DBRS Confirms All Classes of WFRBS Commercial Mortgage Trust 2014-C25 with Stable Trends

DBRS, Inc. (DBRS) has today confirmed the ratings for all classes of Commercial Mortgage Pass-Through Certificates, Series 2014-C25 (the Certificates) issued by WFRBS Commercial Mortgage Trust 2014-C25. The ratings are listed below; all trends are Stable.

-- 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-5 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-S 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 B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class PEX at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (sf)
-- Class F at B (sf)

Classes X-C, X-D, X-E, D, E and F have been privately placed pursuant to Rule 144A.

Up to the full certificate balance of the Class A-S, Class B and Class C certificates may be exchanged for Class PEX certificates. Class PEX certificates may be exchanged for up to the full certificate balance of the Class A-S, Class B and Class C certificates.

This transaction closed on December 12, 2014, and is comprised of 59 fixed-rate loans secured by 73 commercial properties. The property type with the largest concentration in the pool is multifamily, with 32.5% of the pool balance, followed by retail with 31.0% and office with 11.5%. Approximately 53% of the pool is found in five states (Florida, Texas, Colorado, Ohio and Missouri). There are three loans (23.8% of the pool) with pari passu debt: Prospectus ID#1, St. John’s Town Center; Prospectus ID#2, Colorado Mills; and Prospectus ID#29, AMCP Portfolio. There are four loans (20.5% of the pool) with full interest-only (IO) structures and an additional 27 loans (52.0% of the pool) have partial IO structures.

The rating confirmations reflect the current performance for the pool, which is stable from issuance with cash flows generally in line with the DBRS underwritten levels. As of the November 2015 remittance report, the in-place weighted-average debt service coverage ratio (DSCR) for the pool was 1.92 times (x), with a weighted-average debt yield of 10.4%. All 59 loans remain in the pool, with collateral reduction of 0.40% since issuance. Given the late 2014 closing date, the YE2014 reporting for the pool is limited (just three loans, representing 24.4% of the pool), but 2015 reporting was available (primarily for Q2 2015) for 56 loans representing 91.6% of the pool. For the 11 loans reporting 2015 financials in the top 13, the weighted-average amortizing DSCR was 1.86x, with a weighted-average net cash flow (NCF) growth from the respective DBRS underwritten (UW) figures of 6.0%.

There are five loans in the top 13 showing negative NCF growth from the DBRS UW figures (as based on the most recent NCF figure reported for each respective property by the servicer), with a range of -2.16% to -17.75%. Of those six loans, three are secured by hotels, and as such, those Q2 2015 figures include seasonality factors that are likely depressing the NCF figure on an annualized basis. For the other two loans (both secured by apartment complexes located in Ohio and owned by the same sponsor) with negative cash flow growth from the DBRS UW figures, the drivers appear to be in expense increases on an annualized basis with stable occupancy rates as of the most recent reporting.

There are no loans on the servicer’s watchlist or in special servicing as of the November 2015 remittance.

The two largest loans in the pool, Prospectus ID#1, St. John’s Town Center, and Prospectus ID#2, Colorado Mills, each individually represent 11.46% of the overall pool balance.

Prospectus ID#1, St. John’s Town Center, is secured by a 14 million square foot (sf) mall located in Jacksonville, Florida. Collateral anchors include Dick’s Sporting Goods, Jo-Ann Fabric and Craft Store and Nordstrom and non-collateral anchors include Dillard’s, Target and Ashley Furniture HomeStore. The mall offers a mixed tenant roster that serves both every day and higher-end shoppers and is considered the pre-eminent shopping destination within Jacksonville. The loan is structured with a full IO term and the trust pieces represent $100 million of a $350 million whole loan that includes $146.5 million in subordinate B note debt. The September 30, 2015, NCF figure implies an in-place DSCR of 4.15x on the A note debt and an amortizing DSCR (as calculated by DBRS) of 2.41x with occupancy of 97% and debt yield of 9.34% on the whole loan balance. The September 30, 2015, annualized NCF figure represents an improvement of +19.3% over the DBRS UW figure. As of the October 2015 trailing 12 months (T-12) tenant sales report provided, reporting tenants representing less than 10,000 sf had average sales of $625 per square foot (psf; +2.58% year over year) and tenants greater than 10,000 sf showed sales of $598 psf, up 1.59% year over year.

Local news outlets report two parcels nearby are slated for development in the near term that would add additional retail to the area as well as a new hotel, office and multifamily development. A Hobby Lobby is under construction across the street from the subject property, as well. Although these developments could compete with existing tenants with St. John’s Town Center, it is likely that the impact would be minimal as the subject is considered a pre-eminent shopping destination for the Jacksonville MSA. As such, the new development would likely be complementary, benefiting the subject with increased visibility and shopper traffic in the area.

Prospectus ID#2, Colorado Mills, is secured by a 1.1 million sf mall located in Lakewood, Colorado, a Denver suburb. This is a typical “Mills” development with a mix of regular and outlet space tenants, as well as some non-traditional tenants, such as Jumpstreet (an indoor trampoline park) and Putting Edge (an indoor putting green park). As of the June 30, 2015, reporting period, the in-place DSCR on the IO debt service obligation, which lasts through the first three years of the loan term, was 2.68x, with the overall occupancy at 89%. Based on the DBRS amortizing scenario, the DSCR would be 1.98x. The June 30, 2015, annualized NCF figure represents a 9.22% increase over the DBRS UW NCF figure. As of the T-12 sales report for October 2015, tenants with less than 10,000 sf averaged sales of $361 psf (+5.2% year over year) and tenants greater than 10,000 sf averaged $165 psf (+1.2% year over year). United Artists averaged $364,875/screen, up 6.2% over the previous T-12, according to the report.

At issuance, DBRS noted the lack of sit-down dining options at the property, citing a lack of parking as a driver. According to news reports, Red Robin and Racca’s Pizzeria Napoletana (Racca’s) have signed at the property since issuance — Red Robin opened in November and Racca’s is scheduled to open in early 2016. DBRS also noted plans by the loan’s sponsor, Simon Malls, to construct an outlet mall approximately 25 miles north of the subject property. News outlets report that the sponsor has secured tax incentives for developing that mall and construction is to begin in the near term, with an opening expected in late 2017. DBRS believes the impact to the subject will be minimal, as the new mall would be located much farther out than the existing infrastructure and shopper base.

For more information on these rating actions, please contact us at info@dbrs.com.

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

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.