DBRS Downgrades Two Classes of COMM 2014-LC17 Mortgage Trust

DBRS Limited (DBRS) has today downgraded two classes of Commercial Mortgage Pass-Through Certificates, Series 2014-LC17 (the Certificates) issued by COMM 2014-LC17 Mortgage Trust as follows:

-- Class G to CCC (sf) from B (low) (sf)
-- Class X-F to B (low) (sf) from B (sf)

DBRS has also confirmed the following classes:

-- 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-M at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (sf)
-- Class X-B at AA (low) (sf)
-- Class C at A (high) (sf)
-- Class PEZ at A (high) (sf)
-- Class X-C at BBB (sf)
-- Class D at BBB (low) (sf)
-- Class X-D at BB (sf)
-- Class E at BB (low) (sf)
-- Class X-E at BB (low) (sf)
-- Class F at B (high) (sf)

All trends are Stable, with the exception of Classes X-E, F and X-F, which were assigned a Negative trend and Class G, which has been assigned a rating that does not carry a trend. DBRS does not rate the first loss piece, Class H. The Class PEZ certificates are exchangeable with the Class A-M, Class B and Class C certificates (and vice versa).

The rating downgrades and Negative trend assignments to select Classes reflect DBRS’s increased expectation of losses to the trust for three loans in special servicing in the Eagle Ford (Prospectus ID #17, 1.4% of the pool), Georgia Multifamily Portfolio (Prospectus ID #35, 0.9% of the pool) and the Cincinnati Portfolio Pool B (Prospectus ID #59, 0.4% of the pool) loans that collectively comprise 2.6% of the outstanding pool balance. All three of these loans were relatively recent transfers to special servicing at the time of the last DBRS review in June 2016, when the Class G certificates were assigned a Negative trend. Since that review, updated or draft appraisals have come in for all three loans, indicating value declines from issuance or a previous appraisal obtained by the special servicer for all three. In addition, the resolution outlook for all three has deteriorated in the last year. Finally, the World Houston Plaza loan (Prospectus ID #20, 1.5% of the pool) was recently transferred to the special servicer after the largest tenant, Weatherford U.S., L.P. (50.0% of the property net rentable area) vacated its space at lease expiration in May 2017. Given the difficult market conditions in Houston, driven by the downturn in the oil and gas markets in recent years, DBRS expects it will be difficult to stabilize the property in the near term and as such, has assumed a conservative scenario for this loan in the analysis, with a significantly increased probability of default and loss given default.

At issuance, the pool consisted of 71 fixed-rate loans secured by 207 commercial properties. As of the June 2017 remittance, all 71 loans remain in the pool with an aggregate outstanding principal balance of $1.20 billion. The top 15 loans have generally performed as expected since issuance, with a weighted-average (WA) debt service coverage ratio (DSCR) of 1.65 times (x) and a WA net cash flow (NCF) growth over the respective DBRS issuance figures of 4.5%, based on the most recent year-end (YE) reporting available for the individual loans. Excluding the largest loan, Prospectus ID #1, Loews Miami Beach Hotel (10.0% of the pool), which had a depressed NCF figure for YE2016, as the result of an ongoing property improvement plan that had rooms offline for a period of time, the WA DSCR for the largest 14 loans in the trust would be 1.66x and the WA NCF growth over the DBRS issuance figures would be 13.7%. At issuance, ten loans, representing 27.1% of the pool balance, were structured with full interest-only (IO) terms, with an additional 31 loans, representing 35.9% of the pool balance, structured with partial IO terms. As of the June 2017 remittance, 16 loans, representing 21.9% of the pool balance, have partial IO periods remaining.

As of the June 2017 remittance, 14 loans representing 12.1% of the pool balance were on the servicer’s watchlist. In general, with a few exceptions in smaller loans, these are performing loans that are being monitored for deferred maintenance items, ongoing hazard loss claims or upcoming rollover.

The rating assigned to Class F materially deviates from the lower rating implied by the quantitative results. 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 results that is a substantial component of a rating methodology. The deviation is warranted as a result of the loan level event risk.

DBRS has provided updated loan-level commentary and analysis for the specially serviced, larger and/or pivotal watchlisted loans, as well as for the largest 15 loans in the pool, in the DBRS commercial mortgage-backed securities (CMBS) IReports platform. Registration is free. To view these and future loan-level updates provided as part of DBRS’s ongoing surveillance for this transaction, please register or login at www.ireports.dbrs.com

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 principal methodologies are North American CMBS Multi-borrower Rating Methodology (March 2017) and CMBS North American Surveillance (March 2017), which can be found on www.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.