DBRS Morningstar Downgrades Ratings on Five Classes of COMM 2014-LC17 Mortgage Trust
CMBSDBRS Limited (DBRS Morningstar) downgraded five classes of Commercial Mortgage Pass-Through Certificates, Series 2014-LC17 issued by COMM 2014-LC17 Mortgage Trust (the Trust) as follows:
-- Class X-C to BB (high) (sf) from BBB (sf)
-- Class D to BB (sf) from BBB (low) (sf)
-- Class X-D to B (low) (sf) from BB (low) (sf)
-- Class E to CCC (sf) from B (high) (sf)
-- Class F to C (sf) from CCC (sf)
In addition, DBRS Morningstar removed Classes X-D, E, F, and G from Under Review with Negative Implications where they were placed on August 6, 2020.
DBRS Morningstar confirmed its ratings on the remaining classes 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-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 AA (low) (sf)
-- Class C at A (high) (sf)
-- Class PEZ at A (high) (sf)
-- Class G at C (sf)
DBRS Morningstar discontinued its rating on Class X-E as the applicable reference obligation now has a C (sf) rating.
Classes C, D, X-B, X-C, and X-D have Negative trends. The trends for all other classes are Stable, with the exception Classes E, F, and G, which have ratings that do not carry trends. DBRS Morningstar also designated Classes F and G as having Interest in Arrears.
The rating downgrades and Negative trends are primarily the result of increased losses expected for the two largest loans in special servicing, as further discussed below. As of the March 2021 remittance, the Trust reported an aggregate principal balance of $897.5 million, representing a collateral reduction of 27.4% since issuance, with 58 of the original 71 loans remaining in the pool. In addition, nine loans, representing 8.3% of the current trust balance, are fully defeased. The Trust is concentrated by property type, with 24.2% of the pool secured by office properties, 22.4% by lodging properties, and 21.9% by retail assets.
As of the March 2021 remittance, there are five loan in special servicing, representing 5.2% of the current trust balance. The largest loan in special servicing is World Houston Plaza (Prospectus ID#20, 1.8% of the current trust balance). The loan is secured by an office property in suburban Houston, approximately 17 miles north of the central business district and just south of the George Bush Intercontinental Airport. The loan transferred to special servicing in June 2017 for imminent default and the Trust took title of the property in January 2018. An updated appraisal completed in February 2020 valued the property at $8.05 million, down 70.0% from the appraised value of $27.0 million at issuance. As of the trailing 12 months (T-12) ended September 30, 2020, occupancy was 27.0% and the debt service coverage ratio (DSCR) was -0.49 times (x), compared with the T-12 ended December 31, 2019, where occupancy was 27.0% and DSCR was 1.01x. Based on the updated appraisal, the loan was liquidated in the analysis for this review, resulting in a loss severity in excess of 85.0%.
The second-largest loan in special servicing is Paradise Valley (Prospectus ID#26, 1.5% of the current trust balance). The loan is secured by the borrower's fee-simple interest in an 87,304-square-foot anchored retail property in Phoenix, within proximity to the Paradise Valley Mall. The loan transferred to special servicing in August 2020 due to imminent monetary default and, as of the March 2021 remittance, is over 90 days delinquent. The servicer notes that the borrower is seeking to turn over keys to the property, with the servicer working to process a nonjudicial foreclosure. Although the Coronavirus Disease (COVID-19) pandemic exacerbated existing stress for the property, the performance had been down from issuance for several years following the loss of the former largest tenant, The RoomStore, which filed for bankruptcy in 2015 and vacated in 2016. As of the T-3 ended March 31, 2020, financials, the property was 53.4% occupied and the loan reported a DSCR of 0.94x, compared with the YE2019 DSCR of 1.07x and the YE2018 DSCR of 1.22x. An updated appraisal has not been obtained to date. Based on a significant haircut to the issuance value, the loan was liquidated in the analysis for this review, reflecting a loss severity approaching 65.0%.
As of the March 2021 remittance, there are 12 loans on the servicer’s watchlist, representing 34.1% of the pool. The largest loan in the pool, Loews Miami Beach Hotel (Prospectus ID#1, 12.4% of the pool), is on the watchlist for performance declines as well as the borrower’s coronavirus relief request, which was submitted and approved in the summer of 2020. The loan has a pari passu structure, with loan pieces contributed to the subject and two other DBRS Morningstar-rated transactions in COMM 2014-CCRE21 Mortgage Trust and COMM 2014-UBS5 Mortgage Trust. The loan is secured by a 790-key full-service hotel located in Miami.
The servicer granted relief in the form of a deferral of monthly furniture, fixture, and equipment reserve payments from May 2020 through July 2020, with the deferred amounts to be repaid over a nine-month period beginning in August 2020. As of the March 2021 remittance, the borrower was in compliance with the terms of the forbearance. As of the T-12 ended September 30, 2020, the loan reported a DSCR of 1.07x and an occupancy of 53.46%, which is down significantly from YE2019 when the loan reported a DSCR of 3.21x and an occupancy of 85.40%. Given the property’s prime location within South Beach, the hotel is well positioned to capture demand as leisure and business travel continue to increase over the next few years.
Another watchlisted loan in the top 10, 50 Crosby Drive (Prospectus ID#7, 3.3% of the pool), is secured by a Class A office building in Bedford, Massachusetts. The loan was previously in special servicing after the single tenant, Acme Packet, Inc. (a subsidiary of Oracle America, Inc.), exercised its early termination option and vacated the property in April 2020. As of March 2021, the property remains vacant. The loan was returned to the master servicer as a corrected loan in December 2020 after a modification was approved by the special servicer that converted the loan to interest only (IO) for 12 months starting in October 2020. During the IO period, monthly reserve deposits to the replacement and rollover reserves will not be required. The loan was reported current with the March 2021 remittance, when the servicer reported approximately $5.3 million held between the cash trap reserve established following the tenant’s early termination notice and the rollover reserve. Given the collateral property’s status as fully vacant in a secondary market, a probability of default penalty was applied to increase the expected loss in the analysis 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-C and X-D 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 issuance metrics and all historical surveillance commentary on the DBRS Viewpoint platform.
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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.
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