DBRS Confirms Ratings of JPMBB Commercial Mortgage Securities Trust 2014-C26, Stable Trends

DBRS Limited (DBRS) has today confirmed the ratings for all classes of Commercial Mortgage Pass-Through Certificates, Series 2014-C26 (the Certificates) issued by JPMBB Commercial Mortgage Securities Trust (the Trust) 2014-C26 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-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-NR at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (high) (sf)
-- Class EC at A (high) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (sf)
-- Class F at B (sf)

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

This transaction closed December 2014 and comprises 69 fixed-rate loans secured by 93 commercial properties. The pool is concentrated with loans secured by office properties (43.5% of the pool), but there is also a concentration of multifamily (16.8% of the pool), hotel (16.3% of the pool) and retail (15.6% of the pool) property types. Approximately 46.6% of the collateral is located in five states (Florida, New York, Texas, Massachusetts and Georgia). There are four loans, representing14.8% of the pool, with pari passu debt: 500 Avenue (Prospectus ID#1, 6.9% of the pool), St. Louis Premium Outlets (Prospectus ID#6, 3.3% of the pool), The Outlet Shoppes of Bluegrass (Prospectus ID#8, 3.1% of the pool) and the Florida Multifamily Portfolio (Prospectus ID#26, 1.5% of the pool). Six loans, representing 12.5% of the pool, are structured with full interest-only (IO) terms, while an additional 37 loans, representing 63.3% of the pool, are structured with partial IO periods. The transaction benefits from a concentration of high-quality properties, as DBRS considers three loans, representing 8.5% of the pool, to be secured by properties with Above Average property quality.

The rating confirmations reflect the current performance of the pool, which is stable from issuance, with cash flows generally in line with the DBRS underwritten (UW) levels. At issuance, the transaction had a DBRS weighted-average (WA) debt service coverage ratio (DSCR) and a DBRS WA debt yield of 1.49 times (x) and 8.4%, respectively. As of the November 2015 remittance, 12 loans (22.3% of the pool) reported YE2014 cash flows, while nine loans (30.7% of the pool) reported 2015 cash flows (most loans reporting a Q2 2015 figure). All 69 loans remain in the pool, with an aggregate balance of $1.46 billion, representing a collateral reduction of 0.34% since issuance as a result of scheduled amortization. For the eight loans reporting 2015 financials in the Top 10, the WA amortizing DSCR was 2.02x, with a WA net cash flow growth from the respective DBRS UW figures of 12.7%.

As of the November 2015 remittance, there are no loans in special servicing and two loans, representing 1.2% of the pool, on the servicer’s watchlist. The smaller of the two loans, ATR Transmissions (Prospectus ID#61, 0.3% of the pool), was flagged as a result of late payments in October 2015. To date, the borrower has brought the loan current. The second loan is highlighted below.

The Hilton Garden Inn Westampton loan (Prospectus ID#37, 0.9% of the pool) is secured by a 113-key limited-service hotel located in Westampton, New Jersey, which is located approximately 24 miles northwest of Philadelphia, Pennsylvania. The property was constructed by the sponsor (BBL Hospitality Company (BBL)) in 2010. Amenities include an indoor swimming pool, a fitness center, a business centre and a banquet room. Additionally, guests have the choice between two dining options, the Great American Grill (franchise owned) and the Recovery Room Sports Grill (borrower owned).

The loan was placed on the servicer’s watchlist in October 2015 as a result of a low Q2 2015 annualized DSCR of 0.91x, reflective of a debt yield of 6.3%. At issuance, DBRS modeled the loan with a term DSCR and term debt yield of 1.50x and 10.3%, respectively. In comparison to the DBRS UW figures, departmental expenses rose by approximately 14.8% ($388,000) as a result of increased Food & Beverage (12.4%) and Room expenses (19.5%). According to the servicer, Food & Beverage expenses rose following Hilton’s decision to implement a company-wide policy in late 2014, which requires all in-house restaurants to offer a three-meal menu. The policy was initiated because many of the franchises were opting out of providing three meals by claiming to have alternative options; however, many of the alternative options were not considered satisfactory for Hilton clientele. Conversely, for those Hiltons that did offer suitable alternatives (subject property), profitability has reportedly declined, which will likely trigger Hilton to review its decision in the near future. Management reports that it has taken time for staff to adjust to the new menu, but Food & Beverage expenses should be begin to stabilize shortly. According to the borrower’s June 2015 operating statement, the property had a T-12 occupancy rate of 74.1%, an Average Daily Rate of $115.20 and Revenue per Available Room of $85.10 compared with October 2014 T-12 figures of 76.0%, $119.20 and $91.10, respectively. In relation to the increase in Room expenses, the hotel operated without a Director of Sales and a General Manager for an extended period of time, but as of Q4 2014 and Q2 2015, respectively, both positions have been filled. BBL was reportedly very selective in its hiring process but is confident that the performance of the property will rebound in 2016 under its new management. DBRS modeled this loan with an elevated probability of default to mitigate the recent increase in expenses and the decline in overall performance.

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.

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