (sf)
-- Class B at AA (sf)
-- Class C at A (high) (sf)
-- Class PST at A (high) (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)
-- Class F at CCC (sf)

All trends are Stable, with the exception of Class F, which has a rating that does not typically carry a trend in commercial mortgage-backed securities (CMBS) ratings.

The rating confirmations and Stable trends reflect DBRS Morningstar’s current outlook and loss expectations for the transaction, which remain relatively unchanged from the November 2022 rating action.

At issuance, the transaction consisted of 88 fixed-rate loans secured by 102 commercial and multifamily properties, with a total trust balance of $1.1 billion. As of the April 2023 remittance, 72 loans remained in the trust, with an aggregate principal balance of $837.8 million, reflecting collateral reduction of 27.0% since issuance. The transaction is concentrated by property type, with loans representing 25.4% and 23.3% of the pool collateralized by office and retail properties, respectively. There are 17 fully defeased loans representing 19.3% of the current pool balance. In addition, nine loans, representing 21.2% of the pool, are on the servicer’s watchlist, and four loans, representing 4.8% of the pool, are in special servicing. To date, losses of $9.1 million have been realized and are contained to the unrated Class G.

Although the majority of loans secured by office properties reported generally healthy credit metrics, there is continued uncertainty related to end-user demand and investor appetite for this property type. DBRS Morningstar anticipates 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. Where applicable, DBRS Morningstar increased the probability of default penalties, and, in certain cases, applied stressed loan-to-value (LTV) ratios for loans that are secured by office properties.

The largest specially serviced loan, 33 West 46th Street (Prospectus ID#12; 2.1% of the pool), is secured by a 42,525-square-foot (sf) office property in Midtown Manhattan, New York. The loan transferred to special servicing in August 2020 following payment default. The lender subsequently filed a foreclosure complaint, and a receiver was appointed in March 2022. As of the April 2023 remittance, the loan remains delinquent; the lender has filed a motion for summary judgment, for which a hearing is scheduled in June 2023. According to the most recent reporting on file, dated March 2022, the property was 47.0% occupied, down from the YE2021 occupancy rate of 52.1%. The top three tenants (Teamamerica & Volatour, Inc.; Dana Saltzman MD; and Lifespan Pilates LLC) occupy over 33.0% of the net rentable area (NRA) and have lease expiration dates in November 2027, September 2024, and April 2032, respectively. The remainder of the rent roll is granular, with no other tenant occupying more than 5.0% of the NRA. In addition, lease rollover at the property is limited, with only one lease, representing approximately 4.5% of the NRA, scheduled to roll within the next 12 months.

The most recent appraisal, dated January 2023, valued the property at $20.7 million, a 6.3% decline from the May 2022 appraised value of $22.1 million and a 20.4% decline from the issuance appraised value of $26.0 million. DBRS Morningstar’s analysis includes a liquidation scenario, which is based on a stress to the most recent appraisal value and results in a loss severity under 15%.

The largest watchlisted loan, Orlando Maitland Office Portfolio (Prospectus ID#2; 10.7% of the pool), is secured by four Class A office buildings totaling 588,68 sf on 9.9 acres of land in Maitland, Florida, eight miles north of Orlando’s central business district. The buildings, referred to as Summit Tower, Summit Park I, Summit Park II, and Summit Park III, were constructed between 1992 and 2009. The two oldest buildings, Summit Park I and Summit Park II, underwent extensive renovations between 2009 and 2013, at a total cost of $1.1 million. Electronic Arts (EA), which formerly occupied 22.0% of the portfolio’s NRA (128,240 sf) and 100% of the NRA at Summit Park I, exercised an early termination option in November 2021, ahead of its October 2025 lease expiration date, after Orlando’s city council approved an agreement to move EA from its Maitland headquarters to Orlando’s Creative Village area in the downtown core. As part of the early termination agreement, EA paid a termination fee of $1.9 million.

According to the YE2022 financial reporting, the portfolio was 83.5% occupied, with the Summit Park I building reporting an occupancy rate of 34.5%. The former EA space has been partially backfilled with one tenant, ThreatLocker, Inc., which occupies 44,246 sf of space through staggered leases that began in March 2022 and September 2022. The remaining three properties continue to perform well with cash flows that are in line with DBRS Morningstar’s expectations and occupancy rates, ranging from 99.4% to 100.0%. Tenancy across the portfolio is concentrated, with only nine tenants constituting the tenant base and the top three tenants making up approximately 77.0% of the total NRA. According to the April 2023 remittance, reserve balances total $5.7 million, representing approximately $67.9 per sf of currently vacant space. The portfolio generated NCF of $5.1 million in 2022 with a debt service coverage ratio of 0.93 times (x), down from the YE2021 figures of $8.1 million and 1.47x and YE2020 figures of $7.6 million and 1.38x, respectively. Lease rollover risk is moderate, with two tenants, Staples Contract & Commercial, Inc. (57,818 sf; 9.82% of total NRA) and Federal Express Corporate Services Inc. (37,940 sf; 6.45% of total NRA) having leases that are scheduled to expire within the next 12 months. According to Reis, Class A office properties in the Maitland submarket reported an average vacancy rate of 13.0%. DBRS Morningstar’s analysis includes an elevated probability of default and an additional LTV stress. The resulting expected loss is 2.6 times higher than the pool average.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/396929 (May 17, 2022).

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

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

The principal methodology is North American CMBS Surveillance Methodology (March 16, 2023; https://www.dbrsmorningstar.com/research/410912).

Other methodologies referenced in this transaction are listed at the end of this press release.

The credit rating assigned to Class E materially deviates from the rating implied by the predictive model, as the quantitative results suggested higher ratings. DBRS Morningstar 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 stresses implied by the predictive model to be a significant factor in evaluating the credit ratings. The rationale for the material deviation is uncertain loan-level event risk tied to loans in special servicing and on the servicer’s watchlist, in addition to the general uncertainty related to end-user demand and investor appetite for office properties amid the current economic backdrop.

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 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@dbrsmorningstar.com.

The rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process for this rating action.

DBRS Morningstar had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is a solicited credit rating.

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.

DBRS Limited
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The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

North American CMBS Multi-Borrower Rating Methodology (March 16, 2023)/North American CMBS Insight Model version 1.1.0.0 (https://www.dbrsmorningstar.com/research/410913)

Rating North American CMBS Interest-Only Certificates (December 19, 2022; https://www.dbrsmorningstar.com/research/407577)

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 12, 2022; https://www.dbrsmorningstar.com/research/402646)

North American Commercial Mortgage Servicer Rankings (September 8, 2022; https://www.dbrsmorningstar.com/research/402499)

Interest Rate Stresses for U.S. Structured Finance Transactions (August 30, 2022; https://www.dbrsmorningstar.com/research/402153)

Legal Criteria for U.S. Structured Finance (December 7, 2022;
https://www.dbrsmorningstar.com/research/407008)

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