DBRS Morningstar Downgrades Classes of Morgan Stanley Capital I Trust 2015-XLF2

DBRS Limited (DBRS Morningstar) downgraded the ratings of the following Commercial Mortgage Pass-Through Certificates, Series 2015-XLF2 issued by Morgan Stanley Capital I Trust 2015-XLF2 as follows:

-- Class SNMA to CCC (sf) from AA (high) (sf)
-- Class SNMB to C (sf) from A (sf)
-- Class SNMC to C (sf) from BB (sf)
-- Class SNMD to C (sf) from B (low) (sf)

These ratings do not carry a trend. DBRS Morningstar placed interest in arrears designations to Classes SNMA and SNMB and maintained designations on Classes SNMC and SNMD.

The rating downgrades reflect DBRS Morningstar’s increased loss projections for the underlying collateral since assigning the ratings in July 2020. At the time of the July 2020 rating action, the special servicer was in the process of finalizing February 2020 appraisals for the collateral retail portfolio that showed a total as-is value of $165.8 million, down from $345.0 million at issuance. At the time of the July 2020 rating actions, DBRS Morningstar was in possession of drafts of those appraisals, which showed a combined stabilized value of $210.9 million, with the largest contributor of the value difference in the Shops at Willow Bend property, which was valued at $70.0 million on an as-is basis, with a stabilized value of $110.0 million estimated by the appraiser. The Stony Point Fashion Park property’s value was static at $15.0 million on an as-is basis, and the Fairlane Town Center property’s as-is value was estimated at $80.8 million, with a stabilized figure of $85.9 million provided.

More recently, the February 2021 reporting showed new appraisals, dated August 2020, valuing the portfolio at $89.0 million on an as-is basis, with a relatively moderate improvement to $112.8 million on a stabilized basis. All three properties have seen sharp declines in the estimated values compared with the February 2020 appraisals. As of the April 2021 remittance, the trust balance of $135.7 million included the remaining $77.7 million senior note balance, which has paid down from the issuance balance of $103.0 million, and $58.0 million of the $123.0 million junior note. The August 2020 appraisal figures suggest a near 100% loss is likely for the certificates tied to the subordinate junior note (Classes SNMB, SNMC, and SNMD) and there is potential for losses to bleed into the senior note that funds the Class SNMA certificate, supporting the rating downgrades.

At issuance, the transaction was secured by two floating-rate, interest-only loans. One of the loans was secured by a hotel portfolio of seven full-service hotels (Ashford Full Service II Portfolio), and the second loan was secured by a retail portfolio (Starwood National Mall Portfolio) composed of three super-regional malls. The Ashford Full Service II Portfolio loan was repaid in June 2018, and the associated bonds, Classes AFSA, AFSB, AFSC, and AFSD, were retired.

The Starwood National Mall portfolio loan had an initial maturity date in November 2017, with two one-year extension options available, both of which the sponsor exercised. The extension options were subject to principal paydowns and debt yield hurdles, which were successfully met. In January 2020, the servicer granted a forbearance to allow additional time for securing a replacement loan and also continue discussions regarding a potential loan modification if takeout financing could not be secured. The loan ultimately transferred to special servicing in March 2020, where it has remained since. The special servicer reports a receiver is in place at all three properties and a workout strategy is being evaluated, with the servicer’s commentary suggesting a sale of the portfolio through individual property sales has been considered, but nothing firm has been provided to date.

The Shops at Willow Bend represents 48.4% of the allocated loan amount (ALA). The property is in the Dallas suburb of Plano, Texas, and the loan collateral is a 772,000-square-foot (sf) portion of the 1.2 million-sf enclosed super-regional mall. The February 2020 appraisal the special servicer obtained estimated an as-is value of $70.0 million, and that value dropped to $38.0 million with the August 2020 appraisal reported in February 2021. The August 2020 appraisal showed a stabilized value of $50.0 million, still well below the as-is value derived in February 2020, and the value difference between the as-is and stabilized values has shrunk considerably with the August 2020 appraisal. As of the November 2020 rent roll, the collateral was only 65.7% occupied, down from 93.0% in November 2019 and 94.0% in November 2018.

At issuance, the property was anchored by noncollateral Dillard’s, Neiman Marcus, and Macy’s, and there was also a dark anchor space formerly occupied by Saks Fifth Avenue that was part of the collateral. After the loan closed, the Saks Fifth Avenue space was redeveloped at a cost of $125.0 million into additional in-line space and a theatre space that was to be taken by Cinépolis, but that project was ultimately stopped in early 2020 because the sponsor made the decision to cease funding the construction and the tenant pulled out of the agreement to take the space, paying a $1.0 million termination fee. After construction stopped, liens were placed on the property. The largest collateral tenants include Crayola Experience (7.8% of the net rentable area (NRA) with a lease expiry in January 2029), Equinox (4.5% of the NRA; lease expiry in April 2035), and North Texas Performing Arts (3.1% of the NRA; lease expiry in October 2027).

The Fairlane Town Center represents 29.2% of the ALA. The February 2020 appraisal’s as-is value was $80.8 million for this property, which fell to $42.8 million with the August 2020 appraisals reported in February 2021.While the February 2020 valuation suggested minor upside in a stabilized value, the as-is and stabilized values are the same for the property in the August 2020 appraisal. The collateral is a 681,000-sf portion of the 1.4 million-sf enclosed super-regional mall in Dearborn, Michigan. At issuance, the noncollateral anchors included Macy’s, JCPenney, Sears, and a dark Lord & Taylor space. The Sears store was closed in 2018 and has remained closed since. The former Lord & Taylor space was converted to office use, with half of the 240,000-sf development, known as Ford Town Center offices (Ford), serving as collateral for the loan.

As of the November 2020 rent roll, the collateral was 88.2% occupied, up from 78.0% at November 2019 and 75.0% at December 2018. The largest collateral tenants include half of the Ford space (17.3% of the NRA through December 2026), AMC Theatres (14.9% of the NRA through December 2023), and Forever 21 (4.1% of the NRA through January 2023).

The third property, Stony Point Fashion Park, represents 22.4% of the ALA. The loan collateral includes a 385,000-sf portion of a 675,000-sf open-air regional mall in Richmond, Virginia. At issuance, the property was anchored by noncollateral Saks Fifth Avenue and Dillard’s, with a collateral Dick’s Sporting Goods that closed in 2018 and has since remained vacant outside of seasonal tenants signed for short-term leases. As of the December 2020 rent roll, the collateral is only 44.0% occupied, down from 81.0% in November 2019 and 93.0% in December 2018. This property had an as-is and stabilized value of $15.0 million with the February 2020 appraisal, and the August 2020 appraisal reported in February 2021 showed an as-is value decline to $8.3 million. The August 2020 appraisal projected a stabilized value of $20.0 million for this property.

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.

All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

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

The principal methodology is 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.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

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 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.

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