DBRS Morningstar Confirms Ratings on All Classes of COMM 2015-PC1 Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2015-PC1 issued by COMM 2015-PC1 Mortgage Trust as follows:

-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-M at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class X-B at A (sf)
-- Class C at A (low) (sf)
-- Class X-C at BBB (sf)
-- Class D at BBB (low) (sf)
-- Class X-D at BB (sf)
-- Class E at BB (low) (sf)
-- Class F at CCC (sf)

All classes have Stable trends, with the exception of Class F as the rating assigned to this class does not typically carry a trend in commercial mortgaged-backed securities (CMBS) ratings.

The rating confirmations reflect the overall stable performance of the transaction, which remains in line with DBRS Morningstar’s expectations. The CCC (sf) rating on Class F initially reflected the large volume of specially serviced loans in 2021 and the propensity for interest shortfalls to affect that tranche. Since then, outstanding shortfalls were repaid for Class F, and specially serviced loans now represent 5.5% of the pool balance based on the June 2023 remittance report. However, the transaction has a large concentration of loans backed by office properties, representing 34.2% of the pool balance, and generally the office sector has been challenged given the low investor appetite for the property type and high vacancy rates in many submarkets because of the shift in workplace dynamics. In the analysis for this review, loans backed by office and other properties that were showing declines from issuance or otherwise exhibiting increased risks from issuance were analyzed with a stressed scenario to increase the expected loss as applicable. As a result, the weighted-average expected loss for the office loans was about 40% greater than the pool’s average expected loss. Given the office concentration along with several loans of concern that are highlighted below, this supports the CCC (sf) rating on Class F.

As of the June 2023 remittance, 67 of the original 80 loans remained in the pool with a current trust balance of approximately $1.0 billion, representing a collateral reduction of 28.3% since issuance. Fourteen loans, representing 17.5% of the current pool balance, are fully defeased. Eleven loans, representing 19.3% of the pool, are on the servicer’s watchlist, six of which were flagged for low debt service coverage ratios (DSCRs) and/or performance-related issues. Four loans, representing 5.5% of the current pool balance, are in special servicing.

The largest office loan on the servicer’s watchlist, 760 & 800 Westchester Avenue (Prospectus ID#7, 3.0% of the pool), is composed of two Class A office buildings in Rye Brook, New York. The pari passu loan has pieces secured in the Wells Fargo Commercial Mortgage Trust 2015-NXS1 (rated by DBRS Morningstar) and COMM 2015-DC1 transactions.

The loan is structured with a five-year interest-only (IO) period that extended to 2019 and is currently amortizing. The loan is on the servicer’s watchlist because of a low DSCR, with the YE2022 figure at 0.93 times (x) compared with the YE2021 DSCR of 1.03x, YE2020 DSCR of 1.25x, and DBRS Morningstar DSCR of 1.16x. The decline in net cash flow was driven by a decrease in the base rental revenue and expense reimbursements despite occupancy having been relatively stable, hovering near the mid- to high 80% range.

According to the December 2022 rent roll, the property was 86.5% occupied with an average rental rate of $25.92 per square feet (psf), compared with the YE2021 occupancy rate of 86.5% and YE2020 occupancy rate of 88.4%. Per Reis, office properties in the Harrison Rye East submarket reported a Q1 2023 vacancy rate of 23.8% with an effective rental rate of $23.39 psf, compared with the Q1 2020 vacancy rate of 19.9% and effective rental rate of $22.27 psf. Aside from the decrease in revenue, the property exhibited an increase in expenses. Given the decline in financial performance and soft submarket conditions, DBRS Morningstar applied a stressed loan-to-value ratio (LTV) and a probability of default (POD) penalty in its analysis, resulting in an expected loss that is around 60% greater than the pool average.

The 100 Pearl Street loan (Prospectus ID#11, 2.6% of the pool) is secured by a Class A office property in Hartford, Connecticut, located in the central business district (CBD). The loan is on the watchlist because of a low DSCR and occupancy. A modification was executed in August 2019 to convert the loan to IO and provide a discounted payoff (DPO) option, which expires in July 2023. Occupancy has dropped significantly in the last few years, with the December 2022 rent roll reporting an occupancy rate of 67.1% compared with the YE2021 occupancy rate of 78.8% and issuance occupancy rate of 99.5%.

The largest tenants include Hartford Health (29.8% of the NRA, lease expiry in January 2036) and Regus (5.7% of the NRA, lease expiry in February 2032). Per the Q1 2023 Reis report, the Hartford CBD submarket reported a vacancy rate of 25.5%, compared with the Q1 2022 vacancy rate of 19.0%. Based on the financials for the trailing 12-month (T-12) period ended December 31, 2022, the property reported a DSCR of 0.94x, down from the YE2021 DSCR of 1.56x and DBRS Morningstar DSCR of 1.17x. Given the soft submarket, sustained low performance, and the availability of a DPO, DBRS Morningstar applied a stressed LTV and a POD penalty in its analysis, resulting in an expected loss that was six times greater than the pool average.

The largest loan in special servicing, Sentinel Hotel (Prospectus ID#8, 2.6% of the pool), is secured by a 100-key, full-service luxury hotel in downtown Portland, Oregon. The loan transferred to special servicing in June 2020 for imminent default. Per the latest servicer commentary, the lender consented to the borrower's equity transfer request and property manager change and expects to return the loan to the master servicer. According to the March 2023 STR report, the occupancy rate, average daily rate, and revenue per available room for the T-12 period were reported at 49.1%, $214.77, and $105.47, respectively, an improvement over the YE2021 figures of 38.8%, $221.99, and $86.08, respectively. The DSCR for the T-12 period ended December 31, 2022, was reported to be 0.62x, down from the YE2021 DSCR of 0.89x and DBRS Morningstar DSCR of 1.69x, indicating declines in performance prior to the Coronavirus Disease (COVID-19) pandemic. An April 2023 appraisal valued the property at $43.0 million, less than the October 2022 appraised value of $45.0 million but above the issuance appraised value of $36.5 million. With this review, DBRS Morningstar analyzed the loan with an elevated POD 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/416784 (July 4, 2023).

Classes X-A, X-B, X-C, 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 credit ratings are subject to surveillance, which could result in credit 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 credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit 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 credit rating action.

This is a solicited credit rating.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS Morningstar Long-Term Obligation Rating Scale definition indicates that credit 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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The credit 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/North American CMBS Insight Model Version 1.1.0.0 (March 16, 2023) https://www.dbrsmorningstar.com/research/410913

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

Legal Criteria for U.S. Structured Finance (December 7, 2022) https://www.dbrsmorningstar.com/research/407008

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

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.