DBRS Morningstar Downgrades Ratings on Five Classes of COMM 2014-CCRE21 Mortgage Trust, Withdraws Two Classes

DBRS Limited (DBRS Morningstar) downgraded the following ratings on the Commercial Mortgage Pass-Through Certificates, Series 2014-CCRE21 issued by COMM 2014-CCRE21 Mortgage Trust:

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

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

-- Class A-3 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 (low) (sf)
-- Class X-B at A (sf)
-- Class C at A (low) (sf)
-- Class PEZ at A (low) (sf)

DBRS Morningstar also withdrew the ratings on Classes X-D and X-E as they reference Classes E, F, and G, which carry ratings of CCC (sf) or lower. Furthermore, DBRS Morningstar changed the trends to Negative on Classes X-B, C, and PEZ. Classes D, E, F, and G also carry Negative trends. The remaining trends are Stable. Classes D, E, F. and G continue to carry Interest in Arrears designations

The rating downgrades and additional Negative trends primarily reflect DBRS Morningstar’s heightened concern with the workout strategy and value decline of the largest loan in special servicing, Kings’ Shops (Prospectus ID#3; 7.4% of the current pool balance). The loan transferred to special servicing in September 2020 for payment default after the borrower stopped making debt service payments and requested Coronavirus Disease (COVID-19)-related relief. Foreclosure has been filed and a receivership has been granted by the court.

The loan is secured by a 69,023 square foot (sf) retail property in Waikoloa, Hawaii, with demand stemming from tourists visiting the two nearby resorts: the Waikoloa Beach Marriott Resort & Spa and the Hilton Waikoloa Village. In January 2020, Macy’s (14.5% of the net rentable area (NRA)) vacated, causing occupancy to fall to 75.6%. In addition, roughly 40.0% of the property’s NRA is scheduled to expire prior to December 2022, which could significantly increase vacancy. Tenancy is primarily composed of local eateries or high-quality tenants that benefit from proximity to the tourism hubs. The property was reappraised in February 2021 with an as-is value of $22.2 million ($321 per square foot (psf)), a drastic decline from the issuance value of $84.0 million ($1,216 psf). While the appraisal does provide a stabilized value of $34.8 million, reflecting a potential upside, that value is still well below the issuance figure and contemplates a four-year stabilization period concluding a year after loan maturity, which is in November 2024. The loan was previously securitized in the GSMS 2005-GG4 transaction and upon resolution incurred a loss of $34.0 million, reflecting a loss severity of nearly 50.0%. Given the asset’s recent decline in value and the appointment of the receiver, DBRS Morningstar liquidated the loan in its analysis for this review with a loss severity in excess of 60.0%.

As of the July 2021 remittance, the pool composition remains relatively consistent from DBRS Morningstar’s prior review in December 2020 with 51 loans remaining in the pool with minimal additional paydown and two additional defeased loans, which now total 10.6% of the current pool balance. The same six loans (20.9% of the current pool balance) remain in special servicing, all of which have received updated values below their issuance values. There are currently 15 loans (31.4% of the current pool balance) on the servicer’s watchlist, 11 of which were added for net cash flow declines and/or coronavirus-related relief requests.

The second-largest loan in special servicing is secured by the Hilton College Station (Prospectus ID#7; 4.9% of the current pool balance), a 303-key full-service hotel in College Station, Texas, in proximity to Texas A&M University. The loan was transferred to special servicing in August 2019 and has been real estate owned since June 2020. According to the servicer commentary, the sponsor attributed the decline in the subject’s performance to oversupply in the market as there are more than 11 other hotels within a mile of the subject that all compete for the same demand from generators such as collegiate sports and conventions. In addition, the borrower didn’t have adequate funds to complete the Hilton property improvement plan required upon acquisition, which resulted in newer properties outperforming the subject. The property has experienced multiple appraisal reductions since issuance, most recently reporting a April 2021 value of $16.9 million ($55,775 per key), representing a 69.1% decline from the issuance value of $54.8 million ($180,693 per key). While this is an increase from the value received in September 2020 of $12.8 million, servicer advances, which total $4.4 million as of July 2021, partially offset the implied value increase. DBRS Morningstar liquidated the loan in its analysis for this review with a loss severity in excess of 70.0%.

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.

Classes X-A, X-B, X-C, and PEZ are interest-only (IO) certificates 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.

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 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 [email protected].

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 [email protected].

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