DBRS Confirms Ratings of Morgan Stanley Bank of America Merrill Lynch Trust 2014-C15, Stable Trends

DBRS Limited (DBRS) has today confirmed the Commercial Mortgage Pass-Through Certificates, Series 2014-C15 (the Certificates), issued by Morgan Stanley Bank of America Merrill Lynch Trust 2014-C15 (the Trust) as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-3 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-S at AAA (sf)
-- Class B at AA (sf)
-- Class PST at A (high) (sf)
-- Class C at A (high) (sf)
-- Class D at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (sf)
-- Class G at BB (low) (sf)
-- Class H at B (low) (sf)

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

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. The collateral consists of 48 fixed-rate loans secured by 76 commercial properties. At issuance, the transaction had a DBRS weighted-average (WA) debt service coverage ratio (DSCR) and a DBRS WA debt yield of 1.75 times (x) and 10.4%, respectively. As of February 2016 remittance, 31 loans (79.0% of the pool) reported YE2014 cash flows, while all loans are reporting YTD 2015 cash flows (most of which are as of Q3 2015) and a few loans are reporting full YE2015 figures. Based on the 2015 cash flows for the Top 15 loans, the WA amortizing DSCR was 2.14x, with WA net cash flow growth over the respective DBRS UW figures of approximately 15.7%. All 48 loans remain in the pool, with an aggregate balance of $916 million, representing collateral reduction of approximately 1.3% since issuance as a result of scheduled loan amortization. The transaction benefits from a high concentration of loans secured by properties within urban and suburban markets, representing 28.6% and 61.2% of the pool, respectively. The transaction is concentrated by loan size, with the largest loan and largest ten loans representing 14.1% and 66.7% of the current pool balance, respectively. Additionally, the transaction is somewhat concentrated by property type as four loans, representing 22.5% of the current pool balance, are secured by hotel properties, all of which are among the Top 15 loans.

As of the February 2016 remittance, there is one loan in special servicing and three loans on the servicer¡¯s watchlist, representing 1.0% and a combined 16.2% of the pool, respectively. DBRS will highlight the specially-serviced loan, Campus Court (Prospectus ID#23, 1.0% of the pool) and the largest watchlisted loan in Arundel Mills & Marketplace (Prospectus ID#1, 14.1% of the pool), below.

The Campus Court loan is secured by a 198-unit, garden-style, student housing property located in Bloomington, Indiana. The property was constructed in 1974 and was acquired by the current sponsor (GEM Realty Capital) in 2007. The sponsor completed a large renovation of the property upon acquisition in 2007, which included the addition of 52 one©\bedroom units, a clubhouse, a pool, a fitness center and the conversion of 58 of the two©\bedroom/one©\bath units into two©\bedroom/two©\bath configurations. The property serves the student body of Indiana University (IU) and is situated less than 0.5 miles from campus. Although in relatively close proximity to the campus edge, the property is situated approximately 2.0 miles from the highest concentration of lecture halls located at the southern end of the campus, minimizing the convenience for students walking to and from class.

While rental rates remain comparable with the subject¡¯s rates at issuance, occupancy has since deteriorated. Prior to securitization, the subject¡¯s annual occupancy rate fluctuated from 86.0% to 97.7%, between 2010 and 2013; however, it has not achieved occupancy above 90.0% since 2011. In July 2013, the university completed the Rose Avenue Residence Hall, providing 450 additional beds on-campus prior to the 2013¨C2014 fall semester. IU currently houses 12 on-campus student-resident centers and 11 on-campus apartments, with a new student-residence development, North Hall, expected to add 700 beds to the on-campus supply as of August 2016. In addition to the new on-campus supply, the servicer reports that the university has also renovated older dormitories on campus. According to the July 2015 appraisal report obtained by the special servicer, on-campus dormitories and apartments have historically operated above 98.0% occupancy. Off-campus, six new developments have come online since the fall of 2012, the most recent being the Collegiate on Patterson and the Gateway Building, which were completed in July 2014 and July 2015, respectively. These properties are located closer to the heart of campus and offer superior amenity packages than the subject property. As a result of these campus and off-campus projects that increased overall market availability, most of which is superior to the subject in amenities and location, the property management was unable to backfill the lost leases in time for the 2014¨C2015 school year. Consequently, occupancy fell to 81.0% as of YE2014. The loan was subsequently placed on the servicer¡¯s watchlist due to a low YE2014 DSCR of 0.83x, and the loan was later transferred to the special servicer in June 2015 due to payment default. The loan is currently due for April 2015 and all subsequent payments due thereafter.

As of September 2015, occupancy further eroded to 72.7%, as the property¡¯s mismanagement continued. In the July 2015 appraisal report, the appraiser noted six comparable properties built between 1963 and 2007, which had a WA occupancy rate of 89.4%, with rental rates ranging from $310 to $885 per unit, compared to the subject¡¯s $513 per unit. The appraiser estimates that the subject property can be expected to stabilize (implying a 94.0% occupancy rate) in 24 months by the start of the 2017¨C2018 school year, given the continual increase of enrollment at IU. Enrollment for the 2014¨C2015 fall semester totaled 46,416 students, representing a 25.0% and 8.5% growth from 2000 and 2010, respectively.

According to the servicer, the borrower has no plan or means to cure the default. As of August 24, 2015, a receiver and a new property management company were installed by the special servicer, implementing an aggressive marketing campaign to lease up the property by increasing advertising and lowering rental rates. According to the servicer, two liquidation strategies are currently being considered, including an option to market the property ¡®As-Is¡¯ in Q2 2016 for an estimated asking price at the appraiser¡¯s ¡®As-Is¡¯ value of $10.98 million, or to market the property ¡®As-Is Stabilized¡¯ in or around Q4 2017 for an estimated asking price at the appraiser¡¯s ¡®As-Is¡¯ value of $12.40 million. These values compare with the December 2013 appraised value of $16.0 million, which was the provided value at issuance. The implied LTV on the ¡®As-Is¡¯ value is 106.6%, as based on the current trust balance and all outstanding advances. The servicer is expected to provide a strategy update in the near future. As of Q3 2015, the loan had an annualized DSCR of 0.78x, as compared to the DBRS UW figure of 1.23x. Given the property¡¯s recent occupancy issues in the face of new, more attractive supply, the sharp value decline since issuance and current outstanding advances of $616,624, DBRS anticipates the loss severity at disposition could exceed 30.0%.

The Arundel Mills & Marketplace loan is secured by a 1.7 million sf super-regional mall developed between 2001 through 2002 and located in Hanover, Maryland, approximately 12 miles southwest of Baltimore. The property includes a traditional concept enclosed mall (Arundel Mills) with an adjacent single-story power center (Arundel Mills Marketplace). The loan represents the $150.0 million A-1 note (controlling), while the $145 million A-2 and $90 million A-3 pieces were contributed to the MSBAM 2014-C16 and JPMBB 2014-C19 transactions. The loan was placed on the servicer¡¯s watchlist in July 2015 as a result of near-term lease expirations for three tenants: Burlington Coat Factory (4.9% of the NRA on a lease that was scheduled to expire in January 2016), Dave & Buster's (3.8% of the NRA on a lease that was scheduled to expire in November 2015) and T.J. Maxx (2.1% of the NRA on a lease that was scheduled to expire in January 2016). These three tenants, cumulatively representing 10.8% of the NRA, have all signed new leases extending through January 2021, November 2021 and January 2021, respectively. According to the June 2015 rent roll, the property was 99.5% occupied, in line with issuance. The three largest tenants include Maryland Live! Casino (15.7% of the NRA operating on a ground lease through June 2011), Bass Pro Shops Outdoor World (Bass Pro; 7.7% of the NRA through October 2016) and Cinemark (6.5% of the NRA through January 2020). DBRS has requested a leasing update for Bass Pro, as well as updated tenant sales information from the servicer, and is awaiting that information as of the date of this press release. At issuance, sales from retailers grossed over $475 million; including the casino, total revenues generated exceeded $1.0 billion. As of Q3 2015, the loan had a DSCR and debt yield of 2.86x and 12.2%, respectively, comparing favorably with the DBRS UW figures of 2.75x and 11.8%, respectively.

At issuance, DBRS shadow-rated both the Arundel Mills & Marketplace loan and the JW Marriott and Fairfield Inn & Suites investment-grade. DBRS confirms that the performance of both loans remains consistent with investment-grade loan characteristics.

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 Methodology (January 2015), which can be found on our website under Methodologies.

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