DBRS Confirms Ratings of JPMBB Commercial Mortgage Securities Trust 2014-C21, Stable Trends

DBRS Limited (DBRS) has today confirmed all classes of Commercial Mortgage Pass-Through Certificates, Series 2014-C21 (the Certificates), issued by JPMBB Commercial Mortgage Securities Trust 2014-C21 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-5 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 A-S at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class EC at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (sf)
-- Class F at B (high) (sf)

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

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 73 fixed-rate loans secured by 84 commercial properties. At issuance, the transaction had a DBRS weighted-average (WA) debt service coverage ratio (DSCR) and a DBRS WA debt yield of 1.52 times (x) and 8.7%, respectively. As of February 2016 remittance, 48 loans (73.3% of the pool) reported partial-year 2015 cash flows (most being Q3 2015), while 17 loans (15.4% of the pool) reported year-end 2015 cash flows. The remainder of the loans that did not report 2015 cash flows did report year-end 2014 figures. Based on the 2015 cash flows (both annualized and year-end 2015 cash flows) for the Top 15 loans, the WA amortizing DSCR was 1.65x, with WA net cash flow growth over the respective DBRS UW figures of approximately 18.7%. All 73 loans remain in the pool, with an aggregate balance of $1.25 billion, representing collateral reduction of approximately 0.9% 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 26.9% and 61.1% of the pool, respectively. The property type with the largest concentration in the pool is office, with 27.6% of the pool balance; followed by retail, with 21.7%; multifamily, with 17.8% (3.1% of which are considered to be student-housing properties); and hotels, with 14.1%.

As of the February 2016 remittance, there are two loans in special servicing and four loans on the servicer’s watchlist, representing 1.1% and 2.9% of the pool, respectively. Three of the loans (2.1% of the pool) currently on the watchlist were flagged due to items of deferred maintenance. The fourth loan, Shelly Plaza (Prospectus ID#34, 0.7% of the pool), was flagged due to an affiliation with A&P, which declared Chapter 11 Bankruptcy in July 2015. According to the servicer, the tenant, Super Fresh Grocery Store (69.0% of the net rentable area (NRA) with an October 2022 lease expiration) has no plans to vacate. According to 2015 reporting (both annualized and year-end 2015), these loans had a WA DSCR of 2.01x compared to the DBRS UW figure of 1.82x, reflective of an 8.3% WA NCF growth. DBRS has highlighted both specially-serviced loans in detail below.

The Lockport Professional Park loan (Prospectus ID#46, 0.5% of the pool) is secured by 19 single-story, multi-tenant, office and professional buildings, composing 82,292 square feet (sf). The property is located in Lockport, New York, approximately 29.0 miles northeast of Buffalo, New York. The buildings were constructed in stages between 1990 and 2000, and are primarily occupied by medical office tenants, as the park is located approximately 2.0 miles south of the Eastern Niagara Health System. The loan was transferred to special servicing in May 2015 due to payment default and remained delinquent through December 2015, at which point the borrower brought the loan current. As of the February 2016 remittance, the borrower was due for the February 2016 debt service payment, but is less than 30 days delinquent. The loan was in default when securitized as the borrower refused to set up a lockbox, which the origination documents required. To date, the borrower refuses to pay the tax escrow shortfall, asking that it be taken from the TI/LC reserve. A receiver has been appointed by the court, but has not been successful in obtaining updated financials. As of Q2 2015 (the most recent financials), the loan had a DSCR and debt yield of 1.24x and 9.9%, respectively, compared with the DBRS UW figures of 1.32x and 10.5%.

The property has historically exhibited strong occupancy; however, it has experienced a decline over the past two years. The appraiser notes that this has been a result of an overall weakened local office market, which has contributed to a decreased demand for office space, continuing to put pressure on rental rates and absorption periods. According to the August 2015 rent roll, the property was 85.0% occupied with an average rental rate of $13.35 per square foot (psf), compared with 90.5% occupied with an average rental rate of $14.36 psf as of May 2014. As of YE2015, Costar reported Class A office buildings in the Buffalo/Niagara Falls market had an average rental rate of $15.47 psf and a vacancy 9.6%, respectively, a slight improvement from YE2014, which exhibited an average rental rate of $15.20 psf with a vacancy rate of 10.0%. Year-to-date deliveries in the market as of YE2015 totaled 916,000 sf, with 760,000 of net absorption, indicating a negative absorption. Although the market is not directly comparable with the subject, as Lockport Professional Park is considered a unique asset in the market given its campus-like setting, and the fact that the subject is found outside of the market’s parameters, the appraiser notes that the market is still perceived as competitive. Utilizing a sales comparison approach based on the most recent sale of five comparable office properties (ranging from June 2012 to April 2014), the appraiser found the subject to have an as-is value of $5.82 million ($71.42 psf) as of August 2015, indicative of a LTV of 116.0%. This compares negatively with the $9.7 million at issuance, indicative of a 71.1% LTV ($119.03 psf). According to the servicer, the primary workout strategy is that the loan seller repurchases the loan from the pool, as the lockbox was never established at issuance and a mortgage loan purchase agreement was signed at issuance. The secondary strategy is foreclosure, which would occur by YE2016 if that strategy is ultimately pursued; however, there is no projected timetable in which the property would be foreclosed. DBRS has modeled this loan with an elevated probability of default given the recent decline in performance, as well as the sharp drop in value since issuance.

The Shuman Office Building loan (Prospectus ID#47, 0.5% of the pool) is secured by a 107,893 sf Class A/B office building located in Naperville, Illinois, approximately 30 miles west of Chicago. The property was originally constructed in 1981 by the General Motors Corporation (GM). During the 2009–2010 GM bankruptcy, rather than cancelling its lease, GM restructured the lease by downsizing its space and extending its term from November 2013 through June 2015. The loan was placed on the servicer’s watchlist in May 2015 due to upcoming lease expirations, including GM (21.4% of the net rentable area (NRA)), Kaleidoscope/R-Works (4.1% of the NRA with a June 2015 lease expiration), the Martin Group (2.6% of the NRA with a June 2015 lease expiration) and a couple of other smaller tenants. The loan transferred to the special servicer in December 2015 upon written notice that the borrower could not continue to fund the operating expense shortfalls, as occupancy saw a sharp decline. According to the December 2015 rent roll, the property was 52.4% occupied with an average rental rate of $18.05 psf, compared with 82.1% occupied with an average rental rate of $17.33 psf at issuance. According to CoStar, as of YE2015, Class B Office buildings, ranging between 50,000 sf to 150,000 sf within a one-mile radius had an average rental rate of $17.73 psf, with a vacancy rate of 14.0% and availability of 18.2%. Within the next five years, rental rate figures are projected to decrease to $17.58 psf, vacancy to increase to 19.2% and availability to increase to 22.8%.

To date, no appraisal has been required as the loan is only currently two months delinquent; however, it is likely that an appraisal will be conducted in the near future. As of February 2016 remittance, the loan has an outstanding balance of $6.7 million ($62 psf). A preliminary broker opinion of value (BOV) was received in February 2016, which concluded an estimated value range of $6.2 million to $7.5 million, compared with the issuance value of $9.3 million (LTV of 72.5%). The three largest tenants are Our Children’s Homestead (9.4% of the NRA with a May 2020 lease expiration), SpectaGuard Acquisition (7.9% of the NRA with a November 2021 lease expiration) and Gateway One Lendings (6.7% NRA through with a May 2017 lease expiration). Three tenants, representing 11.6% of the NRA, will roll during 2017; however, there is no rollover in either 2016 or 2018. As of Q3 2015, the loan had a DSCR and debt yield of 1.03x and 5.1%, compared with the DBRS UW figures of 1.61x and 7.9%, respectively. DBRS has modeled this loan with an elevated probability of default given the recent decline in performance, as well as the potential drop in value since issuance.

At issuance, DBRS shadow-rated both the Miami International Mall (Prospectus ID#3, 4.8% of the pool) and 307 West 38th Street (Prospectus ID#12, 2.8% of the current pool balance) loans 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.