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

DBRS Limited (DBRS Morningstar) 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 (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)

DBRS Morningstar removed classes X-F and F from Under Review with Negative Implications where it had placed them on August 6, 2020. All trends are Stable, with the exception of Classes F and X-F, which have Negative trends.

The rating confirmations reflect the overall stable performance of the transaction since issuance. As of the February 2021 remittance, there has been a collateral reduction of 15.9%, with 88 loans remaining in the pool. The pool is fairly concentrated by property type as 35 loans, representing 29.0% of the pool, are secured by retail properties and nine loans (17.9% of the pool) are secured by lodging properties, with these two property types collectively representing 47.9% of the pool.

The Negative trend on the lowest-rated principal and interest-only (IO) classes is reflective of DBRS Morningstar’s concerns for some of the loans in special servicing. As of the February 2021 remittance, seven loans are in special servicing, representing 10.8% of the pool balance. These loans include the eighth-largest loan in the pool, Hilton Garden Inn Cupertino (Prospectus ID#8; 3.3% of the pool balance), which is secured by a 164-key limited-service hotel located in Cupertino, California, two miles east of Apple's global headquarters. The loan was transferred to special servicing in June 2020 following the borrower’s relief request. As of the February 2021 remittance, the loan was reported at less than 30 days delinquent, with the servicer reporting that negotiations for a loan modification remained ongoing.

As of June 2020, the loan reported an annualized debt service coverage ratio (DSCR) of 0.32 times (x), compared with the YE2019 DSCR of 4.33x. As of the July 2020 Smith Travel Research report, the property reported an occupancy and revenue per available room of 53.7% and $122.29, respectively, compared with the competitive set's figures of 47.6% and $122.29, respectively.

The second-largest loan in special servicing is also secured by a limited-service hotel. The Hilton Garden Inn Austin Northwest loan (Prospectus ID#16; 1.8% of the pool balance) is secured by a 138-key limited-service hotel located in Austin, Texas. The loan transferred to special servicing in May 2020 for imminent monetary default and, as of the February 2021 remittance, was last paid through March 2020. According to the servicer, discussions regarding a loan modification proposal remain ongoing with the sponsor. Prior to the pandemic, the property performance had declined from the issuance levels, with the YE2018 and YE2019 DSCRs reported at 1.25x and 1.23x, respectively, compared with the DBRS Morningstar DSCR at issuance of 1.58x and the issuer’s DSCR of 1.67x. Given the pre-pandemic performance declines, likely driven by increased supply in the market, the prospects for a successful resolution of the outstanding defaults are comparatively low and, as such, the loan was analyzed with a significantly increased probability of default to increase the expected loss in the analysis for this review. The concerns with this loan were a primary driver for the Negative trends assigned to two classes as previously detailed.

According to the February 2021 remittance, 21 loans (24.3% of the pool balance) are on the servicer’s watchlist, collectively representing 30.8% of the pool, and inclusive of six loans secured by cooperative properties, representing 1.9% of the pool. These loans are generally not exhibiting significantly increased risks from issuance. The 15 loans backed by other property types that are on the servicer’s watchlist include the New Town Shops on Main loan (Prospectus ID#9; 2.5% of the pool balance), which is secured by an anchored retail center located in Williamsburg, Virginia. The loan was placed on the servicer’s watchlist in November 2020 due to declines in performance. As of June 2020, the property reported a DSCR of 1.30x, compared with the December 2019 DSCR of 1.77x. The largest tenants include Williamsburg Cinema, Richmond Fitness Inc., and Barnes & Noble. As of February 2021, Williamsburg Cinema remains temporarily closed and Richmond Fitness Inc. has an upcoming lease expiry in October 2021. Given these factors, as well as the concentration in entertainment-related tenants in a secondary market, DBRS Morningstar analyzed this loan with an increased probability of default to increase the expected loss for this review.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

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 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#9 – New Town Shops on Main (2.5% of the pool)
-- Prospectus ID#16 – Hilton Garden Inn Austin Northwest (1.8% 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 [email protected].

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 [email protected].

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