DBRS Morningstar Confirms Ratings on Citigroup Commercial Mortgage Trust 2015-GC33

DBRS Limited (DBRS Morningstar) confirmed the ratings on all classes 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)

All trends are Stable.

The rating confirmations and Stable trends reflect the overall performance of the transaction, which remains in line with DBRS Morningstar’s expectations since the last rating action. Per the June 2023 remittance, 60 of the original 64 loans remain in the pool, representing a collateral reduction of 10.7% since issuance. Since the last rating action in November 2022, five loans have been fully defeased, bringing the total defeased collateral to 15.1% of the pool. Nineteen loans (37.5% of the pool) are on the servicer’s watchlist, including one loan that is delinquent but not in special servicing. Most watchlist loans are being monitored for low debt service coverage ratios (DSCR), low occupancy, and deferred maintenance items. The single loan in special servicing, Hyatt Place Rogers (Prospectus ID#43; 0.7% of the pool), was also in special servicing at the time of the last rating action. For this review, DBRS Morningstar maintained the liquidation scenario, resulting in a nominal loss that is contained to the nonrated Class H Certificate.

The three largest property type concentrations for non-defeased loans are office (28.7% of the pool) and lodging (20.3% of the pool). In general, the office sector has been challenged, given the low investor appetite for the property type and high vacancy rates in many submarkets as a result of the shift in workplace dynamics. DBRS Morningstar identified two loans backed by office properties whose performance is suggestive of increased credit risk since issuance and further stressed these loans in its analysis, as described below. DBRS Morningstar identified seven loans backed by office properties, representing 28.7% of the pool exhibiting performance suggesting increased credit risks from issuance, and further stressed these loans in its analysis, which resulted in a weighted-average (WA) expected loss that was 99.7% greater than the pool average.

The largest loan in the pool, Illinois Center (Prospectus ID#1, 11.1% of the pool), is secured by two Class A office towers in downtown Chicago. The loan was added to the servicer’s watchlist in September 2021 for performance declines resulting from the Coronavirus Disease (COVID-19) pandemic. Occupancy dropped to 67% as of YE2020 following the departure or downsizing of several tenants, including McGann, Ketterman & Rioux, and Bankers Life and Casualty Company. As of March 2023, occupancy declined further to 63.5%. Per the March 2023 rent roll, more than 15 tenant leases representing 20.4% of the net rentable area (NRA) are scheduled to expire by June 2024, including the two largest tenants, U.S. General Services Administration – Department of Health and Human Services (8.1% of NRA; expiration in November 2023) and Bankers Life and Casualty Company (6.4% of NRA; expiration in August 2023). According to an April 2022 article posted by The Real Deal, the parent company of Bankers Life and Casualty Company signed a lease at 303 East Wacker Drive. It is expected that the tenant will not review its lease at the subject property.

In an effort to lease-up the property, the borrower is reportedly planning to renovate and/or improve the interior amenities and exterior of the conference center. DBRS Morningstar has requested the renovation plans, but the servicer’s response is pending as of the date of this press release. Per Reis, in Q1 2023, the East Loop submarket reported an average vacancy and rental rate of 14.3% and $25.39 per square foot (psf), respectively, compared with the subject’s in-place rates of 36.5% and $24.53 psf, respectively. Cash flow has also been in year-over-year decline. The YE2022 net cash flow (NCF) was reported to be $15.9 million, down from $16.0 million at YE2021 and $19.0 million at YE2020. Given the high vacancy, elevated rollover risk and declined cash flow performance, DBRS Morningstar’s analysis includes a stressed loan-to-value ratio and probability of default, resulting in an expected loss that is double the pool’s average.

The Decoration and Design Building (Prospectus ID#3, 7.3% of the pool), is secured by the leasehold interest in an 18-story office building that is mainly used as a showroom in Midtown Manhattan, New York. The loan was placed on the watchlist in May 2023 for low occupancy after several tenants vacated the property and is past due for the April and May 2023 debt service payments. The property was 66.1% occupied as of January 2023, down from 77.1% at YE2021, 83.0% at YE2020, and 94.8% at issuance. NCF has also declined and was reported to be $15.7 million for YE2022, down from $17.3 million in YE2021 and the Issuer’s NCF of $22.1 million. While the January 2023 rent roll listed nine tenant leases (totaling 1.6% of the NRA) scheduled to commence this year, more than 20 tenants (totaling 10.3% of the NRA) have leases that are scheduled to expire by June 2024. The property is also subject to a noncollateral ground lease that had an initial expiration in December 2023, with two renewal options that extend the maturity to December 2063. As noted at issuance, per the land’s issuance appraisal, without accounting for inflation, ground rent is likely to reset to an estimated $13.8 million in January 2024 in comparison to the initial fixed rate of $3.8 million. Upon request, the servicer confirmed the ground lease has been extended for another 25 years; however, the new ground rent amount remains unknown. DBRS Morningstar expects that performance is likely to decline, given the concentrated rollover risk and potential increase in ground rent. As such, DBRS Morningstar increased the probability of default adjustment and applied an elevated stress to the loan’s loan-to-value ratio to increase the expected loss.

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-D 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.

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).

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.

DBRS Limited
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Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

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 (March 16, 2023)/North American CMBS Insight Model v 1.1.0.0 (https://www.dbrsmorningstar.com/research/410913)

Rating North American CMBS Interest-Only Certificates (December 19, 2022; https://www.dbrsmorningstar.com/research/407577)

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 (June 9, 2023; https://www.dbrsmorningstar.com/research/415687)

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.