DBRS Morningstar Downgrades Four Classes of COMM 2014-CCRE20 Commercial Mortgage Trust

DBRS, Inc. (DBRS Morningstar) downgraded its ratings on four classes of Commercial Mortgage Pass-Through Certificates, Series 2014-CCRE20 issued by COMM 2014-CCRE20 Commercial Mortgage Trust as follows:

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

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-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 (sf)
-- Class C at A (low) (sf)
-- Class PEZ at A (low) (sf)
-- Class G at C (sf)

In addition, DBRS Morningstar discontinued its rating on Class X-D as it references a class rated CCC (sf) or below. Class D continues to carry a Negative trend, and Classes E, F, and G, have ratings that do not carry trends. All other trends are Stable. As interest shortfalls were repaid for Class E, DBRS Morningstar removed the Interest in Arrears designation for that class; shortfalls remain outstanding for Classes F and G, which continue to carry the Interest in Arrears designation.

The downgrades and Negative trend generally reflect a variety of factors, including the overall weakened performance of pivotal loans within the pool since the last review, the liquidation of three loans in 2021 that resulted in $33.7 million of losses to the trust, and the increased likelihood of further losses to the trust upon the resolution of two of the remaining specially serviced loans, as further detailed below.

As of the January 2022 remittance, there has been collateral reduction since issuance of 21.2%, with 53 of the original 64 loans remaining in the pool. In addition to the paydown, the pool benefits from defeasance, with 13 loans, representing 18.7% of the current pool balance, fully defeased. There were 11 loans, representing 21.0% of the current pool balance, on the servicer’s watchlist, including two loans in the top 10. Four loans, representing 14.9% of the pool, are in special servicing, including two top 10 loans that combine for 9.1% of the current pool balance and are both secured by collateral now owned by the trust.

The largest specially serviced loan is Harwood Center (Prospectus ID#4, 6.0% of the pool), secured by the fee-simple interest in a high-rise office building in Dallas’ downtown core. The sponsor’s troubles with this loan followed the downsizing of a major tenant and the loan transferred to special servicing in May 2020, with a foreclosure ultimately filed and the title to the property transferred to the trust in November 2021. The most recent appraisal on file is dated July 2021, with an as-is value of $78.0 million, a 37.1% decrease from the issuance appraised value of $124 million. Based on this updated value, a liquidation scenario with a loss approaching $19.0 million (loss severity of approximately 34%) was assumed in the analysis for this review.

Crowne Plaza Houston Katy Freeway (Prospectus ID#9, 3.1% of the pool) is the third-largest specially serviced loan, secured by a full-service hotel in Houston, approximately five miles north of the Houston Galleria mall. The hotel’s cash flow struggles preceded the Coronavirus Disease (COVID-19) pandemic, which compounded those issues, and the borrower ultimately walked away from the property, with the trust taking title in June 2021 via a deed in lieu of foreclosure. An updated appraisal completed in June 2021 valued the property at $24.9 million, which represents a 48.2% decrease from the issuance appraised value of $48.1 million, implying a current loan-to-value ratio (LTV) of 116.4%. The liquidation scenario for this loan assumed a loss of approximately $13.0 million (loss severity of 45%) at resolution.

There is another top 10 loan in special servicing in the Beverly Connection pari passu loan (Prospectus ID#7, 4.7% of the pool), secured by an anchored retail property in Los Angeles. The loan has been in special servicing since August 2020 and is severely delinquent. The borrower initially cited cash flow difficulties tied to the pandemic, but the servicer has reported that an acceptable proposal for a loan modification has yet to be produced. While the extended delinquency and the lack of movement on the discussions regarding a loan modification are indicative of increased risks, DBRS Morningstar notes that two appraisals obtained by the special servicer since the 2020 transfer show an as-is value that is only $18 million below the issuance figure of $260 million, suggesting the as-is LTV remains generally healthy.

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.

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

-- Prospectus ID#4 – Harwood Center (6.0% of the pool)
-- Prospectus ID#9 – Crowne Plaza Houston Katy Freeway (3.1% 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 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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