DBRS Confirms Ratings of WFRBS Commercial Mortgage Trust 2014-C20, Stable Trends

DBRS Limited (DBRS) has today confirmed all classes of Commercial Mortgage Pass-Through Certificates, Series 2014-C20 (the Certificates), issued by Wells Fargo Commercial Mortgage Trust 2014-C20 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-5 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class A-SFL at AAA (sf)
-- Class A-SFX 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 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 stable performance exhibited by the transaction since issuance in 2014. The collateral consists of 98 fixed-rate loans secured by 142 commercial properties. As of the February 2017 remittance, the pool had an aggregate balance of approximately $1.21 billion, representing a collateral reduction of 2.8%, due to scheduled loan amortization. One loan (0.8% of the pool) is secured by collateral that has been fully defeased.

The pool is primarily concentrated by three property types, as 24 loans representing 34.1% of the pool are secured by retail properties (two of which are regional malls representing 14.4% of the pool), 11 loans (23.0% of the pool) are secured by office properties and 19 loans (18.5% of the pool) are secured by hotel properties. By geographical location, the pool is relatively diverse, as the largest concentration by state is in New Jersey, with three loans (15.2% of the pool), followed by Texas with 14 loans (14.5% of the pool), New York with 15 loans (13.9% of the pool) and California with 16 loans (9.8% of the pool). Two loans (2.7% of the pool) are structured with full interest-only (IO) terms, while an additional 11 loans (30.5% of the pool) have partial IO periods remaining, ranging from two months to 27 months.

Excluding defeasance, 22 loans (17.9% of the pool) have reported YE2016 net cash flow (NCF) figures, while 86 loans (95.6% of the pool) reported partial-year 2016 (most being Q3 2016) NCF figures and 95 loans (99.3% of the pool) reported YE2015 NCF figures. According to the YE2015 NCF figures, the transaction had a weighted-average (WA) amortizing debt service coverage ratio (DSCR) and WA debt yield of 1.62 times (x) and 10.6%, respectively, compared with the DBRS issuance figures of 1.48x and 9.4%, respectively.

Based on the partial year 2016 cash flows, the Top 14 loans (54.8% of the pool) reported a WA amortizing DSCR of 1.51x, compared with the DBRS issuance figure of 1.38x, reflective of a WA NCF growth of 12.3%. There are four loans (13.6% of the pool) in the Top 14 exhibiting NCF declines compared with the DBRS UW figures, with declines ranging from -6.6% to -45.9%. These four loans include Rockwell – ARINC HQ (Prospectus ID#5, 4.0% of the pool), Brunswick Square (Prospectus ID#6, 3.7% of the pool), Residence Inn Adventura (Prospectus ID#8, 3.0% of the pool) and Savoy Retail & 60th Street Residential (Prospectus ID#9, 2.9% of the pool). Excluding Savoy Retail & 60th Street Residential, which recently experienced increased vacancy, trends for the remaining three loans do not appear indicative of performance declines to be sustained long-term. DBRS will monitor these loans for developments through the full year-end reporting.

As of the February 2017 remittance, there is one loan (2.2% of the pool) in special servicing and seven loans (6.2% of the pool) on the servicer’s watchlist. The loan in special servicing, Minneapolis Apartment Portfolio (Prospectus ID#10), is secured by 17 Class B multifamily properties, comprising 437 units, all located in Minneapolis, Minnesota. The loan transferred to special servicing in January 2017 because of an ongoing inquiry from the city into the rental license of the sponsor, as the city’s inquiry reportedly alleges fraudulent and deceptive business practices. The loan is currently 30 to 59 days delinquent. Of the seven loans currently on the servicer’s watchlist, five loans (5.3% of the pool) were flagged due to recent declines in occupancy and/or near-term tenant rollover, whereas the sixth loan (0.6% of the pool) was flagged due to deferred maintenance and the remaining loan (0.3% of the pool) was flagged due to outstanding financials. Based on the most recent cash flow reporting (partial-year 2016 financials), these seven loans reported a WA amortizing DSCR of 1.32x, compared to the DBRS issuance figure of 2.09x, reflective of a WA amortizing NCF decline of -14.8%.

At issuance, DBRS shadow-rated the Rockwell – ARINC HQ loan (Prospectus ID#5, 3.9% of the pool) as investment grade. DBRS has today confirmed that the performance of this loan is consistent with investment-grade loan characteristics. Additionally, the shadow rating applied at issuance for the Savoy Retail & 60th Street Residential loan (Prospectus ID #9, 2.9% of the pool) has been removed as the credit metrics for the loan have deteriorated since issuance following the loss of the property’s anchor restaurant tenant in early 2016.

The ratings assigned to Classes C, E and F materially deviate from the higher ratings implied by the Large Pool Multi-Borrower Parameters. DBRS considers this to be a methodology deviation when there is a rating differential of three or more notches between the assigned rating and the rating implied by the Large Pool Multi-Borrower Parameters; in this case, the sustainability of loan performance trends was not demonstrated and, as such, was reflected in the ratings.

DBRS has provided updated loan-level commentary and analysis for larger and/or pivotal watchlisted and specially serviced loans, as well as for the largest 15 loans in the pool, in the DBRS CMBS IReports platform. To view these and future loan-level updates provided as part of DBRS’s ongoing surveillance for this transaction, please log in to DBRS CMBS IReports at www.ireports.dbrs.com.

For more information on these rating actions, please contact us at info@dbrs.com.

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 principal methodologies are the North American CMBS Rating Methodology (January 2017) and CMBS North American Surveillance (December 2016), which can be found on dbrs.com under Methodologies.

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