DBRS Upgrades Four Classes of LSTAR Commercial Mortgage Trust 2014-2

DBRS Limited (DBRS) upgraded the following four classes of Commercial Mortgage Pass-Through Certificates, Series 2014-2 issued by LSTAR Commercial Mortgage Trust 2014-2:

-- Class B to AAA (sf) from AA (sf)
-- Class X-A to AAA (sf) from AA (high) (sf)
-- Class X-B to AAA (sf) from AA (high) (sf)
-- Class C to AA (low) (sf) from A (sf)

Additionally, DBRS has confirmed the ratings on the following classes:

-- Class A-2 at AAA (sf)
-- Class D at BBB (high) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (sf)
-- Class G at B (sf)

All trends are Stable.

The rating upgrades reflect the transaction’s overall healthy performance, including significant collateral reduction since issuance. As of the April 2018 remittance, there has been a collateral reduction of 62.1% as a result of loan prepayments and loan liquidations, as 109 of the original 208 loans have paid out of the trust ahead of their respective maturity dates. According to the most recent reporting available, the remaining loans in the pool have a weighted-average (WA) debt service coverage ratio (DSCR) and WA debt yield of 1.42 times (x) and 11.4%, respectively. The transaction is concentrated by loan size as the largest two loans represent 48.0% of the current pool balance. According to the YE2017 financials, these two loans have a WA DSCR of 1.37x and WA in-place debt yield of 10.0%.

The two largest remaining loans in the pool were newly originated at issuance, while the other 97 loans remaining are seasoned loans that were purchased by the loan seller from Fannie Mae or were originally part of the now-retired LASL 2006-MF2 and LASL 2006-MF3 commercial mortgage-backed securities (CMBS) transactions. The largest loan, 399 Jefferson (Prospectus ID #21, 33.8% of the pool), is secured by an office building in Parsippany, New Jersey, and the second-largest loan, Doubletree Hotel Wilmington (Prospectus ID #4, 14.3% of the pool), is secured by a full-service hotel in Wilmington, Delaware. All of the seasoned loans, the largest of which represents 2.3% of the pool balance, are secured by multifamily and manufactured housing community properties. Of the remaining seasoned loans, 90 loans, representing 49.0% of the current pool balance, are fully amortizing.

As of the April 2018 remittance, there are seven loans in special servicing, representing 4.3% of the current pool balance. The largest specially-serviced loan is Prospectus ID #11, 6050 S. Harvey Avenue (1.8% of the pool). That loan is secured by a multifamily property in Oklahoma City, Oklahoma and was transferred to special servicing for significant condition issues at the property. Based on the information provided by the servicer, DBRS assumed a loss for this loan, with a loss severity in excess of 30.0%. The remaining loans in special servicing were either analyzed with a stressed cash flow scenario to increase the POD and LGD or were liquidated based on recent appraised values.

In addition, there are six loans on the servicer’s watchlist, representing 19.0% of the current pool balance, including the second-largest loan, Prospectus ID#2 – Doubletree Hotel Wilmington (14.3% of the current pool balance), which was flagged for a decline in performance, partially related to the increase in supply within the market. DBRS applied a stressed cash flow scenario in the analysis for this loan for this review, significantly increasing the required subordination levels as compared with the issuance scenario. For additional information on the DBRS view on this loan, please see the DBRS Viewpoint platform, for which information is provided, below.

Class X-A and X-B are interest-only (IO) certificates that reference a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation tranche adjusted upward by one notch if senior in the waterfall.

All ratings will be subject to ongoing surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed or discontinued by DBRS.

As part of this review, DBRS has provided updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:

-- 399 Jefferson
-- Doubletree Hotel Wilmington
-- 6050 S Harvey Avenue
-- 600 N. Council Road
-- Edgewood Village Apartments

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrs.com. The platform includes issuer and servicer data for the entire CMBS universe, as well as deal and loan-level commentary for all DBRS rated transactions.

The ratings assigned to Class C materially deviate from the higher ratings 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 deviations are warranted given loan-level event risk.

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

The principal methodology is CMBS North American Surveillance, which can be found on dbrs.com under Methodologies. For a list of the Structured Finance-related methodologies that may be used during the rating process, please see the DBRS Global Structured Finance Related Methodologies document on www.dbrs.com. Please note that not every related methodology listed under a principal Structured Finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

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 under Related Documents or by contacting us at info@dbrs.com.

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

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

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