DBRS Confirms All Classes of Morgan Stanley Bank of America Merrill Lynch Trust 2014-C18

DBRS Limited (DBRS) has today confirmed the ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2014-C18 issued by Morgan Stanley Bank of America Merrill Lynch Trust 2014-C18 (the Trust):

-- 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-S 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 B at AA (sf)
-- Class C at A (low) (sf)
-- Class PST at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class F at B (low) (sf)

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

The rating confirmations reflect the pool’s overall performance. The transaction consists of 65 loans secured by 100 commercial and multifamily properties. Since issuance, the pool has experienced 1.4% in collateral reduction as a result of scheduled amortization, with all of the original 65 loans remaining in the pool. The pool reported a weighted-average (WA) debt service coverage ratio (DSCR) of 1.75 times (x) and a WA debt yield of 10.0% based on 97.2% of the pool that reported YE2015 financials. At issuance, the DBRS underwritten (UW) WA DSCR and debt yield were 1.64x and 9.4%, respectively.

As at the July 2016 remittance, there is one loan in special servicing, representing 1.8% of the current pool balance, and seven loans on the servicer’s watchlist, representing 5.3% of the current pool balance. Four of the loans on the servicer’s watchlist are flagged because of non-performance-related issues to do with deferred maintenance items assessed on the most recent site-inspection reports. All four loans are secured by multifamily properties, and DBRS expects them to be removed from the servicer’s watchlist as the items are resolved. The specially serviced loan and the largest loan on the servicer’s watchlist are highlighted below.

The Value Place Williston loan (Prospectus ID#14, representing 1.8% of the current pool balance) is secured by a 248-key extended-stay hotel in Williston, North Dakota, and was developed by the sponsor in 2012. The area has been negatively affected by the fluctuating oil prices, on which the regional economy is heavily reliant, as the demand for the subject is attributable to the oil and gas industry. This loan was transferred to the special servicer in October 2015 for imminent default. A short-term forbearance agreement was entered into that allowed the borrower to use the furniture, fixtures and equipment reserve to fund operating shortfalls. As at July 2016, the ending balance of the reserve account is $3,679. The agreement expired on July 1, 2016, and the borrower is negotiating an extension of the forbearance period; however, no decision is imminent at this time. Although the borrower has expressed interest in keeping the property, it is likely that a loan modification would be required. According to servicer commentary, the loan is expected to be resolved or foreclosed by the end of 2016.

According to the January 2016 Smith Travel Research report, the property reported a trailing 12-month (T-12) occupancy rate of 35.9%, an average daily rate (ADR) of $76.16 and revenue per available room (RevPAR) of $27.33. This represents a large decline since YE2014 when the occupancy rate was 71.7%, ADR was $85.14 and RevPAR was $61.14. Overall, the subject’s competitors are reporting equally decreased metrics driven by market conditions. Comparatively, the competitive set reported a T-12 figure for occupancy of 41.9%, an ADR of $100.13 and RevPAR of $41.97. Based on the most recent financials, the Q2 2015 DSCR for the loan was 1.59x, which is in line with the DBRS UW DSCR of 1.64x; however, this was prior to the loan transferring to special servicing, and given the deteriorating economic conditions over the last 12 months and decreased operating metrics, the current financial performance of the loan is expected to be much lower. The most recent appraisal from February 2016 valued the property at $12.0 million, which is well below the issuance appraised value of $31.9 million. Given the outstanding loan balance of $18.3 million and the outstanding advances of $1.3 million, DBRS expects this loan to be resolved with a loss to the Trust.

The largest loan on the servicer’s watchlist, the Louisiana and Mississippi Retail Portfolio (Prospectus ID#11, representing 2.7% of the current pool balance), is secured by a portfolio of 15 unanchored retail properties totalling 471,982 square feet located across various markets throughout Louisiana and Mississippi. This loan has been placed on the watchlist because it is delinquent for the July 2016 payment. The loan has been regularly monitored for late debt service payments since issuance, with the earliest occurrence being in December 2014, shortly after the transaction closed in October 2014. According to YE2015 financials, the DSCR for the loan was 1.32x, which is in line with the DBRS UW DSCR of 1.32x; however, according to the December 2015 rent roll, occupancy across the portfolio has declined to 88.6% from 97.1% at issuance, with the average rental rate across the portfolio reported at $8.17 per square foot. The largest single space tenant is Stage Stores, Inc. (Stage), which represents 4.9% of the total net rentable area. Stage is a tenant at three properties within the portfolio with individual lease expirations occurring between January 2018 and April 2022. DBRS has requested an update from the servicer regarding the delinquent status of the loan and, as of this review, has not received an update.

At issuance, DBRS shadow-rated one loan, 300 North LaSalle (Prospectus ID#2, representing 9.8% of the current pool balance), as investment grade. DBRS has today confirmed that the performance of this loan remains consistent with investment-grade loan characteristics.

Notes:
All figures are in U.S. dollars unless otherwise noted.

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.

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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