DBRS Morningstar Confirms Ratings on All Classes of Morgan Stanley Bank of America Merrill Lynch Trust 2015-C21

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2015-C21 issued by Morgan Stanley Bank of America Merrill Lynch Trust 2015-C21 as follows:

-- 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 AA (low) (sf)
-- Class B at A (high) (sf)
-- Class C at BB (sf)
-- Class PST at BB (sf)
-- Class D at CCC (sf)
-- Class E at C (sf)
-- Class F at C (sf)
-- Class G at C (sf)
-- Class 555A at A (sf)
-- Class 555B at BBB (sf)

All trends are Stable, excluding Classes D, E, F, and G, which have ratings that do not generally carry a trend in commercial mortgage-backed securities (CMBS). The rating confirmations reflect minimal changes to the overall performance of the underlying collateral, which remains in line with DBRS Morningstar’s expectations since the last rating action.

As of the May 2023 remittance, 57 of the original 64 loans remain in the pool with an aggregate principal balance of $758.3 million, representing a collateral reduction of 15.8% since issuance as a result of loan amortization, loan repayments, and one loan liquidation. Ten loans, representing 8.8% of the current pool balance, have been fully defeased. Excluding collateral that has been defeased, the pool is most concentrated by retail, office, and hotel properties, with loans representing 33.8%, 24.1%, and 11.0% of the pool, respectively. There are 13 loans, representing 16.5% of the pool, on the servicer’s watchlist and three loans, representing 11.9% of the pool, in special servicing. Since DBRS Morningstar’s last rating action, a previously specially serviced loan, Ashford Hotel Portfolio (6.1% of the pool), was returned to the master servicer following a significant rebound in performance.

The main drivers for DBRS Morningstar’s loss expectations continue to be the specially serviced loans, including the largest loan in the pool, Westfield Palm Desert (Prospectus ID#1; 8.5% of the pool). DBRS Morningstar’s analysis includes liquidation scenarios for these loans. The implied losses total nearly $68.0 million, which would partially erode the balance of Class G. DBRS Morningstar also remains concerned with ongoing interest shortfalls, which are currently impacting Classes D through G.

The largest specially serviced loan is secured by a 572,724-square-foot (sf) portion of the 977,888-sf Westfield Palm Desert regional mall in Palm Desert, California. The pari passu $125.0 million interest-only (IO) whole loan transferred to special servicing in August 2020 because of payment default and, as of the May 2023 remittance, the loan remains delinquent. A receiver was appointed in October 2021, shortly after which the property was rebranded as The Shops at Palm Desert. The special servicer is reportedly pursuing foreclosure. The property’s occupancy rate has declined to 80.8% as of January 2023 from 95.9% at issuance. According to the servicer-reported financials, the annualized net cash flow (NCF) for the year-to-date period ended June 30, 2022, was $10.2 million, which is an increase from the YE2021 and YE2020 figures of $6.6 million and $9.0 million, respectively, but remains below the issuer’s NCF of $12.7 million. Per the January 2023 financial package, total in-line sales for 2022 were $385 per square foot (psf), a 25.3% drop from the previous year.

Overall, DBRS Morningstar expects performance to decline in the near to medium term. A major tenant, Tristone Cinemas (previously 3.3% of the net rentable area (NRA)), closed in February 2023. More than 35 additional tenants representing more than 15.0% of the NRA have leases scheduled to expire over the next 12 months, including a major tenant, Dick’s Sporting Goods (4.7% of the NRA; expiration in January 2024). The receiver continues to tour prospective tenants. The most recent appraisal is dated July 2022 and valued the property at $68.0 million. Although this represents a 23.2% improvement from the July 2021 appraised value of $55.2 million, the updated figure is well below the issuance value of $212.0 million. DBRS Morningstar’s analysis, which includes a liquidation scenario based on a stress to the most recent appraisal, is indicative of a loss severity of nearly 75.0%.

Office is the second-largest property type represented in the pool. DBRS Morningstar has a cautious outlook on this asset type given the anticipated 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 assts in noncore markets and/or with disadvantages in location, building quality, or amenities offered. While the largest two loans secured by office properties in the pool, 555 11th Street NW – Pooled (Prospectus ID#2, 7.9% of the pool) and Discovery Business Center (Prospectus ID#3, 7.4% of the pool) continue to perform in line with expectations, other select loans including International Park (Prospectus ID#10, 3.0% of the current pool balance) and Commerce Green One (Prospectus ID#19, 1.4% of the current pool balance) have exhibited weaker performance than the pool as a whole. To further test the durability of the ratings, DBRS Morningstar’s analysis includes an additional stress ffor select loans, resulting in a weighted-average expected loss (EL) that is nearly four times the pool average EL.

The Class 555A and Class 555B certificates are rake bonds backed by the 555 11th Street NW subordinate B note, which is a $57.0 million loan that is composed of a portion of the $177.0 million whole loan secured by the collateral property, a Class A office building in Washington, D.C. The whole loan comprises a $90.0 million pari passu A note ($60.0 million of which is held in the subject trust and backs the pooled bonds); a $30.0 million senior B note (not held in any CMBS transactions); and a $57.0 million subordinate B note, of which a $30.0 million pari passu portion was contributed to the subject transaction. The subordinate B note is below the senior B note in payment priority. The performance of the underlying collateral has been strong since issuance. As of September 2022, the servicer reported a 97.0% occupancy rate and a whole-loan debt service coverage ratio (DSCR) of 1.48 times (x), in line with the YE2021 figures of 97.0% and 1.80x, respectively. The decline in occupancy was primarily a result of American Cancer Society Cancer Action Network, Inc. (formerly 5.9% of NRA) in October 2021; however, the borrower is actively marketing the space for lease. While there are leases representing 13.7% of the NRA scheduled to expire in the next 12 months, rollover is quite granular. The largest tenant is Latham & Watkins, occupying 58.0% of NRA on a long-term lease through January 2031 with no termination options. DBRS Morningstar expects the loan to continue to exhibit stable performance.

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 and X-B 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.

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/north-american-cmbs-surveillance-methodology.

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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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 v 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)

North American Single-Asset/Single-Borrower Ratings Methodology (February 23, 2023;
https://www.dbrsmorningstar.com/research/410191)

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.