DBRS Morningstar Confirms All Classes of Morgan Stanley Bank of America Merrill Lynch Trust 2014-C18, Maintains Negative Trends on Four Classes

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2014-C18 issued by Morgan Stanley Bank of America Merrill Lynch Trust 2014-C18 as follows:

-- Class A-3 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)
-- Class B at AA (sf)
-- Class C at A (low) (sf)
-- Class PST at A (low) (sf)
-- Class X-B at BBB (low) (sf)
-- Class D at BB (high) (sf)
-- Class E at B (low) (sf)
-- Class X-C at B (low) (sf)
-- Class F at CCC (sf)

DBRS Morningstar also confirmed the ratings on the following non-pooled rake bonds of the Commercial Mortgage Pass-Through Certificates, Series 2014-C18, which are backed by the $244.4 million subordinate B note of the 300 North LaSalle loan:

-- Class 300-A at AA (high) (sf)
-- Class 300-B at A (sf)
-- Class 300-C at BBB (sf)
-- Class 300-D at BB (sf)
-- Class 300-E at B (high) (sf)

The trends for Classes D, E, X-B, and X-C are Negative. All other trends are Stable except for Class F, which is assigned a rating that does not carry a trend. Classes E and F continue to have Interest in Arrears Designations.

The rating confirmations for this review reflect the overall stable performance for the transaction since the December 2020 review, when DBRS Morningstar downgraded the ratings for Classes D, E, and X-B because of ongoing concerns with loans in special servicing and on the servicer’s watchlist. As of the June 2021 remittance, the trust collateral consists of 51 of the original 65 loans, totaling $924.2 million. Since issuance, there has been collateral reduction of 34.2%. At the time of the December 2020 rating actions, the largest loan in special servicing was the Ashford Hospitality Portfolio C1 loan (Prospectus ID#4, 5.9% of the pool), and that loan has since transferred back to the master servicer as of April 2021. The loan was approved for a forbearance agreement, which allowed the borrower to use existing furniture, fixture, and equipment reserves to cover debt service payments between April 2020 and July 2020. In addition, the mezzanine lender has taken ownership of the borrower after a foreclosure on the mezzanine loan, which had a cutoff balance of $8.4 million as of the subject transaction’s closing date, was completed in September 2020.

The subject loan is secured by three limited service hotels located in Florida and Kentucky. As of the June 2021 remittance, the master servicer reports the trust loan is current and is on the servicer’s watchlist for monitoring due to the loan modification; low in-place debt service coverage ratio (DSCR), which was reported at -0.02 times (x) as of the year-end (YE) 2020 reporting period; and recent return from special servicing. Although the loan’s return from the special servicer and loan modification is generally viewed as a positive development, DBRS Morningstar notes the performance declines for the collateral hotel portfolio that preceded the onset of the Coronavirus Disease (COVID-19) pandemic could continue to depress performance even as leisure and business travel begins to increase in the United States. As such, the probability of default (PoD) penalty that was applied with the December 2020 review was maintained in the analysis for this review, resulting in a significantly increased expected loss for the loan.

As of the June 2021 remittance there are seven loans in special servicing representing 10.6% of the pool. These loans include two additional Ashford Hospitality loans in the Ashford Hospitality Portfolio C3 (Prospectus ID#4, 2.5% of the pool) and the Ashford Hospitality Portfolio C2 (Prospectus ID#21, 1.3% of the pool) loans, which were both approved for forbearances in December 2020 and continue to be monitored by the special servicer. Both loans have reported current since February 2021 and both report updated appraisals at values lower than issuance but above the respective loan balances. There was no mezzanine debt on either portfolio as of issuance. These two hotel portfolios also showed cash flow declines prior to the onset of the coronavirus pandemic and were analyzed with PoD penalties to increase the expected losses for this review.

The largest loan in special servicing, Louisiana Retail Portfolio (Prospectus ID#11, 3.8% of the pool), is secured by a portfolio of 15 unanchored retail properties located across various markets throughout Louisiana and Mississippi. The loan transferred to special servicing in December 2019 due to a default on the October 2019 maturity date. The portfolio’s largest tenant, Stage Stores, located at three properties in spaces representing 11.4% of the portfolio net rentable area (NRA), vacated all three properties in 2020 after the company filed for bankruptcy. With these closures, the portfolio occupancy rate fell from 81.0% at YE2019 to 73.0% as of September 2020. According to the most recent commentary, the special servicer is pursuing foreclosure. An updated appraisal as of October 2020 valued the portfolio on an as-is basis at $30.1 million, which is down 28.3% from the issuance appraisal of $41.9 million. Based on the updated value, the loan was liquidated from the pool in the analysis for this review, which resulted in a loss severity of 20.7%.

Per the June 2021 remittance, there are six loans, representing 16.3% of the current pool, on the servicer’s watchlist, including the second-largest loan in the pool, Huntington Oaks Shopping Center (Prospectus ID#3, 6.5% of the pool). The loan collateral is an anchored retail center in Monrovia, California, and the loan was added to the watchlist in April 2018 when Toys “R” Us filed for bankruptcy and later vacated its space, which represented 13.0% of the NRA. The occupancy rate fell to 76.0%, where occupancy remained until May 2021 when property’s third-largest tenant, Chuck E. Cheese (5.0% of the NRA), vacated at lease expiration, bringing occupancy down further, to 70.0%.

While the sustained occupancy declines and further loss of tenancy suggest increased risks for this loan, DBRS Morningstar notes the collateral property is generally well located just north of Interstate 210 and the remaining tenant mix includes desirable draws including Marshalls and Trader Joe’s, both of which have signed renewals for five and 10 years, respectively, since issuance. The servicer reports the borrower is in discussions with several national retailers including Burlington Coat Factory and David’s Bridal for the existing vacancy, but nothing has been formalized to date. As of the June 2021 remittance, the loan reported $1.6 million in leasing reserves, with ongoing monthly deposits of approximately $31,500 and a cash trap initiated following the loss of Toys “R” Us remains in place. The loan has remained current throughout the period of lower occupancy and there has been no forbearance request submitted since the onset of the pandemic. Given the low in-place DSCR and increased vacancy since issuance, DBRS Morningstar analyzed the loan with a PoD penalty to increase the expected loss in the analysis for this review.

DBRS Morningstar’s rating actions of the non-pooled rake certificates reflect the stable performance of the underlying collateral 300 North LaSalle, a 1.3 million-square-foot Class A office building in Chicago’s River North submarket, since issuance. Originally constructed in 2009, 300 North LaSalle is a 60-story riverfront building with an extensive amenities package that includes an outdoor public plaza, conference center, onsite bank, cafe, fitness center, steakhouse restaurant, and subterranean valet parking garage. The property is LEED Platinum certified and has received an EnergyStar certificate. The sponsor used loan proceeds, consisting of a $475.0 million mortgage loan, along with $381.6 million of borrower equity, to finance the Irvine Company LLC’s $850.0 million acquisition of the property. As of January 2020, the building was 95.8% leased with the largest tenants at the property including Kirkland & Ellis LLP and the Boston Consulting Group (BCG).

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, and X-C 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.

The DBRS Viewpoint platform provides additional information on this transaction and underlying loans including DBRS Morningstar metrics, commentary, servicer-reported cash flows, and other performance-related data.

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 26, 2021), 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 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.

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