DBRS Morningstar Confirms All Ratings on Morgan Stanley Capital I Trust 2015-MS1

DBRS Limited (DBRS Morningstar) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2015-MS1 issued by Morgan Stanley Capital I Trust 2015-MS1 as follows:

-- Class A-2 at AAA (sf)
-- 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 B at AA (sf)
-- Class C at A (high) (sf)
-- Class PST at A (high) (sf)
-- Class D at BBB (sf)
-- Class E at BB (high) (sf)
-- Class F at B (high) (sf)

All trends are Stable.

The performance of the transaction remains in line with DBRS Morningstar’s expectations; however, select loans are showing increased risk from issuance, as further detailed below. In addition to factors at the loan level, these risks are mitigated by the increased credit support for the bonds, a result of paydowns since issuance. At issuance, the transaction consisted of 54 fixed-rate loans secured by 59 commercial and multifamily properties, with a trust balance of $885.4 million. According to the January 2022 remittance report, all 54 loans remain within the transaction, with no losses to date. There has been a collateral reduction of 5.2% since issuance, lowering the trust balance to $839.7 million. Defeasance has been minimal, with six small loans, representing 3.5% of the pool, defeased since issuance.

According to the January 2022 remittance report, two loans, representing 6.6% of the pool, are in special servicing and 17 loans, representing 29.7% of the current trust balance, are on the servicer’s watchlist. DBRS Morningstar notes the servicer also reports that two small defeased loans are on the watchlist; however, this is expected to be adjusted with the next remittance report. The watchlist is concentrated with loans backed by retail and hotel property types, a common theme given the ongoing impacts of the Coronavirus Disease (COVID-19) pandemic. Likewise, the transaction is concentrated with loans backed by retail property types, which represent approximately 40.0% of the pool.

The largest loan on the servicer’s watchlist, Waterfront at Port Chester (Prospectus ID#4; 6.4% of the pool), is secured by a 350,000 square-foot (sf) anchored retail property in Port Chester, New York, located within a block of the Metro-North Railroad Port Chester Station. The loan has reported delinquent payments for various periods since June 2020, with the borrower advising that tenants had fallen behind on rents and shortfalls were not able to be funded. The loan was previously in special servicing until the servicer approved a loan modification to allow for reserves to be used to pay debt service. The loan was returned to the master servicer in August 2021, but continues to report more than 90 days delinquent, with outstanding advances of more than $500,000 as of the January 2022 remittance. DBRS Morningstar has requested clarification from the servicer on the payment status for the loan and the servicer’s response is pending.

According to the Q1 2021 reporting, the property was 95% occupied, in line with issuance; however, the debt service coverage ratio (DSCR) was 1.19 times (x) for the period, down from 1.62x at YE2020. News reports in January 2022 confirmed the property’s Bed Bath & Beyond store, which represents 6.4% of the net rentable area (NRA), will be closing, suggesting the physical occupancy rate will fall to approximately 88% in the near future. The largest collateral tenant, Super Stop & Shop (20.1% of the NRA, lease expires in August 2030), recently completed a significant renovation of its store in the summer of 2021, which expanded produce and deli offerings, added curbside pickup stations and self-checkout lanes, as well as additional upgrades and improvements. Other tenants include AMC Theatres (20% of the NRA, lease expires in December 2030), Marshalls, and Crunch Fitness. Costco Wholesale is a non-collateral shadow anchor. The extended delinquency and tenant payment issues suggest increased risks for this loan from issuance. However, DBRS Morningstar notes the subject property is well located with proximity to a significant amount of recent or planned development along the riverfront in Port Chester, with popular national retailers and a grocery anchor that should benefit as pandemic-related restrictions continue to ease and commuter traffic improves.

The largest specially serviced loan, Hilton Garden Inn (Prospectus ID#8; 4.7% of the pool), is part of a pari passu whole loan secured by a 401-room select-service hotel in Midtown Manhattan. The loan transferred to special servicing in June 2020 for payment default. According to the January 2022 remittance report, the loan is current. The special servicer reports ongoing discussions regarding a proposed loan modification, but also notes that a foreclosure option is being tracked, should those negotiations deteriorate. The servicer previously allowed funds from an excess cash reserve to be used for debt service payments, but that reserve was depleted as of early 2021. The loan was reported as many as 60 days delinquent in the first half of 2021, but has been reported as current or less than 30 days delinquent since July 2021. Although the pandemic has been the most significant contributor to recent cash flow declines, it is noteworthy that the property has underperformed since 2019 when the year end DSCR was reported at 1.68x. Cash flows amid the pandemic have been well below breakeven and DBRS Morningstar believes an updated appraisal would likely show a value decline from issuance. The issuance value of $251.0 million results in a loan-to-value ratio of 61.8%, providing some cushion in that scenario. At September 2021, the property was reportedly 73% occupied, suggesting that traffic has begun to rebound, a factor that could incentivize the sponsor to continue negotiating with the special servicer and keep the loan current.

At issuance, DBRS Morningstar shadow rated three loans, 32 Old Slip Fee (Prospectus ID#3; 7.1% of the pool), 841-853 Broadway (Prospectus ID#6; 5.9% of the pool) and Alderwood Mall (Prospectus ID#5; 4.9% of the pool) as investment grade, supported by the loans’ strong credit metrics, strong sponsorship strength, and historically stable collateral performance. With this review, DBRS Morningstar confirms that the characteristics of these loans remain consistent with the investment-grade shadow rating.

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.

Class X-A is an interest-only (IO) certificate that references 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#4 – Waterfront at Port Chester (6.4% 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.

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.

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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