Press Release

DBRS Morningstar Downgrades Five Classes of Wells Fargo Commercial Mortgage Trust 2014-LC16

CMBS
March 08, 2021

DBRS Limited (DBRS Morningstar) downgraded the ratings of the Commercial Mortgage Pass-Through Certificates, Series 2014-LC16 issued by Wells Fargo Commercial Mortgage Trust 2014-LC16 as follows:

-- Class B to A (low) (sf) from AA (low) (sf)
-- Class C to CCC (sf) from A (low) (sf)
-- Class D to C (sf) from BBB (low) (sf)
-- Class E to C (sf) from BB (sf)
-- Class F to C (sf) from B (sf)

In addition, DBRS Morningstar confirmed the remaining classes 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)

DBRS Morningstar also discontinued its ratings on Classes X-B, X-C, and X-D as they reference classes that now have C (sf) ratings.

All trends are Stable with the exception of Class B, which has a Negative trend. In addition, Classes C, D, E, and F have ratings that do not carry a trend.

With this review, DBRS Morningstar removed Classes D, E, and F as well as Classes X-B, X-C, and X-D from Under Review with Negative Implications where they were placed on October 16, 2020, and August 6, 2020, respectively. DBRS Morningstar also designated Classes C, D, E, and F as having Interest in Arrears.

The rating downgrades and Negative trend generally reflect DBRS Morningstar’s updated loss projections for the two largest loans in the pool, Woodbridge Center (Prospectus ID#1, 14.8% of the pool) and Montgomery Mall (Prospectus ID#3, 7.1% of the pool), as well as a third loan, Oak Court Mall (Prospectus ID#18, 1.9% of the pool). All three loans are secured by regional malls and all are delinquent and currently with the special servicer. All three are further discussed below, but among the most noteworthy developments for these three loans is the value decline for the Woodbridge Center property as of the December 2020 appraisal, which showed an as-is value of $104 million, down from $366 million at issuance.

As of the February 2021 remittance, 70 of the original 82 loans remain in the pool, representing a collateral reduction of 21.5% since issuance. Nine loans, representing 5.4% of the current pool balance, are fully defeased. Including the three previously mentioned loans, there are eight loans total in special servicing, representing 31.0% of the pool balance. Additionally, there are eight loans, representing 10.7% of the current trust balance, on the servicer’s watchlist as of the February 2021 remittance. The servicer is monitoring these loans for a variety of reasons, including low debt service coverage ratio (DSCR) and occupancy issues; however, the primary reason for the increase of loans on the watchlist is the Coronavirus Disease (COVID-19)-driven stress for retail and hospitality properties, with watchlisted loans backed by those property types generally reporting a low DSCR.

The Woodbridge Center is a pari passu loan that is secured by the fee interest in a 1.1-million-square-foot (sf) portion of a 1.7-million-sf super-regional mall in Woodbridge, New Jersey, approximately 30 miles southwest of New York City. The Class B mall was originally built in 1971 and is owned and operated by affiliates of Brookfield Property Partners. The mall has reported cash flow declines for several years and with the closure of the former Lord & Taylor anchor in January 2020, and shortly thereafter the closure of the Sears anchor in February 2020, the property was struggling even before the coronavirus pandemic. In May 2020, the loan transferred to special servicing due to imminent default and, as of the February 2021 remittance, the loan was most recently paid in April 2020.

Although the servicer’s reporting has consistently showed a DSCR above 2.0 times (x) for both pieces of this loan, the debt service calculation does not appear to be correct as the reported net cash flow (NCF) figures have consistently held below the issuer’s figure since YE2016, with an issuer’s DSCR of 1.42x. The YE2019 DSCR of 2.19x reported by the servicer should be approximately 1.13x using the full debt service figure and the servicer’s reported NCF figure, which is 20.1% below the issuer’s NCF.

According to the February 2021 commentary, the special servicer continues to discuss possible workout strategies for the loan. As previously highlighted, the collateral was reappraised in December 2020 at a value of $104.0 million, drastically down by 71.6% from the $366.0 million appraised value at issuance. The 2020 value implies an in-place loan-to-value ratio of 226.3%, compared with 64.91% at issuance. Contributing factors to the lower value include the two dark anchor spaces, the relatively low in-line sales for the property that could suggest further occupancy loss, and, likely, the low demand for the property should it be marketed for sale in the current environment. The most recent sales report on file with DBRS Morningstar, dated December 2018, showed tenants less than 10,000 sf reported sales of $357 per sf, which was up by 1.7% from the prior year. Based on the December 2020 value, DBRS Morningstar liquidated the loan in the analysis for this review, a scenario that resulted in an implied loss severity in excess of 70.0%.

Montgomery Mall is a regional mall in North Wales, Pennsylvania, approximately 22 miles north of Philadelphia, that is owned and operated by Simon Property Group. The mall is anchored by a JCPenney, DICK’s Sporting Goods, Macy’s, and Wegmans Food Markets; however, the mall lost the noncollateral anchor Sears in February 2020. Per the September 2020 rent roll, the mall’s occupancy rate has declined considerably since issuance to 74.2% from 92.4%. The mall’s anchors present additional risk since issuance with JCPenney and Macy’s publicly announcing in recent years their plans for additional store closures throughout the country. While the loan reported a sufficient DSCR of 1.98x for YE2019, the property’s NCF significantly declined to $9.2 million in 2019, well below the issuer’s underwritten NCF of $14.2 million at issuance. The servicer had previously noted that the sponsor was unwilling to inject additional capital into the collateral; however, the special servicer continues to discuss possible loan modification solutions as of February 2021. The collateral was reappraised in August 2020 for a value of $61.0 million, down 61.7% from the $195.0 million appraised value at issuance. DBRS Morningstar liquidated the loan from the trust as part of the subject analysis, which resulted in an implied loss severity in excess of 50.0%.

The Oak Court Mall loan is secured by the in-line portion and a 50,000-sf anchor box of a regional mall in Memphis, Tennessee. The mall is owned and operated by Washington Prime Group and is anchored by noncollateral anchors Macy’s and Dillard’s Women’s. The loan transferred to the special servicer in May 2020 due to imminent monetary default and forbearance relief was requested. As of January 2021, the special servicer and borrower agreed to a preliminary loan modification that would include the extension of the loan term (the loan is currently scheduled to mature in April 2021), the deferment of debt service payments, and the implementation of a hard cash management. The collateral’s performance had been steadily deteriorating prior to the coronavirus pandemic with a YE2019 DSCR of 1.21x, compared with the YE2018 DSCR of 1.45x and YE2017 DSCR of 1.86x. The June 2020 rent roll showed the mall was 98.3% occupied and the largest three collateral tenants included Dillard’s Men’s (20.8% of collateral net rentable area (NRA)), H&M (2.7% of collateral NRA), and New Square (1.0% of collateral NRA). Dillard’s Men’s subsequently vacated its 50,000-sf suite in January 2021. The collateral’s occupancy rate is projected to decrease to approximately 77.5% as a result. The collateral was reappraised in July 2020 for a value of $15.0 million, down 75.4% from the $61.0 million appraised value at issuance. DBRS Morningstar liquidated the loan from the trust as part of the subject analysis, resulting in an implied loss severity in excess of 70.0%.

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.

Class X-A is an interest-only (IO) certificate that references 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#1 – Woodbridge Center (14.8% of the pool)
-- Prospectus ID#3 – Montgomery Mall (7.1% of the pool)
-- Prospectus ID#18 – Oak Court Mall (1.9% 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 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

  • Date IssuedDebt RatedRatingTrendActionAttributesi
    08-Mar-21Commercial Mortgage Pass-Through Certificates, Series 2014-LC16, Class A-4AAA (sf)StbConfirmed
    CA
    08-Mar-21Commercial Mortgage Pass-Through Certificates, Series 2014-LC16, Class A-5AAA (sf)StbConfirmed
    CA
    08-Mar-21Commercial Mortgage Pass-Through Certificates, Series 2014-LC16, Class A-SAAA (sf)StbConfirmed
    CA
    08-Mar-21Commercial Mortgage Pass-Through Certificates, Series 2014-LC16, Class A-SBAAA (sf)StbConfirmed
    CA
    08-Mar-21Commercial Mortgage Pass-Through Certificates, Series 2014-LC16, Class X-AAAA (sf)StbConfirmed
    CA
    08-Mar-21Commercial Mortgage Pass-Through Certificates, Series 2014-LC16, Class BA (low) (sf)NegDowngraded, Trend Change
    CA
    08-Mar-21Commercial Mortgage Pass-Through Certificates, Series 2014-LC16, Class CCCC (sf)--Int. in Arrears, Downgraded, Trend Change
    CA
    08-Mar-21Commercial Mortgage Pass-Through Certificates, Series 2014-LC16, Class DC (sf)--Int. in Arrears, Downgraded
    CA
    08-Mar-21Commercial Mortgage Pass-Through Certificates, Series 2014-LC16, Class EC (sf)--Int. in Arrears, Downgraded
    CA
    08-Mar-21Commercial Mortgage Pass-Through Certificates, Series 2014-LC16, Class FC (sf)--Int. in Arrears, Downgraded
    CA
    08-Mar-21Commercial Mortgage Pass-Through Certificates, Series 2014-LC16, Class X-BDiscontinued--Disc.-W/drwn
    CA
    08-Mar-21Commercial Mortgage Pass-Through Certificates, Series 2014-LC16, Class X-CDiscontinued--Disc.-W/drwn
    CA
    08-Mar-21Commercial Mortgage Pass-Through Certificates, Series 2014-LC16, Class X-DDiscontinued--Disc.-W/drwn
    CA
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    Less
Wells Fargo Commercial Mortgage Trust 2014-LC16
  • US = Lead Analyst based in USA
  • CA = Lead Analyst based in Canada
  • EU = Lead Analyst based in EU
  • UK = Lead Analyst based in UK
  • E = EU endorsed
  • U = UK endorsed
  • Unsolicited Participating With Access
  • Unsolicited Participating Without Access
  • Unsolicited Non-participating

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