DBRS Confirms Ratings of Morgan Stanley Bank of America Merrill Lynch Trust 2014-C17 Mortgage Trust

DBRS, Inc. (DBRS) has today confirmed all classes of Morgan Stanley Bank of America Merrill Lynch Trust 2014-C17 Mortgage 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 A-5 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 (low) (sf)
-- Class PST at A (low) (sf)
-- Class C at A (low) (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 Class A-S, Class B and Class C certificates may be exchanged for the Class PST certificates (and vice versa).

The rating confirmations reflect the overall stability of the transaction, as performance has remained in line with expectations since issuance in August 2014. Since issuance, the transaction has experienced a collateral reduction of 1.2% as a result of scheduled loan amortization. At issuance, the pool consisted of 67 loans secured by 72 commercial properties. As of the July 2016 remittance, all loans remain in the pool with an aggregate outstanding principal balance of $1,024.5 million. The pool is geographically diverse, as loans within the top 15 are located across 12 states. The transaction has a weighted-average (WA) debt service coverage ratio (DSCR) and a WA debt yield of 1.60 times (x) and 9.7%, respectively, with 90.56% of the current pool reporting YE2015 financials.

There are no loans in special servicing and five loans on the servicer’s watchlist, representing 5.3% of the current pool balance; however, only one of these loans is in the top 15. Three of these loans have been flagged for non-performance-related reasons limited to deferred maintenance. The largest loan on the servicer’s watchlist (Marlboro Commons) and one additional loan in the top 15 are discussed below.

The Marlboro Commons loan (Prospectus ID#7, 3.21% of the current pool balance) is secured by the borrower’s fee interest in a 100,499-square foot (sf) Class A grocery-anchored retail center located in Marlboro Township, New Jersey. Construction of the subject was recently completed in 2014, and the subject is anchored by a Whole Foods Market (Whole Foods). This loan is on the servicer’s watchlist because of a decline in property performance mainly driven by high repairs and maintenance expenses from excessive snow removal in 2015. As of YE2015, repairs and maintenance expenses had increased by 83.8% over the DBRS underwritten (UW) figure, which has driven net cash flow down by 8.6%. As a result of the high expenses, the YE2015 DSCR was 1.09x, below the DBRS UW DSCR of 1.19x. As of March 2016, the property was 95.5% occupied with an average rental rate of $26.51 per square foot (psf), which compared favorably with the $25.91 psf average rental rate at issuance. The property is occupied by seven tenants representing a strong tenant mix comprising mainly national retailers such as Ethen Allen and Petco Animal Supplies Stores in addition to two investment-grade tenants, Walgreens and Whole Foods. The property is still in its early stages of operation and should experience improvements in performance in the near future because of its strong tenant base and location within a retail market.

The Highland Village loan (Prospectus ID#8, 3.22% of the current pool balance) is secured by the borrower’s fee interest in a 217,504-sf grocery-anchored retail and office property located in Jackson, Mississippi, approximately ten miles north of the Jackson central business district. The 14.9-acre property consists of a multi-tenant, mixed-use building and three outparcels, with the retail portion anchored by the first Whole Foods grocery store in the state of Mississippi. The 217,504-sf subject is divided into 170,191 sf of retail space and 47,313 sf of office space, which is primarily located on the second story of the mixed-use building. At issuance, DBRS noted a high concentration of tenant rollover within the first two years of the loan term, including 49 tenants (21.8% of the net rentable area (NRA)) that had lease expirations in 2014. According to the May 2016 rent roll, the property was reported to be 83.6% occupied compared with 86.5% at issuance. Since May 2016, 19 tenants (15.05% of the NRA) have had their respective leases expire, and 12 tenants (8.06%of the NRA) have lease expirations through YE2016. A more recent rent roll and leasing update was requested from the servicer, but no response has been provided to date. According to the property’s online directory, 27 of the expired or expiring tenants are still listed as operating at the property. Seven tenants (3.44% of the NRA) are no longer listed. According to CoStar, the North Jackson submarket of Mississippi reported an average retail vacancy and availability rate of 5.6% and 7.3%, respectively. Class B office properties reported average vacancy and availability rates of 3.6% and 6.4%, respectively. Average rental rates for shopping center properties and Class B office properties were reported at $9.15 psf and $13.66 psf, respectively. The subject’s average rental rate of $18.45 psf for the retail portion of the property was above the North Jackson submarket average, which falls in line with the borrower’s plans to move toward higher-end retail tenants and higher rental rates. The addition of Whole Foods is expected to attract more higher-end retailers, and this is evident with the addition of Lululemon, Kate Spade and Red Square. The subject reported a YE2015 DSCR of 1.10x, which compares similarly with the DBRS UW figure of 1.08x.

At issuance, DBRS shadow-rated the Courtyard King Kamehameha’s Kona Beach Hotel Loan (Prospectus ID#6, 3.6% of the current pool balance) as investment grade. DBRS has today confirmed that the performance of the loan remains consistent with investment-grade loan characteristics.

The ratings assigned to Classes E and F 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 applicable methodologies are North American CMBS Rating Methodology (March 2016) and CMBS North American Surveillance (December 2015), which can be found on our website under Methodologies.

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