DBRS Morningstar Downgrades Ratings on Four Classes of Citigroup Commercial Mortgage Trust 2015-GC27

DBRS, Inc. (DBRS Morningstar) downgraded its ratings on four classes of Commercial Mortgage Pass-Through Certificates, Series 2015-GC27 issued by Citigroup Commercial Mortgage Trust 2015-GC27 as follows:

-- Class X-E to B (high) (sf) from BB (low) (sf)
-- Class E to B (sf) from B (high) (sf)
-- Class F to CCC (sf) from B (low) (sf)
-- Class G to C (sf) from CCC (sf)

DBRS Morningstar also confirmed its ratings on the following classes as follows:

-- Class A-4 at AAA (sf)
-- Class A-5 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 (sf)
-- Class X-B at A (sf)
-- Class C at A (low) (sf)
-- Class PEZ at A (low) (sf)
-- Class D at BBB (low) (sf)

The trend for Class D was changed to Negative from Stable and Class F no longer carries a trend given the distressed rating. Negative trends were maintained for Classes E and X-E. All other trends are Stable.

DBRS Morningstar downgraded five classes of this transaction in March 2021 based on loss projections for two specially serviced loans. (For additional information on those rating actions, please see the press release dated March 11, 2021.) The downgrades as of this review and Negative trends are based on increased loss projections for the pool, primarily driven by the Highland Square (Prospectus ID#5 – 3.6% of the trust balance) and Centralia Outlets (Prospectus ID#8 – 2.8% of the trust balance) loans. As of the January 2022 remittance, four loans, totaling 12.0% of the trust balance, are in special servicing.

Highland Square is the largest contributor to DBRS Morningstar’s expected losses for the pool and the second-largest specially serviced loan. It is secured by a 753-bed student housing complex in Oxford, Mississippi, located approximately two miles northeast from the main campus of the University of Mississippi. Since issuance, new competitive properties that are closer to campus have been delivered, which significantly affected the subject’s performance. The property became real estate owned in October 2019. A December 2021 rent roll noted the property was 54.3% occupied with an average of $459 per bed, compared with the issuance figures of 94.8% and $593 per bed, respectively. Special-servicer commentary dated January 2022 noted the collateral was 12% pre-leased for the upcoming 2022/2023 academic year. The asset is being marketed for sale. DBRS Morningstar expects the resulting loss severity will exceed 70.0% as the appraised value is well below the loan exposure and buyer interest is likely to be limited.

The second-largest contributor to expected pool losses and the third-largest specially serviced loan is Centralia Outlets, which is secured by the fee interest in an anchored outlet mall located in Centralia, Washington, approximately 85 miles southwest of Seattle. The loan transferred to the special servicer in July 2020 for monetary default as a result of cash flow disruptions resulting from the Coronavirus Disease (COVID-19) pandemic. The property lost its largest tenant, VF Outlet, in January 2021 at lease expiration, and DBRS Morningstar expects that co-tenancy clauses were triggered at that time. The July 2021 appraisal indicated a property value of $20.3 million, well below the $47.0 million appraised value at issuance. The sponsor has a history of loan defaults and bankruptcy, including a voluntary bankruptcy filing in September 2010. DBRS Morningstar’s analysis included a liquidation scenario for this loan, resulting in an implied loss severity in excess of 50.0%.

At issuance, the pool comprised 100 fixed-rate loans secured by 116 commercial properties with a trust balance of $1.19 billion. According to the January 2022 remittance, 92 loans secured by 101 commercial properties remain in the pool with a trust balance of $1.03 billion, representing a 13.7% collateral reduction since issuance. Since the last rating action, one loan was liquidated from the trust with a better than expected recovery.

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, X-B, 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.

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:

-- Prospectus ID#3 – Northeastern Hotel Portfolio (4.9% of the pool)
-- Prospectus ID#5 – Highland Square (3.6% of the pool)
-- Prospectus ID#8 – Centralia Outlets (2.8% 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 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.

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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