DBRS Morningstar Confirms Ratings on WFRBS Commercial Mortgage Trust 2014-C23, Removes Six Ratings from Under Review with Negative Implications

DBRS Limited (DBRS Morningstar) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2014-C23 issued by WFRBS Commercial Mortgage Trust 2014-C23 as follows:

-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-Y 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-C at BB (high) (sf)
-- Class E at BB (sf)
-- Class X-D at B (high) (sf)
-- Class F at B (sf)

The trends on Classes X-C, E, X-D, and F are Negative while the trends on all other classes are Stable. DBRS Morningstar also removed the ratings on Classes X-B, D, X-C, E, X-D, and F from Under Review with Negative Implications, where they were placed on August 6, 2020.

The rating confirmations reflect the overall stable performance of the transaction. The Negative trends on Classes X-C, E, X-D, and F reflect continued performance issues with loans secured by retail and hotel properties, which the ongoing Coronavirus Disease (COVID-19) pandemic has disproportionately affected; these loans represent 31.0% of the current pool balance. As of November 2020 reporting, two loans are in special servicing, representing 4.0% of the current pool balance, and 25 loans are on the servicer’s watchlist, representing 24.5% of the current pool balance.

As of November 2020, the transaction consisted of 82 loans totalling $827.4 million. Ten of the original 92 loans have been repaid, resulting in collateral reduction of 12.1% including loan amortization. The transaction benefits from a concentration of office collateral as eight loans, representing 29.2% of the current pool balance, are secured by office properties, which have shown greater resilience to cash flow declines during the pandemic. This includes the largest loan in the transaction, Bank of America Plaza (14.1% of the current pool balance), which is secured by an office tower in downtown Los Angeles. Additionally, 11 loans, representing 5.1% of the current pool balance, are secured by defeasance collateral.

The largest loan in special servicing, 677 Broadway (Prospectus ID#6, 3.1% of the current pool balance), was brought current with the November 2020 remittance. The loan transferred to special servicing in May 2020 for imminent default following the loss of two major tenants—McNamee, Lochner, Titus & Williams, P.C. (12.9% of the net rentable area (NRA)) and Fuller O’Brien Gallagher (8.9% of the NRA)—bringing occupancy down to its current rate of 67.0%. In addition, Jackson Lewis P.C. (14.5% of the NRA) announced that it would reduce its footprint by 9,900 square feet (sf; 5.6% of the NRA) in February 2021, maintaining its status as the largest tenant with 15,731 sf (8.9% of the NRA). According to the initial asset summary report from July 2020, the borrower submitted a loan modification proposal while the mezzanine lender was pursuing foreclosure pursuant to the intercreditor agreement. As of November 2020 reporting, the loan was listed with foreclosure as the workout strategy. The sponsor used loan proceeds of $28.9 million, along with $6.6 million in borrower equity and $3.4 million in mezzanine debt, to fund the acquisition of the collateral, a Class A office property totalling 177,039 sf on the outskirts of the central business district of Albany, New York. Per the July 2020 appraisal, the property had an as-is value of $16.0 million ($90 per sf (psf)), well below the appraised value of $39.0 million ($220 psf) at issuance, reflecting a value reduction of 59.0%. While DBRS Morningstar views the value decline as a major credit risk, DBRS Morningstar is awaiting an update on the special servicer's workout strategy and, if the mezzanine lender forecloses on the borrower, its plan to stabilize the property.

The second loan in special servicing, Hampton Inn & Suites Lenox (Prospectus ID#21, 0.9% of the current pool balance), is currently 121+ days delinquent; however, a modification was reportedly executed in October 2020, which would result in the loan’s correction and return to the master servicer in Q1 2021. The terms of the relief package include a nine-month forbearance followed by interest-only (IO) payments for the following 15 months. The loan is secured by a 79-key, limited-service hotel in Lenox, Massachusetts.

Of the 25 loans on the servicer’s watchlist, seven loans (17.4% of the current pool balance) were added for performance-related declines, three loans (3.9% of the current pool balance) were added for increased vacancy (3.9% of the current pool balance), four loans (1.1% of the current pool balance) were added as a result of deferred maintenance discovered in the properties’ most recent inspection, and one loan (0.1% of the current pool balance) was added for delayed financial reporting. The remaining 10 loans (2.0% of the current pool balance) are secured by cooperative housing properties and, despite their inclusion on the servicer’s watchlist, benefit from extremely low leverage as exhibited by their weighted-average loan-to-value ratio of 14.5% at issuance.

Crossings at Corona (Prospectus ID#2, 8.6% of the current pool balance) was added to the watchlist in April 2018 following Toys "R" Us (7.6% of the NRA) vacating its space as part of its corporate liquidation. Occupancy trended downward to 79% as of June 2020 and financial performance followed suit, most recently reflected in the annualized debt service coverage ratio of 0.99 times. However, the loan remains current as of November 2020 with approximately $11.0 million in reserves, most of which the earnout reserve of $6.5 million (which has not yet been released based on the criteria) funded. The loan is secured by an 834,075-sf power center in Corona, California, approximately 50 miles southeast of Los Angeles. Developed in four phases between 2004 and 2007, Target shadow anchors the property alongside collateral anchor tenants, including Kohl’s (10.4% of the NRA; expiring January 2024), Regal Cinemas (9.6% of the NRA; expiring November 2024), and Best Buy (5.4% of the NRA; expiring March 2024).

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.

Classes X-A, X-B, X-C, X-D, and X-Y 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 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#5 – Centennial Center & Two Century Center (4.9% of the pool)
-- Prospectus ID#6 – 677 Broadway (3.1% 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 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.

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