DBRS Morningstar Downgrades Three Classes of Morgan Stanley Bank of America Merrill Lynch 2014-C18, Removes Under Review with Negative Implications

DBRS Limited (DBRS Morningstar) downgraded three ratings of the Commercial Mortgage Pass-Through Certificates, Series 2014-C18 issued by Morgan Stanley Bank of America Merrill Lynch Trust 2014-C18 (the Issuer):

-- Class D to BB (high) (sf) from BBB (low) (sf)
-- Class E to B (sf) from B (high) (sf)
-- Class X-B to BBB (low) (sf) from BBB (sf)

DBRS Morningstar also confirmed the following ratings of the Commercial Mortgage Pass-Through Certificates, Series 2014-C18:

-- Class A-SB at AAA(sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (low) (sf)
-- Class PST at A (low) (sf)
-- Class F at CCC (sf)
-- Class X-A at AAA (sf)
-- Class X-C at B (low) (sf)

DBRS Morningstar also confirmed the ratings on the following nonpooled rake bonds of the Commercial Mortgage Pass-Through Certificates, Series 2014-C18, which are backed by the $244.4 million subordinate B note of the 300 North LaSalle loan:

-- Class 300-A at AA (high) (sf)
-- Class 300-B at A (sf)
-- Class 300-C at BBB (sf)
-- Class 300-D at BB (sf)
-- Class 300-E at B (high) (sf)

All trends are Stable except for Classes D, E, X-B, and X-C, which now carry Negative trends, and except for Class F, which does not carry a trend. DBRS Morningstar also applied an Interest in Arrears Designation to Class E. DBRS Morningstar removed the Under Review with Negative Implications designation on Classes E, F, and X-C, which they were assigned on August 6, 2020.

DBRS Morningstar’s rating actions reflect its concerns with the trust’s significant concentration of retail and hospitality loans, which collectively represent 48.2% of the pool. Sixteen loans, representing 27.7% of the current pooled balance (excluding defeased loans), are secured by retail collateral, while eight loans, representing 19.6% of the current pool, are secured by hospitality collateral. These property types have been the most severely affected by the the coronavirus 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 eight loans, representing 20.8% of the current pooled balance. Four of the eight loans are among the 15 largest remaining loans.

The largest loan in special servicing, Ashford Hospitality Portfolio C1 (Prospectus ID#1; 8.0% of the pool), is secured by a portfolio of three hotels totaling 534 keys in Orlando, Florida; Fort Lauderdale, Florida; and Louisville, Kentucky. This loan transferred to the special servicer in April 2020 when the sponsor requested relief as a result of the Coronavirus Disease (COVID-19) pandemic. The mezzanine lender has completed a Uniform Commercial Code (UCC) foreclosure in September 2020 and has taken ownership of the properties. Prior to the pandemic, the loan’s net cash flow declined to $6.3 million in 2019 from $8.0 million in 2017. The primary drivers of this decline can be attributed to declines in occupancy and revenue per available room (RevPAR) for the Residence Inn Orlando Lake Buena Vista and Courtyard Louisville Airport properties between 2017 and 2019. DBRS Morningstar increased the probability of default (PoD) to account for the increased risk profile of this loan.

Per the November 2020 remittance, there are six loans, representing 13.0% of the current pool, on the servicer’s watchlist, including the second-largest loan remaining in the pool, Huntington Oaks Shopping Center (Prospectus ID#3, 8.7% of the pool). Secured by an anchored retail center in Monrovia, California, the loan was added to the watchlist in April 2018 when Toys R Us filed for bankruptcy and later vacated its space, which represented 13.0% of the NRA. DBRS Morningstar increased the PoD to reflect the short-term risks with this loan that include the concern with the prolonged vacancy of Toys R Us’ space and drop off in cash flow to 1.06x as of Q2 2020.

At issuance, the transaction consisted of 65 loans at an original trust balance of $1.03 billion. Per the November 2020 remittance, there are 52 loans remaining at a pooled trust balance of $692.1 million, representing a collateral reduction of 33.0%. The trust’s largest property concentration is represented by office collateral that consists of 11 loans and 34.2% of the pool balance. Additionally, there are five loans, representing 7.1% of the current pool, that are fully defeased.

DBRS Morningstar’s rating actions of the nonpooled rake certificates reflect the stable performance of the underlying collateral 300 North LaSalle, a 1.3 million sf Class A office building in Chicago’s River North submarket, since issuance. Originally constructed in 2009, 300 North LaSalle is a 60-story riverfront building with an extensive amenities package that includes an outdoor public plaza, conference center, onsite bank, cafe, fitness center, steakhouse restaurant, and subterranean valet parking garage. The property has won several awards, including a National Association of Industrial and Office Properties (Chicago) Award (2010), Architectural Record Good Design is Good Business Awards (2011), and Urban Land Institute Award (2011). The property is LEED Platinum certified and has received an EnergyStar certificate as well as the Chicago Building Owners and Managers Association Earth Award (2014). The sponsor used loan proceeds, consisting of a $475.0 million mortgage loan along with $381.6 million of borrower equity, to finance the Irvine Company LLC’s (Irvine) $850.0 million acquisition of the property. As of January 2020, the building was 95.8% leased with the largest tenants at the property including Kirkland & Ellis LLP (Kirkland) and the Boston Consulting Group (BCG).

ESG CONSIDERATIONS
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, and X-C 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#4 – Ashford Hospitality Portfolio C1 (8.0% of the pool)
-- Prospectus ID#11 – Louisiana and Mississippi Retail Portfolio (3.8% 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.

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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