DBRS Confirms All Classes of WFRBS Commercial Mortgage Trust 2014-LC14

DBRS Limited (DBRS) has today confirmed all classes of Commercial Mortgage Pass-Through Certificates, Series 2014-LC14 issued by WFRBS Commercial Mortgage Trust 2014-LC14:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3FL at AAA (sf)
-- Class A-3FX 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 (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 rating confirmations reflect the overall performance of the transaction. At issuance, the transaction consisted of 71 loans secured by 144 commercial and multifamily properties. The pool has since experienced a collateral reduction of 3.0% as a result of scheduled amortization, with all of the original 71 loans remaining in the pool. Based on YE2015 financials, the pool reported a weighted-average (WA) debt service coverage ratio (DSCR) of 1.74 times (x) and a WA debt yield of 11.1%. Comparatively, the YE2014 WA DSCR and WA debt yield were 1.80x and 11.2%, respectively.

As of the October 2016 remittance, there is one loan in special servicing, representing 0.9% of the current pool balance, and 16 loans on the servicer’s watchlist, representing 18.3% of the current pool balance. Six of the loans on the servicer’s watchlist, together representing 8.3% of the current pool balance, were flagged for deferred maintenance issues. One loan, representing 1.0% of the current pool balance, is located in Baton Rouge, Louisiana, and was affected by the severe flooding that occurred in August 2016. Three loans are further discussed below, including the specially serviced loan and one loan on the servicer’s watchlist.

The Westridge Apartments loan (Prospectus ID#33), representing 0.9% of the current pool balance, is secured by a 96-unit multifamily property located in Williston, North Dakota. The property was developed in 2012/2013 to provide housing for residents moving to the region in response to the increased oil production from the nearby Bakken Shale Formation. This loan was transferred to the special servicer in June 2016 as a result of a decline in performance, which is directly attributable to the deteriorating market conditions in the area. The regional economy is heavily reliant on the oil and gas industry, which has been negatively affected by fluctuating oil prices. This has driven an increase in vacancy rates, coupled with lower rental rates, resulting in cash flows being significantly below expected levels at issuance. As of the July 2016 rent roll, the property was 52.0% occupied at an average rental rate of $990 per unit, representing a significant decline from the occupancy at issuance in December 2013 of 100.0% and the average rental rate of $2,796 per unit. The annualized Q1 2016 DSCR was 0.81x compared with the YE2015 DSCR of 1.14x and the YE2014 DSCR of 2.00x. According to Real Capital Analytics, there were seven multifamily properties that sold within 25 miles of the subject between February 2012 and September 2014 at an average price of $142,862 per unit; however, these sales are prior to the downturn in the market and are not true comparables in today’s environment. Currently, there is little liquidity and demand in the market, and as such, the asset is not expected to trade in the immediate future. The most recent appraisal from August 2016 valued the property at $6.3 million ($65,625 per unit), which is well below the November 2013 issuance appraised value of $20.8 million ($217,083 per unit). Given the outstanding loan balance of $11.3 million, it is expected that this loan will be resolved with a loss to the Trust.

The Williams Center Towers loan (Prospectus ID#6), representing 3.7% of the current pool balance, is secured by a 765,809-square foot (sf) Class A office complex composed of two office towers located in downtown Tulsa, Oklahoma. The loan was added to the watchlist because the largest tenant, Samson Investment Company (Samson), has been giving back space at the property. Samson is a Tulsa-based oil and gas driller that filed for Chapter 11 bankruptcy in September 2015. At issuance, Samson occupied 34.7% of the net rentable area (NRA) on a lease that expires in May 2025. As of the September 2016 rent roll, the property was 90.0% occupied and had an average rental rate of $15.07 psf. Samson currently occupies 25.3% of the NRA at a rental rate of $14.75 psf after giving back two full floors. The borrower has successfully backfilled the former Samson space with tenants paying the same or higher rental rates than Samson was previously paying; however, it was noted in the February 2016 site inspection that an additional three floors, totalling of 7.5% of the NRA, were dark, and Samson continues to pay rent on this space. The second-largest tenant, BOK Financial Corporation, absorbed a portion of one of the dark floors, representing 1.5% of the NRA. Its total occupancy at the subject is 10.7% of the NRA, with a lease that expires in September 2021.

According to CoStar, the subject is located in the Tulsa central business district submarket. Class A office buildings in the submarket report an average vacancy rate of 9.6% with an availability rate of 13.1% and average asking rental rates of $15.74 psf. Rollover at the property is minimal in the next three years, with 5.1%, 1.5% and 5.4% of the NRA set to expire in 2016, 2017 and 2018, respectively. Based on the most recent financials, the Q2 2016 DSCR was 1.59x compared with the YE2015 DSCR of 1.50x and the YE2014 DSCR of 1.53x. Given the potential for Samson to continue giving back space at the subject, DBRS modeled this loan with a stressed cash flow, increasing the probability of default of the loan.

The Caruth Plaza loan (Prospectus ID#10), representing 2.6% of the current pool balance, is secured by a 206,192 sf anchored retail shopping centre located in Dallas, Texas. The centre is located along U.S. Highway 75 and is across from the NorthPark Center, a 2.5 million sf regional mall anchored by Nordstrom, Macy’s, Neiman Marcus, Dillard’s and an AMC theater. Based on the September 2016 rent roll, the property was 67.4% occupied, decreasing from a June 2015 occupancy rate of 93.6%. The decline is due to the bankruptcy filing of Sports Authority, which formerly occupied 28.2% of the NRA on a lease that expired in January 2019. According to the asset summary report, two tenants have co-tenancy clauses. Only the co-tenancy clause with AT&T (5.2% of NRA, expiring December 2017) would be triggered from the departure of Sports Authority, which would result in a reduced rental rate if occupancy drops below 70.0% for more than 30 days. DBRS has asked the servicer for an update on whether or not the tenant is paying a reduced rental rate. The remaining largest tenants at the subject are Bed, Bath & Beyond (26.0% of NRA, expiring January 2026), TJ Maxx (12.1% of NRA, expiring January 2021) and James Price (6.0% of NRA, expiring November 2018). According to CoStar, the property reported an availability rate of 40.3% and is located in the North Dallas and Upper Greenville submarket, which reported a 7.8% vacancy rate, a 12.7% availability rate and an average asking rental rate of $19.37 psf. Based on the most recent financial reporting, the loan reported an annualized Q2 2016 DSCR of 1.57x compared with the YE2015 DSCR of 1.50x and the YE2014 DSCR of 1.53x. Given the departure of Sports Authority in H2 2016, it is expected that performance of the loan will be below the reported annualized figures. As a result, the loan was modeled with a stressed cash flow, increasing the probability of default.

At issuance, DBRS shadow-rated two loans investment grade: Prospectus ID #3 The Outlet Collection – Jersey Gardens, representing 6.6% of the current pool balance, and Prospectus ID #4 Westin New York at Times Square – Lease Fee, representing 4.5% of the current pool balance. DBRS confirms with this review that the performance of these loans remains consistent with investment-grade loan characteristics.

The ratings assigned to Classes C, PEX and F materially deviate from the higher ratings implied by the quantitative model. DBRS considers a material deviation to be a rating differential of three or more notches between the assigned rating and the rating implied by the quantitative model that is a substantial component of a rating methodology; in this case, the assigned ratings reflect the sustainability of loan performance trends not demonstrated.

For more information on this transaction and supporting data, please log into 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.

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 (October 2016), which can be found on our website under Methodologies.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.