DBRS Confirms Ratings on Morgan Stanley Bank of America Merrill Lynch Trust 2014-C14

DBRS, Limited (DBRS) has today confirmed the ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2014-C14 issued by Morgan Stanley Bank of America Merrill Lynch Trust 2014-C14:

-- 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 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 (high) (sf)
-- Class F at BB (sf)
-- Class G at B (high) (sf)

All trends are Stable.

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 performance of the transaction, which has remained in line with DBRS’s expectations since issuance in February 2014. The collateral consists of 58 fixed-rate loans secured by 75 properties, and as of the October 2016 remittance, there has been a collateral reduction of 1.8% since issuance. Loans representing 89.9% of the current pool balance are reporting YE2015 figures with a weighted-average (WA) debt service coverage ratio (DSCR) and a WA debt yield of 1.89 times (x) and 11.6%, respectively. The DBRS underwritten WA DSCR and WA debt yield at issuance were 1.63x and 9.8%, respectively. At issuance, DBRS shadow-rated the JW Marriott and Fairfield Inn loan (Prospectus ID#5; 5.2% of the current pool balance) and the Courtyard Isla Verde Beach Resort loan (Prospectus ID#19; 2.0% of the current pool balance) as investment grade. DBRS has today confirmed that the performance of these loans remains consistent with investment-grade loan characteristics.

As of the October 2016 remittance, there are no loans in special servicing but two loans are on the servicer’s watchlist, representing 4.0% of the current pool balance. These loans are discussed below.

The Aspen Heights – Columbia loan (Prospectus ID#7; 3.5% of the current pool balance) is secured by a 318-unit student housing complex in Columbia, Missouri, located approximately three miles southeast of the University of Missouri (Mizzou) campus. The loan was structured with a five-year interest-only (IO) term. This loan was placed on the watchlist in February 2016 because of a low trailing 12 months (T12) ending July 2015 DSCR of 0.89x (IO) or 0.71x, on an amortizing basis. The servicer reports that occupancy fell from 91.8% at issuance to 85.6% and 81.0% at December 2014 and July 2015, respectively. The most recent cash flows reported by the servicer for the T12 January 2016 reporting period show further decline to a DSCR of 0.69x (IO) or 0.55x on an amortizing basis, with occupancy reported at 77.1%. The low DSCR triggered a cash flow sweep, which the servicer has advised was put into effect in May 2016. However, given the low cash flows at the property, it is unlikely there are any funds held in reserve, with all operating funds applied to debt service and the borrower funding the remainder out of pocket.

The property’s performance decline since issuance has been driven by declining occupancy and rental rates as well as increases in operating expenses. Recent occupancy improvements have been achieved, as the servicer reports that the property was 90.0% occupied as of September 2016; however, average rental rates are down to approximately $506 per bed as compared to the issuance level of $568 per bed. Columbia has seen significant on-campus and off-campus housing developments in recent years, saturating the market with new supply. In addition, enrollment at Mizzou had been negatively impacted by well publicized controversies on campus over the past year, contributing to a 25.0% freshmen enrolment decline (7.0% overall) for the Fall 2016 semester when compared to last year. Incoming freshmen are required to live on campus and the enrolment drop resulted in the closure of four dormitories because of the lack of demand. Enrolment at Mizzou had previously been trending upward for several years, prompting the previously mentioned housing development boom in the community on campus.

The SpringHill Suites Pinehurst loan (Prospectus ID#40; 0.5% of the current pool balance) is secured by a 107-room limited-service hotel, located in Pinehurst, North Carolina, constructed in 1999 and renovated in 2012. This loan has been on the watchlist since October 2015 for a low DSCR. Per the T12 ending June 2016 financials, the DSCR was reported at 1.12x, an improvement from the YE2015 DSCR of 0.96x, but still below the DBRS underwritten DSCR of 1.32x. The servicer advised that the decline in cash flow was driven primarily by increased expenses related to laundry, reservations, guest room supplies and payroll expenses. In order to align these expenses to budgeted levels, management is implementing labor-tracking and accounting tools. According to the T12 ending July 2016 STR (Smith Travel Research) report, the subject reported an occupancy rate of 72.4%, an average daily rate (ADR) of $83.83 and revenue per available room (RevPAR) of $60.73, which are improvements from last year. In comparison, the competitive set reported an occupancy rate of 67.5%, an ADR of $91.94 and RevPAR of $62.03. The low DSCR triggered a soft lockbox and the servicer has advised that the current balance of the cash management account is $133,623 as of October 2016.

DBRS has modeled both watchlisted loans with a stressed cash flow figure to reflect the increased risk and will continue to closely monitor them for further developments.

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

The applicable methodologies are the North American CMBS Rating Methodology (March 2016) and CMBS North American Surveillance (October 2016), which can be found on our website under Methodologies.

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

For more information on this transaction and supporting data, please log in to DBRS CMBS Ireports at www.ireports.dbrs.com. DBRS continues to monitor this transaction monthly, with periodic updates provided in the DBRS CMBS IReports platform.