DBRS Morningstar Confirms Ratings on All Classes of COMM 2015-LC21 Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed its ratings on the following classes of Commercial Pass-Through Certificates, Series 2015-LC21 issued by COMM 2015-LC21 Mortgage Trust:

-- 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 (low) (sf)
-- Class X-B at A (sf)
-- Class C at A (low) (sf)
-- Class X-C at BBB (sf)
-- Class D at BBB (low) (sf)
-- Class X-D at B (high) (sf)
-- Class E at B (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 reflect the overall stable performance of the transaction, which has remained in line with DBRS Morningstar’s expectations since its last review. The CCC (sf) rating on Class F is reflective of DBRS Morningstar’s continued loss expectations for several loans in special servicing, as discussed below.

At issuance, the transaction consisted of 103 fixed-rate loans secured by 198 commercial and multifamily properties, with a trust balance of $1.3 billion. As of the April 2023 remittance, 89 loans remained within the transaction with a trust balance of $987.3 million, reflecting collateral reduction of 25.3% since issuance. There are currently 19 fully defeased loans, representing 17.8% of the current pool balance. The notable principal paydown and defeasance serves as a mitigant against the potential for further credit deterioration of the transaction’s eight loans secured by office collateral, which represent 15.8% of the pool balance. In general, the performance of the office sector has deteriorated in recent months with elevated vacancy rates in many submarkets because of a shift in workplace dynamics. Six of the eight office loans, representing 12.0% of the pool, have either transferred to special servicing or are on the servicer’s watchlist. In total, 20 loans, representing 31.5% of the pool, are being monitored on the servicer’s watchlist and six loans, representing 8.6% of the current pool, are in special servicing. As part of this review, DBRS Morningstar increased the probability of default for all of the distressed loans to reflect their current risk profile and, in certain cases, applied stressed loan-to-value (LTV) ratios. In addition, DBRS Morningstar analyzed three of the six specially serviced loans with liquidation scenarios, resulting in implied loss severities ranging from 48% to 72%. All three loans analyzed with liquidation scenarios are currently being reported as real estate owned (REO) and have had recent appraisals valuing the collateral well below their respective loan amounts.

The two largest office loans on the servicer’s watchlist are the Meridian at Brentwood (Prospectus ID#3, 3.9% of the pool) and Santa Monica Clock Tower (Prospectus ID#8, 2.7% of the pool) loans, both of which are being monitored for declining cash flow and occupancy. The Meridian at Brentwood loan, secured by a mixed-use office/retail building in Brentwood, Missouri, had a cash trap initiated after its largest tenant, BJC Health System (58.7% of net rentable area (NRA)), failed to renew the lease for a portion of its space at the property, representing 12.4% of the NRA. The remainder of its space is scheduled to expire in December 2025, one month before the loan’s January 2026 maturity date. The balance of the cash flow sweep was not provided; however, the loan reports approximately $930,000 in rollover reserve, which could be used to help retenant the vacated space. The Santa Monica Clock Tower loan, secured by an office property in Santa Monica, California, was added to the watchlist in February 2023 for a low debt service coverage ratio (DSCR) following the departure of several tenants in 2020 and 2021. Occupancy declined to 66.6% as of the September 2022 rent roll from 99.0% in 2019, and the DSCR was most recently reported at 1.27 times (x) for the trailing nine-month period ended September 30, 2022. DBRS Morningstar analyzed both loans with elevated probabilities of default and stressed LTVs, resulting in expected loss levels over 100.0% greater than the pool’s weighted-average expected loss.

The largest loan in special servicing, Delaware Corporate Center I & II (Prospectus ID#9, 2.4% of the pool), is secured by a 200,275-square-foot (sf) office complex in Wilmington, Delaware. The loan transferred to special servicing in March 2022 for failing to comply with cash management provisions following the notice of nonrenewal by the collateral’s former largest tenant, E.I. Dupont (26.6% of NRA). Per the special servicer commentary, cash management is now in place and the special servicer is preparing to return the loan to the master servicer. As of April 2023, the loan reported $559,000 in lockbox receipts and $230,000 across rollover reserves and capital expenditure reserves. Following the departure of E.I. Dupont at its lease expiry in December 2022, collateral occupancy has declined to approximately 69.1%, and tenants representing 21.8% of NRA have lease expiries in the next 12 months. According to the trailing nine-month financials ended September 30, 2022, the loan reported a DSCR of 2.36x; however, with the loss of E.I. Dupont, cash flow is expected to decline in 2023 as the tenant comprised 28.5% of the property’s base rent, with an implied DSCR estimated at 1.49x. Given the expected decline in performance in 2023, DBRS Morningstar analyzed this loan with an elevated probability of default and stressed LTV, resulting in an expected loss 165.0% greater than the pool’s weighted-average expected loss and nearly 100.0% greater than the loan’s original baseline expected loss.

The second-largest loan in special servicing, Anchorage Business Park (Prospectus ID#11, 2.2% of the pool), is secured by a 176,799-sf Class C office property in Anchorage, Alaska. Performance of the underlying property has declined with occupancy dropping to 64.2% as per the trailing nine-month financials ended September 30, 2022. The asset is REO and, according to the October 2022 appraisal, was valued at $13.0 million, which reflects a 61.5% decrease from the issuance value of $33.8 million and is well below the current loan amount of $21.5 million. DBRS Morningstar analyzed this loan with a liquidation scenario, resulting in a loss severity in excess of 70.0%.

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-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 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 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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Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

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/North American CMBS Insight Model version 1.1.0.0 (March 16, 2023), 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.