DBRS Confirms Ratings on LSTAR Commercial Mortgage Trust 2014-2

DBRS, Inc. (DBRS) has today confirmed the ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2014-2 (the Certificates) issued by LSTAR Commercial Mortgage Trust 2014-2:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (high) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (sf)
-- Class G at B (sf)

All trends are Stable. DBRS does not rate the first loss piece, Class H.

The rating confirmations reflect the current performance of the transaction since issuance in May 2014. Since issuance, the transaction has experienced collateral reduction of 17.9% as a result of unexpected loan prepayments, as 40 of the original 208 loans have paid out of the trust ahead of their respective maturity dates. According to the most recent reporting, the remaining loans in the pool have a weighted-average (WA) debt service coverage ratio (DSCR) and WA debt yield of 1.46 times (x) and 11.3%, respectively. The transaction is concentrated, as the largest four loans represent 48.8% of the current pool balance. According to YE2014 reporting, these loans have a WA DSCR and WA debt yield of 1.43x and 8.3%, respectively.

Of the remaining 168 loans in the transaction, the four largest were originated at issuance, with the remaining 164 loans being seasoned loans that were purchased by the loan seller from Fannie Mae or originally were part of the now retired LASL 2006-MF2 and LASL 2006-MF3 CMBS transactions. The four recently originated loans are secured by five properties, including an office a student housing property and three hotels, while the seasoned loans are secured by multifamily and MHC properties. The seasoned loans are granular within the transaction, as the largest seasoned loan represents 1.6% of the current pool balance. Of the remaining seasoned loans, 156 loans, representing 49.5% of the current pool balance, are fully amortizing.

As of the April 2015 remittance, there are two loans in special servicing, representing 0.6% of the balance; however, one loan is being returned to the master servicer, and the other will be liquidated from the trust after the court approved the borrower’s motion to sell its property for proceeds in excess of the current total loan exposure. There are no loans on the servicer’s watchlist. The third-largest loan in the transaction is highlighted below.

The Waramaug Hotel Portfolio loan (8.8% of the current pool balance) is secured by the 257-key Hilton Phoenix Airport (Hilton) and the 215-key Crowne Plaza Columbus (Crowne). The Hilton asset represents 72.4% of the allocated portfolio loan balance, and the Crowne asset represents the remaining 27.6%. The Hilton asset is located 1.5 miles southwest of the Phoenix Sky Harbor International Airport and was originally built in 1989. Throughout 2014, the subject underwent a $7.1 million Property Improvement Plan (PIP) renovation, which included new hard and soft goods to all guest rooms, a new lobby and common areas and exterior improvements. Amenities include two restaurants, a bar, an outdoor pool, a fitness center, 9,500 square feet of meeting space and a 56-seat amphitheater. According to YE2014 reporting, the hotel had a DSCR of 1.44x and an occupancy rate, average daily rate (ADR) and revenue per available room (RevPAR) of 73%, $119 and $87, respectively. Operating performance is expected to improve now that renovations are complete.

The Crowne asset was originally built in 1980 and is located within the Metro Place Office Park, approximately 15 miles northwest of the Columbus, Ohio, CBD. The subject also underwent a PIP throughout 2014, totaling $6.0 million. Renovations also included new hard and soft goods to all guest rooms, a new lobby and common areas and exterior improvements. Amenities include a restaurant and bar, an indoor pool, a fitness center and 11,700 square feet of meeting space. According to YE2014 reporting, the hotel reported a DSCR of -0.18x and had an occupancy rate, ADR and RevPAR of 42%, $99 and $42, respectively. In comparison, the subject’s competitive set reported occupancy of 67.5% and ADR of $114. While occupancy was expected to decline during the PIP project, hotel management had only expected occupancy to decrease to 50%. Hotel management’s strategy to improve occupancy centers on its ability to generate new corporate contracts, given the subject’s location within the Metro Place Office Park. According to CoStar, office buildings in the immediate area report an elevated availability of 22.2%; however, this is a decrease from the 29.5% availability rate in May 2014. Major corporations in the larger area include Nationwide Insurance, Wendy’s International, Honda and Cardinal Health. The combined YE2014 DSCR for the portfolio was 0.99x.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodologies are North American CMBS Rating Methodology and CMBS North American Surveillance, which can be found on our website under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

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