DBRS Confirms Ratings on WFRBS Commercial Mortgage Trust 2014-C21

DBRS Limited (DBRS) has today confirmed all classes of Commercial Mortgage Pass-Through Certificates, Series 2014-C21 (the Certificates), issued by WFRBS Commercial Mortgage Trust 2014-C21 (the Trust) 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-S at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-SBFL at AAA (sf)
-- Class A-SBFX 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)

All trends are Stable. DBRS does not rate the first loss piece, Class G. The Class A-S, Class B and Class C certificates may be exchanged for the Class PEX certificates (and vice versa).

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 121 fixed-rate loans secured by 145 commercial properties. As of the July 2016 remittance, all 121 loans remain in the pool, with an aggregate balance of approximately $1.4 billion, representing collateral reduction of approximately 1.5% since issuance as a result of scheduled loan amortization. To date, 75 loans (58.9% of the pool) have reported partial-year 2016 net cash flows (NCF; all Q1 2016), while 29 loans (36.5% of the pool) reported YE2015 NCF and the remaining 17 loans (4.6% of the pool) reported YE2014 NCF. According to the most recent financials, the deal had a weighted-average (WA) debt service coverage ratio (DSCR) and WA debt yield of 1.80 times (x) and 10.6%, respectively, compared with the DBRS UW figures of 1.66x and 9.6%, respectively. The pool is relatively diverse based on loan size, as the largest loan, Fairview Park Drive (Prospectus ID#1), only represents 6.4% of the pool, whereas the Top Ten and Top 15 loans only represent 42.6% and 52.6% of the pool, respectively.

Based on the most recent available cash flows (both annualized 2016 and year-end 2015 cash flows), the Top 15 loans had a WA amortizing DSCR of 1.78x, an improvement from the DBRS UW figure of 1.63x, reflecting a positive NCF growth over the DBRS UW figure of 10.2%. There are five loans in the Top 15, representing 16.2% of the pool, exhibiting NCF declines, compared with the DBRS UW figures, ranging from 3.8% to 20.7%. Based on the most recent cash flows (both annualized 2016 and year-end 2015 cash flows) for these six loans, the WA amortizing DSCR was 1.90x, compared with the WA DBRS UW figure of 2.07x, reflective of a WA NCF decline of 9.0% from the DBRS UW figures. For the loans showing cash flow declines that are likely to continue through the near to medium term, stressed cash flow figures were modelled to capture the increased credit risk to the Trust.

The largest loan in the pool, Fairview Park Drive (Prospectus ID#1, 6.4% of the pool) is secured by a 12-story Class A office building located in Falls Church, Virginia, approximately ten miles west of Washington, D.C. The 360,864 square foot (sf) property is located within Fairview Park, a large business park that includes 11 Class A office buildings and a 450-key Marriott hotel. The subject property serves as the global headquarters for General Dynamics (General; 47.2% of the net rentable area (NRA)), one of the world’s largest aerospace and defense companies. General has been in occupancy at the property since it was built in 2004 and has invested over $50.0 million to date in capital improvements into its space, which includes its own two-storey auditorium, cafeteria, gym, personal security and elevator bank. General’s lease expires during the loan term in March 2019, and according to a January 2016 press release, the firm will move its headquarters to a new build-to-suit located in Reston, Virginia. The loan is structured with a full cash flow sweep, initiating 24 months prior to General’s lease expiration. There is also an ongoing TI/LC reserve equivalent to $144,000 annually that will be capped at $5.5 million ($33.16 per square foot (psf) on the General Dynamics space) that can be used to re-tenant the space. According to the December 2015 rent roll, the property was 82.1% occupied with an average rental rate of $39.10 psf, compared to 82.7% occupied with an average rental rate of $37.07 psf at issuance. Other notable tenants at the property include Axiom Resource (7.5% of the NRA) and Deloitte, LLP (6.3% of the NRA), which also have lease expirations within the loan term in April 2020 and September 2018, respectively. Within the next 12 months, three tenants, representing 3.3% of the NRA, have upcoming lease expirations. As of Q1 2016, the loan reported an annualized DSCR of 1.92x, an increase from the YE2015 DSCR of 1.87x and the DBRS UW figure of 1.76x, reflective of a positive 7.0% NCF growth over the DBRS UW figure.

As of the July 2016 remittance, there were no loans in special servicing and 13 loans on the servicer’s watchlist, representing 8.6% of the pool. One loan, The Bluffs (Prospectus ID#10, 2.5% of the pool), which is secured by a 602-unit, Class A, garden-style apartment complex located in Junction City, Kansas, was placed on the watchlist in June 2016 as a result of fire damage that occurred in April 2016. The servicer reports that 28 units are down; however, the borrower has replacement cost coverage included in its insurance policy and has filed an insurance claim. After permits are approved, construction is estimated to take approximately 14 to 16 months, with a rebuild cost of approximately $2.1 million. Otherwise, the loan was performing strong with a YE2015 DSCR of 2.87x and an occupancy rate of 90.0%. Of the remaining loans on the watchlist, three loans (3.2% of the pool) were flagged due to deferred maintenance, one loan (0.4% of the pool) for a low YE2015 DSCR of 0.64x (co-op property – adjusted YE2015 DSCR of 4.78x) and one loan (0.2% of the pool) had no comment available to date, but was performing strong with a Q1 2016 annualized DSCR of 2.45x. The remaining seven loans (2.3% of the pool) were flagged as a result of either near-term tenant rollover or increased vacancy. Based on the most recent cash flows (annualized 2016, YE2015 and YE2014 cash flows), these seven loans had a WA DSCR of 1.39x, down from the DBRS UW figure of 1.42x. DBRS has briefly highlighted one of these loans below.

The RiverPlace Athletic Club loan (Prospectus ID#49, 0.5% of the current pool balance) is secured by a three-story, freestanding athletic club, which was original constructed in 1986 and renovated in 2007. The 55,462 sf property is located within the RiverPlace district in Portland, Oregon. The loan was added to the watchlist in March 2015 due to a low DSCR, which as of YE2015 was 0.38x, down from the DBRS UW figure of 1.40x. In March 2014, the single tenant, RiverPlace Athletic Club, was evicted from its space. The courts have assigned a receiver, which is selling the tenant’s assets in order to satisfy creditors’ claims. According to the servicer, the borrower will be pursuing a $9 million guaranty under the lease, though it remains unclear if any funds will be recovered, given the insolvent status of the former tenant. To date, there have been interested prospective tenants; however, no tenant is willing to take the space as is, with specific tenant improvement costs estimates ranging between $3.0 million ($54 psf) to $5.0 million ($90 psf); however, the borrower seems unwilling to offer such improvements. As of the July 2016 remittance, the loan is current and the borrower reports that they intend to continue making their monthly debt service payments while searching for prospective tenants.

The ratings assigned to Classes C, E, F and PEX differ from the higher ratings implied by the quantitative model. DBRS considers this difference to be a material deviation, and in this case, the ratings reflect the dispersion of loan level cash flows expected to occur as loans season.

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 related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodologies are CMBS North American Surveillance (January 2015) and North American CMBS Rating Methodology (June 2015), which can be found on our website under Methodologies.