DBRS Morningstar Downgrades Seven Classes of COMM 2014-CCRE21 Mortgage Trust
CMBSDBRS Limited (DBRS Morningstar) downgraded the following ratings on the Commercial Mortgage Pass-Through Certificates, Series 2014-CCRE21 issued by COMM 2014-CCRE21 Mortgage Trust:
-- Class D to BB (high) (sf) from BBB (low) (sf)
-- Class E to BB (low) (sf) from BB (high) (sf)
-- Class F to B (sf) from BB (low) (sf)
-- Class G to B (low) (sf) from B (sf)
-- Class X-C to BBB (low) (sf) from BBB (sf)
-- Class X-D to B (high) (sf) from BB (sf)
-- Class X-E to B (sf) from B (high) (sf)
DBRS Morningstar also confirmed the ratings on the following classes:
-- Class A-SB at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-M at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class PEZ at A (low) (sf)
-- Class X-A at AAA (sf)
-- Class X-B at A (sf)
In addition, DBRS Morningstar changed the trends on Classes D, E, F, G, X-C, X-D, and X-E to Negative from Stable and maintained the Interest in Arrears designation on Class G. The trends for the remaining eight classes are Stable. DBRS Morningstar notes its concerns with the significant concentration of retail and hospitality loans that collectively represent 43.6% of the pool. Thirteen loans, representing 25.0% of the current pool balance, are secured by retail collateral, while six loans, representing 18.6% of the current pool, are secured by hospitality collateral. These property types have been the most severely affected by the initial effects of the Coronavirus Disease (COVID-19) pandemic and, as such, those concentrations suggest increased risks for the pool, particularly at the lower rating categories, since issuance. Additionally, DBRS Morningstar notes its concerns with the large concentration of specially serviced loans that includes six loans, representing 21.2% of the current pool balance. Three of the six loans are in the top 10 largest remaining loans.
The largest loan in special servicing, King Shop’s (Prospectus ID#3; 7.3% of the current pool balance), is secured by a 69,023 sf retail property in Waikoloa, Hawaii, and in proximity to several of the area’s largest resorts. This loan transferred to the special servicer in September 2020 due to payment delinquency and the borrower’s request for relief given the coronavirus pandemic. The subject also lost its former largest tenant, Macy’s, in January 2020. Macy’s previously occupied 10,008 sf (14.5% of the net rentable area) and no recent leases being reported to backfill the space. Additionally, the loan has continued to report declining cash flow performance as it reported a year-end (YE) 2019 debt service coverage ratio (DSCR) of 1.38 times (x) that represents a decrease since issuance. DBRS Morningstar expects a continued decline given the Macy’s departure, continued effects of the pandemic on current tenants, and near-term rollover of approximately 28.2% by April 2021. DBRS Morningstar increased the probability of default (POD) to account for these risks.
The second-largest loan in special servicing is secured by the Hilton College Station (Prospectus ID#7; 4.9% of the current pool balance), a 303-key full-service hotel in College Station, Texas, in proximity to Texas A&M University. Per the June 2020 Asset Summary Report, the sponsor attributed the decline in the subject’s performance to oversupply in the market as there are more than 11 other hotels within a mile of the subject that all compete for the same demand from generators such as collegiate sports and conventions. In addition, the borrower didn’t have the funds to complete the Hilton property improvement plan required upon acquisition, which resulted in newer properties outperforming the subject. The property has experienced multiple appraisal reductions since issuance, most recently reporting a September 2020 value of $12.8 million ($42,000 per key), representing a 76.6% decline from the issuance value of $54.8 million ($180.693 per key). DBRS Morningstar liquidated the loan in its analysis for this review that resulted in a significant loss estimate.
Per the November 2020 remittance, there are 10 loans, representing 25.5% of the current pool balance, on the servicer’s watchlist. The Loews Miami Beach Hotel (Prospectus ID#32; 9.1% of the current pool balance), secured by a 790-key full service hotel in Miami Beach, Florida, was added to the servicer’s watchlist given the sponsor’s request for pandemic-related payment relief; it has since been granted a forbearance. While DBRS Morningstar notes that the property benefits from the sponsor’s long-term ownership by MB Redevelopment and continued outperformance relative to its competitive set, the property has seen a drop in occupancy and RevPAR for the trailing 12 months ending August 2020 and a drop in cash flow from a YE2019 DSCR of 3.21x to 1.66x in June 2020. DBRS Morningstar applied a POD increase to account for these short-term risks. For the remaining loans on the watchlist, DBRS Morningstar generally applied increased POD factors where applicable.
At issuance, the transaction consisted of 59 loans at an original trust balance of $824.8 million. Per the November 2020 remittance, 51 loans remain in the transaction at a current trust balance of $657.9 million, representing a collateral reduction of approximately 20.2%. The transaction’s highest property concentration is multifamily, represented by 13 loans and 26.3% of the current pool balance. There are three loans, representing 2.4% of the current pool balance, that are fully defeased.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.
DBRS Morningstar materially deviated from its North American CMBS Insight Model when determining the rating for Class F as the quantitative results suggested a lower rating. The material deviation is warranted, given the uncertain loan-level event risk with the loans in special servicing and on the servicer’s watchlist.
Classes X-A, X-B, X-C, X-D, and X-E 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 are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.
DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:
-- Prospectus ID#2 – The Loews Miami Beach Hotel (9.1% of the pool)
-- Prospectus ID#3 – King Shop’s (7.3% of the pool)
-- Prospectus ID#7 – Hilton College Station (4.9% of the pool)
For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes issuer and servicer data for most outstanding CMBS transactions (including non-DBRS Morningstar rated), as well as loan-level and transaction-level commentary for most DBRS Morningstar-rated and -monitored transactions.
Notes:
All figures are in U.S. dollars unless otherwise noted.
The principal methodology is the North American CMBS Surveillance Methodology (March 6, 2020), which can be found on dbrsmorningstar.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 Morningstar Global Structured Finance Related Methodologies document, which can be found on dbrsmorningstar.com in the Commentary tab under Regulatory Affairs. 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.
For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.
For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.
For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.
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@dbrsmorningstar.com.
The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar 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. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS Morningstar long-term rating scale definition indicates that ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.
Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.
For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.
DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577
Ratings
ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.