DBRS Morningstar Downgrades Seven Classes and Changes Trends to Negative on Three Classes of JPMBB Commercial Mortgage Securities Trust 2014-C22

DBRS Limited (DBRS Morningstar) downgraded seven classes of the Commercial Mortgage Pass-Through Certificates, Series 2014-C22 issued by JPMBB Commercial Mortgage Securities Trust 2014-C22 as follows:

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

DBRS Morningstar removed Classes E, F, and G from Under Review with Negative Implications where they were placed on August 6, 2020. DBRS Morningstar also designated Classes F and G as having Interest in Arrears.

In addition, DBRS Morningstar confirmed its ratings on the following classes:

-- Class A-3A1 at AAA (sf)
-- Class A-3A2 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)

DBRS Morningstar also discontinued its ratings on Classes X-C and X-D as the lowest-rated reference obligations, Classes E and F, were downgraded to C (sf).

The trends on Classes B, C, and EC were changed to Negative from Stable. All other trends are Stable with the exception of Classes D, E, F, and G, which have ratings that do not carry trends.

According to the February 2021 remittance, 70 of the original 76 loans remain in the trust, representing a collateral reduction of 12.0% since issuance. The pool is fairly concentrated by property type, with 37.7% of the pool secured by office properties and 23.8% secured by retail properties. Eleven loans, representing 6.4% of the pool, are fully defeased. Five loans, representing 13.8% of the current pool balance, are in special servicing and 21 loans, representing 34.6% of the current pool balance, are on the servicer’s watchlist. The watchlisted loans are being monitored for tenant rollover, low debt service coverage ratios (DSCRs) and/or occupancy, trigger events, or Coronavirus Disease (COVID-19) related forbearance requests.

The rating downgrades and Negative trends reflect the increased risk of loss to the trust from the largest specially serviced loans. The largest loan in special servicing, Las Catalinas Mall (Prospectus ID#3; 7.5% of the pool), is secured by a 355,000 square foot (sf) portion of a 494,000-sf regional mall in Caguas, Puerto Rico. The loan transferred to special servicing in June 2020 for imminent monetary default. Although the effects of the coronavirus pandemic were cited as reasons for the default, the property was struggling prior to the pandemic, beginning with the departure of the collateral anchor Kmart in January 2019, with the collateral occupancy rate eventually falling to 46.2%. The impact of the Kmart closure was exacerbated in late 2020 when the non-collateral shadow anchor, Sears, was also closed, suggesting the overall occupancy rate for the mall is near 35.0%.

The special servicer finalized a loan modification in December 2020, with the terms allowing for a maturity extension to February 2026, a reduced interest rate for three years, a deferral of accrued interest between April 2020 and December 2020, and conversion of the loan to interest-only (IO) payments through maturity. In addition, a future discounted payout (DPO) of $72.5 million of the loan can be made in August 2023, which suggests a steep discount to the current whole-loan balance of $128.8 million. The borrower was required to contribute $8.5 million at closing to pay for leasing and transaction costs as part of the loan modification and, although the equity infusion is noteworthy, the DPO option suggests a significant loss will be realized at the loan’s final disposition. As part of this review, DBRS Morningstar assumed a liquidation scenario for this loan, resulting in a loss severity in excess of 70.0%.

The second mall loan in special servicing, Charlottesville Fashion Square (Prospectus ID#15; 1.8% of the pool), is secured by a 362,000-sf portion of a 577,000-sf regional mall in Charlottesville, Virginia. The loan transferred to special servicing in October 2019 for imminent monetary default following the departure of Sears. More recently, the non-collateral anchor JCPenney vacated in November 2020, with Belk Men’s (collateral) and Belk Women’s (non-collateral) as the remaining anchors. The sponsor, Washington Prime Group, has provided notice that it will be transitioning the property to the trust. A receiver was appointed in March 2020 and, according to the August 2020 appraisal, the as-is value was reported at $7.5 million while the stabilized value was reported at $15.0 million, both of which are significant declines from the issuance value of $83.9 million. The current whole-loan balance is $43.9 million and, based on the liquidation scenario assumed by DBRS Morningstar as part of this review, a loss severity approaching 100% is expected at disposition.

The second-largest loan in special servicing is the 10333 Richmond loan (Prospectus ID#7; 3.4% of the pool), which is secured by an office property located in Houston. The property has struggled with low occupancy for several years and the loan has been with the special servicer since December 2017. According to the December 2020 rent roll, the property was 51.7% occupied, and the servicer most recently reported a trailing nine months ended September 2018 DSCR of 0.81x; however, despite the property’s cash flow issues, the loan has been current throughout the transfer to special servicer and, according to the most recent commentary, a loan modification has been proposed and is being reviewed by the servicer. Based on the February 2020 appraisal, the property was valued at $19.9 million, a decline from the February 2018 value of $23.3 million previously obtained by the special servicer and well below the issuance value of $46.4 million. Given the outstanding loan balance of $33.9 million, a significant loss is expected at resolution, despite the sponsor’s commitment to keeping the loan current and seeking a modification of terms. For this review, DBRS Morningstar assumed a liquidation scenario that implied a loss severity in excess of 60.0%.

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 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#3 – Las Catalinas Mall (7.5% of the pool)
-- Prospectus ID#7 – 10333 Richmond (3.4% of the pool)
-- Prospectus ID#15 – Charlottesville Fashion Square (1.8% of the pool)
-- Prospectus ID#21 – 200 Newport Avenue (1.5% 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 the 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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