DBRS Morningstar Confirms Ratings on All Classes of Citigroup Commercial Mortgage Trust 2015-GC33, Removes 10 Classes From Under Review With Negative Implications

DBRS Limited (DBRS Morningstar) confirmed the ratings of the Commercial Mortgage Pass-Through Certificates, Series 2015-GC33 issued by Citigroup Commercial Mortgage Trust 2015-GC33 as follows:

-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-AB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class PEZ at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class X-D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class F at B (sf)
-- Class G at B (low) (sf)

With this review, DBRS Morningstar removed all 10 investment-grade-rated bonds from Under Review with Negative Implications, where they were placed on August 6, 2021. In addition, DBRS Morningstar has removed the Interest in Arrears designation on all of the classes. Classes D, X-D, E, F, and G carry Negative trends to reflect the continuing performance challenges for the underlying collateral, many of which have been driven by the impact of the Coronavirus Disease (COVID-19) pandemic. All other trends are Stable.

DBRS Morningstar initially placed the aforementioned classes Under Review with Negative Implications and assigned the Interest in Arrears designation as a result of interest shortfalls stemming from the Hammons Hotel Portfolio (Prospectus ID#2, 10.4% of the current pool balance) loan modification as reported in the July 2021 remittance. However, the servicer subsequently restated the July 2021 remittance, which corrected the interest allocations for the period and removed all of the interest shortfalls aside from those affecting the nonrated Class H. Per the October 2021 remittance, interest shortfalls remain contained to Class H and total approximately $1.1 million.

The Hammons Hotel Portfolio loan is secured by a pari passu interest in a $250.8 million whole loan collateralized by a portfolio of seven hotels, including five full-service, one limited-service, and one extended-stay property. The loan transferred to the special servicer in July 2020 after the borrower requested mortgage relief as a result of the coronavirus pandemic. In June 2021, the loan was brought current in conjunction with a loan modification, which included two one-year maturity extension options through September 2027, a $22.0 million equity infusion from the borrower (with help from an institutional investor), and the conversion to interest-only (IO) payments for the remainder of the term. The conversion to IO was applied retroactively to April 2020, and the payments from April 2020 through December 2020 were deferred with repayment of deferred amounts occurring in one-eighteenth intervals beginning in October 2021.

Based on the trailing six-month financial reporting period ended June 30, 2021, the loan reported an annualized net cash flow (NCF) of $6.1 million, compared with $2.7 million at YE2020 and $29.1 million at YE2019. Historically, most of the hotels’ demand has been driven by meeting and group, and commercial demand; four of the hotels are attached to convention centres and include a leasehold interest in the underlying improvements. Despite operational shortfalls, the individual hotels continue to perform at the top of their respective competitive sets, reporting a weighted-average revenue per available room penetration rate of 112.6% based on the most recent trailing three-month figures available. The portfolio also benefits from a new sponsor after the loan’s former sponsor, John Q Hammons Company, filed for bankruptcy protection in 2018, and the portfolio was later sold out of bankruptcy to the prior owner’s largest creditor, JDHQ Holding LP.

As of the October 2021 remittance, 62 of the original 64 loans remain in the transaction, with an aggregate trust balance of $896.7 million, representing a collateral reduction of 6.4% since issuance. There have been no losses to date, and five loans, representing 7.0% of the pool, are secured by collateral that has been defeased. There is currently only one loan, the Houston Hotel Portfolio (Prospectus ID#15, 1.4% of the pool), in special servicing, which became real estate owned in August 2021. Based on the September 2020 appraisal, the portfolio was valued at $9.9 million, reflecting a 45.6% decline compared with the issuance value of $21.7 million and a loan-to-value ratio of 138.7% based on the total loan exposure as of October 2021. DBRS Morningstar anticipates a loss with the resolution of this loan in excess of 45.0%.

There are currently 22 loans, representing 39.4% of the current pool balance, on the servicer’s watchlist. Nine of these loans (5.7% of the current pool) were added to the watchlist because of non-performance-related items (deferred maintenance, delinquent taxes, etc.), while the remaining 13 loans (33.7% of the current pool balance) are being monitored for performance-related issues, including low debt service coverage ratios (DSCRs), increased vacancy, near-term tenant rollover, and/or pandemic-related hardships.

The largest loan in the pool, Illinois Center (Prospectus ID#1, 10.9% of the current pool balance), is secured by two adjoining Class A office towers totalling 2.1 million square feet in the East Loop submarket of downtown Chicago. This loan was added to the watchlist in September 2021 following a decline in occupancy to 63.1%. Reis data shows that as of Q3 2021, the Eastern Loop submarket had a vacancy rate of 14.7% with an average rental rate of $25.41 per square foot (psf), while the greater market had comparable figures of 19.7% and $24.33 psf, respectively. The subject’s average rental rate was $22.68 psf based on the June 2021 rent roll. Historically, occupancy at the property has been volatile, but has generally hovered above 70.0%, peaking at 77.0% in early 2018. The most notable tenants to vacate during the past couple of years include Young & Rubicam (3.3% of the net rentable area (NRA)) and Silker, Inc (1.6% of the NRA); otherwise, tenant rollover has been fairly granular. Both the General Services Administration (GSA; 8.4% of the NRA, expiring in November 2024) and the Combined Insurance Company Of America (3.2% of the NRA, expiring July 2024) recently extended their leases by three years but downsized by 8,205 sf and 33,068 sf, respectively. In addition, according to various news sources, the GSA has indicated that it will be relocating at the end of their extended expiration.

The loan converted from IO payments in September 2020, placing additional stress on the on the DSCR. As of Q2 2021, the loan reported an NCF of $17.6 million (a DSCR of 1.12 times (x)), compared with $19.0 million (a DSCR of 1.20x) at YE2020 and $23.8 million (a DSCR of 1.50x) at YE2019. Besides the decline in occupancy, a number of tenants also received abatements during the first half of 2020. Although cash flow and occupancy have recently shown signs of stress, the borrower has access to $18.4 million in reserves, including $8.8 million for tenant improvements and leasing costs and $7.5 million in tenant reserves. DBRS Morningstar analyzed the loan with an elevated probability of default given the ongoing leasing struggles; however, the loan remains current. The loan is sponsored by Michael Karfunkel, a principal of AmTrust Realty Corp, which injected $139.9 million equity 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 and X-D 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#1–Illinois Center (10.9% of the pool)
-- Prospectus ID#2–Hammons Hotel Portfolio (10.4% 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 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/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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.

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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