DBRS Assigns Negative Trends to Two Classes, Confirms Ratings of COMM 2014-UBS4 Mortgage Trust

DBRS Limited (DBRS) confirmed the ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2014-UBS4 issued by COMM 2014-UBS4 Mortgage Trust 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-M at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (sf)
-- Class X-B at A (high) (sf)
-- Class C at A (sf)
-- Class PEZ at A (sf)
-- Class D at BBB (low) (sf)
-- Class X-C at BB (high) (sf)
-- Class E at BB (sf)
-- Class X-D at B (high) (sf)
-- Class F at B (sf)

In addition, DBRS has assigned a Negative trend for the Class F and Class X-D certificates. All other trends are Stable. The Class PEZ certificates are exchangeable for the Class A-M, Class B and Class C certificates (and vice versa).

The rating confirmations reflect the overall stable performance of the transaction since issuance, with Negative trends assigned to the two junior classes listed above to reflect DBRS’s concerns surrounding performance declines for two of the top ten loans in the pool in Prospectus ID#2, 597 Fifth Avenue (8.4% of the pool balance) and Prospectus ID #9, Cross County Plaza (5.6% of the pool balance), as well as the two specially serviced loans in the pool. As of the May 2018 remittance, all of the original 91 loans remained in the pool, with an aggregate principal balance of $1,243.7 million, representing a collateral reduction of 3.6% since issuance as a result of scheduled loan amortization.

The pool benefits from defeasance collateral with seven loans, representing 3.3% of the pool, fully defeased. Based on the most recent year-end cash flows reported for the 84 non-defeased loans, the pool reported a weighted-average (WA) debt service coverage ratio (DSCR) and WA debt yield of 1.61 times (x) and 10.2%, respectively, compared with the WA DBRS Term DSCR and DBRS Debt Yield of 1.49x and 8.8%, respectively, derived at issuance for the same loans.

The second-largest loan, Prospectus ID #2, 597 Fifth Avenue, is secured by two Class B mixed-use retail and office properties in Midtown Manhattan. The loan was added to the servicer’s watchlist when Sephora, which previously occupied the retail space and made up 80.5% of revenues for the property, vacated its space in March 2017. A lease with Lululemon was signed and began in June 2017, with a July 2018 expiration date, after which the tenant will switch to a month-to-month lease. The loan reported a YE2017 DSCR of 0.24x, driven by the low occupancy rate for most of 2017. Given the deteriorating market conditions for retail within the subject’s vicinity and overall submarket, DBRS assumed a stressed cash flow scenario for the loan and will continue to monitor for further developments.

Another loan of concern, Prospectus ID #9, Cross Country Plaza, is secured by a 357,537 square foot (sf) power retail center property located in West Palm Beach, Florida. K-Mart is the anchor and represents 35% of NRA, with a lease expiration in September 2018; however, the space has been dark since August 2016. This should have gotten the loan placed on the servicer’s watchlist, but to date that has not occurred. DBRS has requested clarification from the servicer. Also noteworthy, another large tenant at the subject, Winn-Dixie (15.2% of the NRA), is being monitored by DBRS for the bankruptcy filing by the store’s parent company, Southeastern Grocers. Given these factors, as well as the property’s awkward site configuration that could limit leasing prospects for any vacancies, DBRS assumed a stressed cash flow scenario for the loan and will closely monitor for developments.

As of the May 2018 remittance there are two loans in special servicing, representing a combined 1.9% of the current pool balance. The largest of these loans, Prospectus ID#19, The Showcase at Indio (1.7% of the current pool balance), is secured by a 157,540 sf anchored retail property located in Indio, California. The issues with the loan started in early 2017 after the Target shadow anchor was closed. There were 12 tenants that had co-tenancy clauses allowing them to pay percentage rent in lieu of base rent for an ongoing period until the former Target box was fully leased, substantially reducing cash flows at the property. At Q1 2018, the loan reported a DSCR of 0.78x. As of May 2018, the loan remains current and the special servicer reports that the borrower is in negotiations to buy the former Target site, with national tenants in line to take the divided space once the deal is finalized. A DBRS analyst visited the property in late 2017 and observed that the center, while generally well-located along a major freeway, suffers from poor access from the exit ramp and competition from a superior power center located across the street. DBRS believes there is potential for a loss to the trust with this loan, and in the analysis for this review assumed a loss severity in excess of 20.0%. The loan will be closely monitored for developments. For additional information on the pivotal loans and both loans in special servicing, please see the Loan Commentary on the DBRS Viewpoint platform, for which information is provided below.

Classes X-A, X-B, X-C and X-D 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:

-- 597 Fifth Avenue, Prospectus ID#2
-- Cross Country Plaza, Prospectus ID#9
-- 88 Third Avenue, Prospectus ID#11
-- The Showcase at Indio, Prospectus ID#19
-- Columbia Associates Portfolio, Prospectus ID#28
-- Stanley Apartments, Prospectus ID#75
-- Microtel Inn & Suites, Prospectus ID#80

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.

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.