DBRS Morningstar Downgrades Ratings on Four Classes of COMM 2014-UBS4 Mortgage Trust

DBRS Limited (DBRS Morningstar) downgraded its ratings on four classes of the Commercial Mortgage Pass-Through Certificates, Series 2014-UBS4 issued by COMM 2014-UBS4 Mortgage Trust as follows:

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

In addition, DBRS Morningstar confirmed its ratings on the remaining classes as follows:

-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-M 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)

In addition, DBRS Morningstar discontinued its rating on Class A-2 as it has repaid in full and removed Classes X-D and F from Under Review with Negative Implications where they were placed on August 6, 2020. Classes D, X-C, E, X-D, and F carry Negative trends. All other trends remain Stable.

The rating downgrades and Negative trends generally reflect the increased risk of loss to the trust for some of the loans in the pool, primarily concentrated in the two largest loans in special servicing. As of the February 2021 remittance, there were 20 loans on the servicer’s watchlist, representing 36.8% of the pool, and seven loans, representing 16.4% of the pool, in special servicing. The watchlisted loans are being monitored for various reasons including low DSCRs, activation of cash traps, occupancy declines, upcoming tenant rollover, and Coronavirus Disease (COVID-19)-related borrower relief requests. All but one of the specially serviced loans, which include two top 15 loans, have transferred to the special servicer since the outbreak of the coronavirus.

As of the February 2021 remittance, the trust had an aggregate principal balance of $1.05 billion, representing a collateral reduction of 18.6% since issuance, with 80 of the original 91 loans remaining in the pool. There has been one loan liquidated with a loss since issuance, the Microtel Inn & Suites loan, which was contained to the unrated certificates. As of the February 2021 remittance report, 15 loans, representing 7.2% of the current trust balance, were fully defeased. The trust is concentrated by property type, with office properties accounting for 12 loans, representing 33.6% of the current trust balance. Retail makes up the second-largest property type concentration with 27 loans, representing 21.1% of the current trust balance. Lodging makes up the third-largest property type concentration with nine loans, representing 17.0% of the current trust balance.

The largest loan in special servicing is 597 Fifth Avenue (Prospectus ID#2, 10.0% of the current trust balance). The loan is secured by two adjacent mixed-use properties in the Midtown neighborhood of Manhattan, consisting of 80,032 square feet (sf) of Class B office and ground floor retail. Previously modified in May 2020, the loan transferred to the special servicer again in October 2020 for imminent payment default. The mezzanine lender recently requested that a new leasing/management firm be appointed, and the special servicer and the directing certificatedholder approved the request, which is being finalized by the special servicer. The workout strategy is noted as foreclosure, but the moratorium on commercial real estate foreclosures remains in place in New York, stalling any action by the servicer to initiate the taking of title. The servicer has yet to provide an updated appraisal, but given the fact that the ground floor retail space appears to be largely vacant and potentially fully available for lease as of an online search conducted by DBRS Morningstar in March 2021, the as-is value has likely fallen quite sharply from the issuance figure of $180.0 million, significantly increasing the risk of loss at resolution and a primary driver for the rating downgrades and trend changes as outlined above.

The second-largest loan in special servicing is Cross County Plaza (Prospectus ID#9, 2.8% of the current trust balance), which is secured by an anchored retail center in West Palm Beach, Florida. The loan, which is on the DBRS Morningstar Hotlist, transferred to the special servicer in May 2020 and, as of the February 2021 remittance, was listed as 30-59 days delinquent. The property has struggled since the loss of Kmart in 2016 and Winn-Dixie in 2019, but two new tenants (Ollie’s Bargain Outlet and a trampoline park) were recently signed, bringing the property to an occupancy rate of 85.0% as of August 2020. The servicer cites a workout strategy of foreclosure, but no concrete information on the timeline has been provided to date. Given the low occupancy rate for much of the life of the loan and the low in-place cash flow and delinquency for the loan, the risk of loss to the trust is significantly increased from issuance.

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.

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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