DBRS Confirms Ratings on COMM 2014-CCRE20 Commercial Mortgage Trust

DBRS Limited (DBRS) has today confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2014-CCRE20 issued by COMM 2014-CCRE20 Commercial Mortgage Trust as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-M at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)
-- Class X-C at AAA (sf)
-- Class X-D at AAA (sf)
-- Class X-E at AAA (sf)
-- Class X-F at AAA (sf)
-- Class X-G at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (low) (sf)
-- Class PEZ at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class F at B (high) (sf)
-- Class G at B (low) (sf)

All trends are Stable. DBRS does not rate the first loss piece, Class H. The Class PEZ certificates are exchangeable with the Class A-M, Class B and Class C certificates (and vice versa).

The rating confirmations reflect that the transaction’s current performance remains in line with expectations since issuance in October 2014. The collateral consists of 64 fixed-rate loans secured by 101 commercial properties. As of September 2015 remittance, the pool had an aggregate outstanding balance of approximately $1,174 million, representing a collateral reduction of 0.7% since issuance because of scheduled loan amortization. The pool benefits from a high concentration of loans secured by properties in urban (44.2% of the current pool) and suburban (33.8% of the current pool) markets. The pool also has a concentration of hotel properties as ten loans, representing 28.3% of the current pool balance, are secured by hotels. As of September 2015 remittance, there are no loans in special servicing or on the servicer’s watchlist. The two loans highlighted below, however, have recently seen a decline in performance.

The 80–90 Maiden Lane loan (Prospectus ID#6, 4.7% of the current pool) is secured by two adjacent mixed-use office properties located in the financial district of Manhattan which, together, comprise 524,064 square feet (sf). Originally constructed in 1921, 80 Maiden Lane is a 25-story office building (524,292 sf), whereas 90 Maiden Lane is a four-story office building constructed originally in 1810 (27,772 sf). Both buildings were renovated most recently in 2004. According to Q2 2015 reporting, the loan had an annualized debt service coverage ratio (DSCR) of 1.03 times (x) compared with the DBRS UW DSCR of 1.54x. Financial performance has declined as a result of a decrease in effective gross income (EGI) and an increase in total operating expenses, which have seen a 16.2% increase since issuance as a result of increased costs associated with utilities (up 36%), repairs and maintenance (up 21%) as well as payroll and benefits (up 86%). Additionally, the servicer has reported a number of non-reoccurring expenses totaling approximately $140,000. According to the June 2015 rent roll, the properties were 90.6% occupied with an average rental rate of $31.62 per sf (psf) compared with $31.18 psf at issuance. Tenancy across the two buildings is composed of high-quality occupants across diverse industries. The largest three tenants, the New York City Department of Investigation (19.5% of the net rentable area (NRA)), the New York State Office of Children and Family Services (8.3% of the NRA) and United Cerebral Palsy of New York (5.5% of the NRA) are all long-time tenants, with expirations dates of July 2025, December 2015 and August 2023.

The DoubleTree Beachwood loan (Prospectus ID#12, 2.38% of the pool) is secured by a 404-key full-service hotel located in Beachwood, Ohio, approximately ten miles east of downtown Cleveland. The property is situated in the Chagrin Corridor office submarket, which allows the property to benefit from a number of large commercial contracts, including the Eaton Corporation Plc, Philips Electronics North America Corporation, Nestlé S.A., Rockwell Automation, Inc., RPM International Inc. and Cleveland Clinic. In comparison with its competitive set, the property offers the most amenities and an abundance of meeting space. In March 2013, the borrower converted the property from a Hilton Hotel to a DoubleTree by Hilton. As a result, the property has undergone renovations to the lobby, business center and restaurant to meet the new flag’s brand standards. The ongoing renovations and the opening of two new hotels in the area, the Hotel Indigo Cleveland-Beachwood and the Aloft Beachwood, have had a negative impact on the subject’s performance. As of the trailing 12 months ending March 31, 2015, the hotel was 59.4% occupied with an average daily rate of $101.31 and a revenue per available room of $60.15 compared with its competitive set’s figures of 68.2%, $118.41 and $80.80, respectively. Since issuance, the EGI has seen a 10.0% decline as a result of a decrease in rooms revenue (down 8.6%) as well as food and beverage revenue (down 14.1%). As a result, the Q2 2015 annualized DSCR has decreased to 0.73x compared with the DBRS UW figure of 1.18x; nonetheless, the borrower continues to convert and upgrade the property. At issuance, the borrower had noted the intention of investing another $850,000 of capital improvements into the property prior to 2017. As of September 2014, the hotel opened its new Sanctuary Restaurant + Wine Bar Beachwood. Although the subject is now better equipped to capture market share with the new renovations, property performance may not rebound as quickly as expected by the borrower given the new competitive supply.

DBRS continues to monitor this transaction in its Monthly CMBS Surveillance Report, with additional information on the DBRS viewpoint for this transaction, including details on the largest loans in the pool and loans on the servicer’s watchlist. The September 2015 Monthly CMBS Surveillance Report for this transaction will be published shortly. If you are interested in receiving this report, contact us at info@dbrs.com.

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

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 to the right under Related Research or by contacting us at info@dbrs.com.

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

The applicable methodologies are North American CMBS Rating Methodology (June 2015) and CMBS North American Surveillance (January 2015), which can be found on our website under Methodologies.

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