DBRS Confirms All Classes of Wells Fargo Commercial Mortgage Trust 2014-LC18

DBRS, Inc. (DBRS) confirmed the ratings of all classes of Commercial Mortgage Pass-Through Certificates, Series 2014-LC18 issued by Wells Fargo Commercial Mortgage Trust 2014-LC18 as follows:

-- 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-S at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class PEX at A (low) (sf)
-- Class X-B at BBB (sf)
-- Class D at BBB (low) (sf)
-- Class X-E at BB (sf)
-- Class E at BB (low) (sf)
-- Class X-F at B (sf)
-- Class F at B (low) (sf)

All trends are Stable.

The Class PEX certificates are exchangeable with the Class A-S, Class B and Class C certificates (and vice versa).

The rating confirmations reflect the overall stable performance of the transaction since issuance in December 2014, when the pool consisted of 99 loans secured by 117 commercial properties. As of the November 2018 remittance, 98 of the original 99 loans remain in the pool, with a collateral reduction of 6.0% since issuance as a result of scheduled amortization and one loan repayment. As of the November 2018 remittance, 20 loans (34.1% of the pool balance) have remaining interest-only (IO) periods, with 13 of those loans (12.5% of the pool balance) structured with a full IO term.

As of the most recent year-end cash flow figures, the pool reported a strong weighted-average (WA) preceding-year debt service coverage ratio (DSCR) and debt yield of 1.92 times (x) and 11.5%, respectively, compared with the WA DBRS Term DSCR and DBRS Debt Yield at issuance of 1.90x and 10.9%, respectively. As of November 2018, 80 loans (92.8% of the pool balance) provided YE2017 financials and 79 loans (90.5% of the pool balance) provided partial-year 2018 financials. Four loans (5.9% of the pool balance) mature prior to December 2019. In general, those loans are performing well, with a WA DSCR and debt yield of 2.50x and 17.8%, respectively, indicating a high likelihood of refinance and further paydown of the certificate balance in the next 12 months.

Although the pool performance has remained steady since issuance, with the top class repaid and no losses to date, there are three loans, representing 2.8% of the pool balance, in special servicing as of the November 2018 remittance. There are also nine loans, representing 9.0% of the pool balance, on the servicer’s watchlist. In general, the larger loans on the watchlist are not expected to default, and DBRS notes that most have mitigating factors for the issues currently outstanding. The largest watchlisted loan, Colorado Mills (Prospectus ID#6; 3.3% of the pool balance), had significant hail damage in May 2017 and is being monitored through the repair process. A DBRS analyst visited the property on Friday, November 16, 2018, and noted that repairs appear to be in the final stages, with the mall quite busy during the visit. For additional information on the observations at that visit and the loan in general, please see the DBRS Viewpoint platform, for which information has been provided below.

Two of the loans in special servicing have been in default for a year or more, including Sand Creek Estates (Prospectus ID#27; 1.1% of the pool) and The Gardens on Whispering Pines (Prospectus ID#40; 0.9% of the pool). The third loan in special servicing, 13201 Northwest Freeway, recently transferred to special servicing with the October 2018 remittance. That loan is secured by a suburban office property in Houston and was transferred for imminent default following the sponsor’s notice to the servicer that the property’s largest tenant (approximately 35.0% of the net rentable area) would be vacating at lease expiry next year. There is limited information available about the status of the workout for that loan given the recent transfer; as such, DBRS applied a stressed cash flow scenario to increase the probability of default for the loan as part of this review.

The Sand Creek Estates loan is secured by two manufactured housing communities located in the Bakken shale oilfield region of North Dakota, which has been adversely affected by declines in the oil and gas sector in recent years. As of the November 2018 remittance, the loan was due for February 2018 payment and all payments due thereafter, with a total trust exposure of approximately $11.5 million. The servicer obtained a March 2018 appraisal valuing the property at $11.3 million, and based on this value, DBRS estimates the loss severity could approach 40.0% upon resolution. The Gardens on Whispering Pines loan is secured by two adjacent multifamily properties located in Albany, Georgia, and was transferred to the special servicer due to a legal dispute over a former partner’s equity sale. The property has been underperforming since 2016, and the special servicer is pursuing foreclosure; a June 2018 appraisal valued the property at $9.7 million, suggesting that a loss severity in excess of 30.0% could be realized at liquidation. DBRS expects losses for these two loans to be contained to the unrated Class G certificates, which had an outstanding balance of $34.2 million as of November 2018.

Classes X-A, X-B, X-E, X-F and X-G are 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:

-- Prospectus ID#1 ¬– Hawaii Kai Towne Center (7.4% of the pool balance)
-- Prospectus ID#2 – JW Marriott New Orleans (4.4% of the pool balance)
-- Prospectus ID#6 – Colorado Mills (3.2% of the pool balance)
-- Prospectus ID#26 – Coral Gables Retail (1.2% of the pool balance)
-- Prospectus ID#27 – Sand Creek Estates (1.1% of the pool balance)
-- Prospectus ID#33 – 13201 Northwest Freeway (1.0% of the pool balance)
-- Prospectus ID#40 – The Gardens on Whispering Pines (0.9% of the pool balance)

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 commercial mortgage-backed securities 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 North American CMBS Surveillance Methodology, which can be found on dbrs.com under Methodologies & Criteria. 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 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.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

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