DBRS Confirms Ratings of Citigroup Commercial Mortgage Trust 2014-GC25

DBRS Limited (DBRS) has today confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2014-GC25 (the Certificates) issued by Citigroup Commercial Mortgage Trust 2014-GC25 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-AB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)
-- Class X-D at AAA (sf)
-- Class X-E at AAA (sf)
-- Class X-F at AAA (sf)
-- Class X-G at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (sf)
-- Class PEZ at A (low) (sf)
-- Class C 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 PEZ certificates are exchangeable with the Class A-S, Class B and Class C certificates (and vice versa).

The rating confirmations reflect that the transaction’s current performance remains in line with expectations since issuance in October 2014. The collateral consists of 62-fixed rate loans secured by 99 commercial properties. As of the September 2016 remittance, all 62 loans remain in the pool with an aggregate outstanding principle balance of approximately $834.3 million, representing a collateral reduction of 0.9% since issuance because of scheduled loan amortization. Sixty-one loans (97.8% of the pool) have reported YE2015 net cash flows (NCFs). According to YE2015 financials, the transaction had a weighted-average (WA) debt service coverage ratio (DSCR) and WA debt yield of 1.63 times (x) and 9.3%, respectively, compared with the DBRS underwritten (UW) figures of 1.42x and 8.3%, respectively.

The pool is concentrated by loan size as the Top 10 and Top 15 loans represent 59.9% and 71.2% of the pool, respectively. Additionally, the largest loan, the Bank of America Plaza, represents 13.2% of the pool. Based on the annualized 2016 cash flows, the Top 15 loans had a WA amortizing DSCR of 1.83x compared with the DBRS UW figure of 1.42x, reflective of a WA NCF growth of 26.9% compared with the DBRS UW figures.

As of the September 2016 remittance, there are no loans in special servicing and four loans on the servicer’s watchlist, representing 6.8% of the current pool balance. Two of the the loans (5.6% of the pool) on the watchlist were flagged because the collateral properties experienced significant hail damage. According to the servicer, both properties’ insurance policies were comprehensive and renovations are ongoing. The remaining two loans (1.2% of the pool) on the watchlist were flagged because of upcoming rollover within the next six months. The larger of the two loans, the Pueblo Shopping Center (Prospectus ID#6, 0.8% of the pool; part of the larger Multi-State Retail Portfolio, representing 7.3% of the pool) is secured by a 106,300 square foot (sf) grocery-anchored retail plaza, located in Pueblo, Colorado. According to the borrower, Dollar Tree (11.3% of the net rentable area (NRA)) has extended its lease through January 2021 whereas King Soopers (47.9% of the NRA with an October 2016 lease expiration) has an automatic renewal option. DBRS has not received an updated sales report; however, as of the trailing 12-month sales report ending in June 2014, King Soopers reported sales of $666.00 per square foot (psf) and, according to the servicer, the tenant has had an 8.5% gross sales increase over the previous year. Additionally, the only direct competitor, Safeway Supermarket, has left the market. Given the positive sales trends and the lack of competition, King Soopers is expected to remain at the property.

The largest loan, the Bank of America Plaza, is secured by a Class A office building totaling 1.4 million sf located in downtown Los Angeles, California. The 55-story building was originally constructed in 1974 and contains nine underground parking levels. The loan represents the non-controlling $110.0 million A-3-A note, part of a $400.0 million whole-loan. According to the June 2016 rent roll, the property was 92.1% occupied, up from 89.5% at issuance. As of Q2 2016, CoStar reported that 23 Class A office buildings greater than 650,000 sf within the Greater Downtown submarket were achieving average rental rates of $39.45 psf gross, below the subject’s in-place average rental rate of $40.52 psf gross. The reported average vacancy and availability rates in the submarket were 14.2% and 20.6%, respectively. The largest tenant, Capital Group (22.6% of the NRA) has extended its original lease from February 2018 through February 2033. Upon signing the lease extension, the tenant’s base rental rate increased to $27.00 psf from $25.63 psf. The three next-largest tenants include Sheppard Mullin (13.0% of e NRA), Bank of America (11.4% of the NRA) and Kirkland & Ellis (7.1% of the NRA), which have lease expirations in December 2024, June 2020 and December 2019, respectively. Together, the largest four tenants occupy approximately 54.1% of the NRA with no near-term rollover. Near-term rollover is minimal as only three tenants, representing 3.3% of the NRA, have lease expirations through YE2017. Alliant Insurance (1.3% of the NRA) and AT&T (0.7% of the NRA) extended their respective leases through December 2020. As of Q2 2016, the loan had an annualized DSCR of 2.58x, up from 2.26x at YE2015 and the DBRS UW figure of 1.76x. The loan is sponsored by Brookfield Office Properties Inc., which operates a portfolio of approximately 115 properties, totaling over 87 million sf located primarily in downtown core markets in the United States, Canada, Australia and the United Kingdom.

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.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.