DBRS Confirms Ratings of COMM 2014-LC15 Mortgage Trust, Stable Trends

DBRS Limited (DBRS) has today confirmed the ratings for all classes of Commercial Mortgage Pass-Through Certificates, Series 2014-LC15 (the Certificates), issued by COMM 2014-LC15 Mortgage Trust (the Trust) as follows:

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

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

The rating confirmations reflect the current performance of the pool, which is stable from issuance, with cash flows remaining 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 1.37 times (x) and 8.9%, respectively. As of the January 2016 remittance, all loans are reporting YE2014 cash flows, while 40 loans (69.4% of the pool) are reporting partial-year 2015 cash flows (most loans reporting a Q3 2015 figure). For the nine loans reporting 2015 cash flows in the Top 10, the WA amortizing DSCR was 1.37x, with a WA net cash flow growth over the respective DBRS UW figures of 8.9%. All 48 loans remain in the pool, with an aggregate balance of $913 million, representing a collateral reduction of approximately 1.6% since issuance as a result of scheduled loan amortization.

As of the January 2016 remittance, there are no loans in special servicing and nine loans, representing 10.0% of the pool, on the servicer’s watchlist. Five of these loans, representing 5.0% of the pool, were flagged due to items of deferred maintenance, while one loan, representing 0.6% of the pool, was flagged due to late principal and interest payments in both December 2015 and January 2016. The three remaining loans on the watchlist, representing 4.4% of the pool, were flagged due to performance-related reasons. According to the 2015 cash flows reported (both Q2 and Q3 2015), these three loans had a WA DSCR and WA debt yield of 0.95x and 10.1%, respectively, compared to the DBRS UW figures of 1.57x and 9.8%, respectively. Two of these loans are highlighted below.

The Dorchester at Forest Park loan (Prospectus ID#13, 2.7% of the pool) is secured by a 189-unit, high-rise apartment building located in St. Louis, Missouri. The subject was originally constructed in 1962, with renovations totaling approximately $7.1 million, occurring between 2004 and 2007. These renovations included upgrades to over 175 of the units, new furnishing and fixtures in common areas, a new resident lounge and a new fitness center. The subject also contains 4,809 square feet (sf) of commercial space, which is occupied by smaller professional tenants on short-term leases. The loan was added to the servicer’s watchlist in June 2015 because of a low YE2014 DSCR of 0.95x, a decline from the DBRS UW figure of 1.16x. According to Q2 2015 financials, performance had further declined as the loan reported an annualized DSCR of 0.90x. In comparison to DBRS UW figures, operating expenses had risen by approximately 29.2%, primarily as a result of increases to Repairs & Maintenance (78.8%), Utilities (43.1%) and Payroll & Benefits (18.2%). At this time it is unclear if the increases in expenses are an ongoing issue or a one-time occurrence. The servicer has reportedly contacted the borrower regarding the increase. As of the September 2015 rent roll, the property was 97.5% occupied with an average rental rate of $1,504 per unit, compared to 90.5% occupied with an average rental rate of $1,550 per unit in September 2014. According to Reis, as of Q3 2015, the submarket of Clayton/Mid-County reported a vacancy rate of 2.3% with an average rental rate of $962 per unit. While the property is operating with rental rates well above its general submarket, it should be noted that the subject offers larger units in addition to higher-end finishes and amenities that attract a more upscale resident base, including professionals and students from nearby Washington University. DBRS modeled this loan using the current in-place cash flow to account for the continued decline in performance since issuance.

The University Plaza & Centre Circle loan (Prospectus ID#20, 1.2% of the pool) is secured by two properties, a 221,365 sf mixed-use property constructed in 1969 (University Plaza) and a 72,400 sf industrial property constructed in 1979 (Center Circle). Both properties are located in Downers Grove, Illinois, approximately 22 miles west of Chicago. The loan was originally added to the servicer’s watchlist in October 2014 as a result of a low Q2 2014 annualized DSCR of 0.68x, a decline from the DBRS UW figure of 1.60x. The decline in performance was caused by a drop in rental revenue at the University Plaza property. According to the September 2015 rent roll, the property was 92.7% occupied with an average rental rate of $8.25 psf, compared to 96.8% occupied with an average rental rate of $8.77 psf in September 2014. The largest tenant, Marketing Card Technology (34.6% of the net rentable area (NRA)), recently negotiated a new leasing agreement, extending its lease from January 2015 through September 2021 at $4.72 per square foot (psf), a drop from its former rental rate of $5.03 psf. According to the servicer, the tenant also received a partial rental abatement period over the first six months, which has now ended. Adding to the decline in rental revenue was Halloween Express’s (6.3% of the NRA) decision to vacate upon its November 2014 lease expiration, as it was a seasonal temporary tenant. As a result of the decrease in rental revenue, the property had a Q2 2015 DSCR of 0.67x; however, this is an improvement over the Q1 2015 DSCR of 0.38x. The Center Circle property is 100% occupied by RR Donnelly through November 2017 and reported a Q2 2015 DSCR of 1.87x. The portfolio as a whole reported a Q2 2015 DSCR of 0.96x, a slight improvement from the YE2014 DSCR of 0.90x. Performance is further expected to improve as Marketing Card Technology’s rental abatement period has ended; however, DBRS also modeled this loan using the current in-place cash flow to account for the continued decline in performance since issuance.

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, the loans in special servicing and the loans on the servicer’s watchlist. The January 2016 Monthly 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.

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 (December 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.