DBRS Morningstar Downgrades Two Classes on Citigroup Commercial Mortgage Trust 2014-GC21; Removes Four Classes from UR-Neg.

DBRS Limited (DBRS Morningstar) downgraded the ratings on two classes of Commercial Mortgage Pass-Through Certificates, Series 2014-GC21 issued by Citigroup Commercial Mortgage Trust 2014-GC21 as follows:

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

DBRS Morningstar also confirmed the ratings on the following classes:

-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-AB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (sf)
-- Class X-B at A (high) (sf)
-- Class C at A (sf)
-- Class PEZ at A (sf)
-- Class D at BBB (low) (sf)
-- Class X-C at BB (high) (sf)
-- Class E at BB (sf)

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

The rating downgrades and negative trends generally reflect the overall weakened performance of the collateral since the last review and the increased likelihood of loss to the trust upon the resolution of Harbor Square (Prospectus ID#14, 2.1% of the pool), which is currently in special servicing.

As of the February 2021 remittance, 57 of the original 70 loans remain in the pool, with a trust balance of $745.5 million, representing a collateral reduction of 28.3% since issuance. A single loan has liquidated from the pool, resulting in an $8.9 million loss to the non-rated Class G in 2019. There are five loans, representing 5.5% of the current trust balance, that are fully defeased. By property type, the pool is most concentrated by retail, multifamily, and mixed-use, with loans secured by those property types representing 33.9%, 19.3%, and 11.1% of the current trust balance, respectively.

There are two loans in special servicing, representing 3.6% of the current trust balance. The larger of the two, Harbor Square (Prospectus ID#14, 2.1% of the current trust balance), was transferred to special servicing in February 2020 for imminent monetary default following the borrower’s notice that the property’s operations no longer supported debt payments. The property is secured by a 344, 823-square foot shopping center in Egg Harbor Township, New Jersey. At issuance, the property was anchored by Boscov's Department Store (49.8% of the net rentable area (NRA); lease expiration of September 2028) and Burlington Coat Factory (24.6% of the NRA), which vacated after their lease expiration in November 2019, causing occupancy to fall to 73.5%. According to servicer commentary, leasing momentum has garnered no momentum as a result of a struggling retail market, which has hindered tenant sales and re-tenanting efforts; this has likely been exacerbated by the ongoing Coronavirus Disease (COVID-19) pandemic. While tenant rollover is otherwise fairly granular, the property’s third-largest tenant, Spirit Halloween (9.2% of the NRA), has a lease expiration in March 2022, with no extension options available. Historically, the tenant has remained open only during the Halloween and Christmas seasons, allowing other tenants to use the space for employee training and storage the remainder of the year. The loan has a moderate loan-to-value ratio of 54.8% based on the February 2021 trust balance and the issuance value of $28.5 million; however, the current value of the property is likely far lower given the dark anchor space, paired with the poor property quality and the location of the subject. While no updated appraisal has been provided to date, DBRS Morningstar assumes the loan will take a significant loss upon resolution.

There are 11 loans, representing 41.7% of the current trust balance, on the servicer’s watchlist. 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-driven stress for retail and hospitality properties, with watchlisted loans backed by those property types generally reporting a declining DSCR.

The Lanes Mill Marketplace (Prospectus ID#9, 2.9% of the current trust balance) loan, which is secured by a mixed-use property in Howell, New Jersey, is being monitored on the servicer’s watchlist for performance-related declines stemming from increased vacancy. The loan is current as of the February 2021 reporting, but the DSCR has been below breakeven since the departure of Barnes & Noble (16.9% of the NRA), which vacated at lease expiration in February 2019. While the borrower was able to sign Sketchers (5.1% of the NRA) to a 10-year lease through June 2030, leasing activity has been significantly hindered by the coronavirus, although the borrower is actively marketing the space. The property is anchored by Stop & Shop (45.7% of the NRA; lease expiration of December 2028), and while grocery anchored properties have generally shown more resilience to the effects of the ongoing pandemic, the tenant reported a trailing 12 months ended December 2019 sales figure of $270 per square foot (psf), which is quite low, and well below the issuance figure of $446 psf. As of Q3 2020, the loan had an annualized net cash flow of $1.1 million (a DSCR of 0.74 times (x)), compared with $1.3 million (0.92x) at YE2019 and the DBRS Morningstar figure derived at issuance of $1.7 million (1.20x). Given the drastic decline in the anchor tenant’s sales along with the increased vacancy and performance decline, DBRS Morningstar has elevated the probability of default for this loan to recognize the current credit risk it poses to the trust.

ESG CONSIDERATIONS
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-C, and X-D 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#9 – Lanes Mill Marketplace (2.9% of the pool)
-- Prospectus ID#14 – Harbor Square (2.1% 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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