DBRS Morningstar Confirms Ratings on WFRBS Commercial Mortgage Trust 2014-C23, Maintains Negative Trends on Four Classes

DBRS Limited (DBRS Morningstar) confirmed the following ratings of the Commercial Mortgage Pass-Through Certificates, Series 2014-C23 issued by WFRBS Commercial Mortgage Trust 2014-C23:

-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-Y at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class PEX at A (low) (sf)
-- Class X-B at BBB (sf)
-- Class D at BBB (low) (sf)
-- Class X-C at BB (high) (sf)
-- Class E at BB (sf)
-- Class X-D at B (high) (sf)
-- Class F at B (sf)

The trends on Classes X-C, E, X-D, and F are Negative, while the trends on all other classes are Stable.

The rating confirmations reflect the generally stable performance of the transaction. The Negative trends reflect continued performance issues with some of the larger loans in the pool secured by retail and office properties.

As of the October 2021 remittance, 75 of the original 92 loans remained in the pool, with an aggregate principal balance of $794.2 million, representing a collateral reduction of 15.6% since issuance as a result of loan amortization and repayment. Additionally, there are 11 loans, representing 6.7% of the current pool balance, that are fully defeased. By property type, the pool is most heavily concentrated by office and retail properties, representing 32.8% and 25.6% of the pool, respectively. Per the October 2021 reporting, there are 15 loans on the servicer’s watchlist, representing 30.7% of the current pool balance.

The largest loan on the servicer’s watchlist, Crossings at Corona (Prospectus ID#2; 8.8% of the current pool balance) is secured by an 834,075-square foot (sf) power centre in Corona, California, approximately 50 miles southeast of Los Angeles. The loan was added to the watchlist in April 2018 following Toys "R" Us (7.6% of the net rentable area (NRA)) vacating its space as part of its corporate liquidation, declining occupancy, and decreasing financial performance. As of Q2 2021, the loan reported a debt service coverage ratio of 1.01 times (x), a small improvement from 0.89x at YE2020. The loan remains current as of October 2021 with approximately $9.3 million in reserves, the largest of which is the earn-out reserve totalling $6.5 million, which has not yet been released. Developed in four phases between 2004 and 2007, Target shadow anchors the property alongside collateral anchor tenants Kohl’s (10.4% of the NRA; expiring January 2024), Regal Cinemas (9.6% of the NRA; expiring November 2024), and Best Buy (5.4% of the NRA; expiring March 2024).

The second-largest loan on the servicer’s watchlist, 677 Broadway (Prospectus ID#6; 3.2% of the current pool balance), is secured by a 177,000-sf, Class A office building built in 2005 and located in Albany, New York. The loan was transferred to special servicing in May 2020 for imminent default, following an decline in occupancy to 67.0% in June 2020 from 91% in December 2019, as a result of tenant departures and downsizings, as well as a lack of leasing momentum during the Coronavirus Disease (COVID-19) pandemic. The initial borrower’s workout proposal was rejected in July 2020; shortly thereafter, the mezzanine loan holder remitted funds to cure the senior loan delinquency, foreclosing on their position and taking control of the property in October 2020. The loan has since been modified to include a one-year maturity extension through September 2025 and interest-only (IO) payments through January 2023. The deferred amount of principal is expected to be repaid from excess cash flow.

Based on the July 2020 appraisal, the property had an as-is value of $16.0 million ($90 per sf (psf)), well below the issuance appraised value of $39.0 million ($220 psf), reflecting a large value reduction of 59.0%. While DBRS Morningstar views the value decline as a credit risk, the new borrower has since brought the loan current through the modification and appears to be willing to inject new equity in the property to lease the asset back to stabilization. Market conditions remain soft, with the submarket vacancy reported at 19.9% as of Q3 2021. However, the property has a competitive advantage, with only 3.0% of the inventory built after 2000, and has had some recent leasing success. Given challenges associated with this loan, DBRS Morningstar has increased the probability of default for the 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, X-D, and X-Y 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.

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:

-- Prospectus ID#5 – Centennial Center & Two Century Center (5.0% of the pool)
-- Prospectus ID#6 – 677 Broadway (3.2% of the pool)
-- Prospectus ID#8 – Culver City Office Portfolio (2.8% of the pool)
-- Prospectus ID#18 – Schlumberger Office (1.4% 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 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.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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.

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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