DBRS Morningstar Downgrades Three Classes of JPMBB Commercial Mortgage Securities Trust 2014-C22, Confirms Remaining Classes

DBRS, Inc. (DBRS Morningstar) downgraded three classes of the Commercial Mortgage Pass-Through Certificates, Series 2014-C22 issued by JPMBB Commercial Mortgage Securities Trust 2014-C22 as follows:

-- Class C to BB (high) (sf) from BBB (low) (sf)
-- Class EC to BB (high) (sf) from BBB (low) (sf)
-- Class D to C (sf) from CCC (sf)

DBRS Morningstar confirmed its ratings on the remaining classes as follows:

-- Class A-3A1 at AAA (sf)
-- Class A-3A2 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at A (high) (sf)
-- Class E at C (sf)
-- Class F at C (sf)
-- Class G at C (sf)

Classes B, C, and EC continue to carry Negative trends, and Classes D, E, F, and G have ratings that do not carry trends. All other trends are Stable. Interest shortfalls remain outstanding on Classes D, E, F, and G, which continue to carry the Interest in Arrears designation.

According to the February 2022 remittance, 68 of the original 76 loans remain in the trust, representing a collateral reduction of 15.4% since issuance. The pool is fairly concentrated by property type, with 35.7% of the pool secured by office properties and 21.6% secured by retail properties. An additional 17 loans, representing 12.8% of the pool, have defeased. Five loans, representing 7.0% of the pool, were in special servicing, and 16 loans, representing 31.4% of the pool, were on the servicer’s watchlist, including six loans, representing 23.8% of the pool, in the top 15.

The rating downgrades and Negative trends reflect the increased likelihood that the trust will experience losses with the ultimate resolution of loans in special servicing, particularly regarding the two largest specially serviced loans. Additionally, the largest loan on the servicer’s wachlist exhibits increased credit risk, placing further stress on the bonds.

The largest of the three loans, Las Catalinas Mall (Prospectus ID#3; 7.8% of the pool), represents a $74.3 million pari passu participation in a $128.8 million loan secured by a portion of a 494,000-square-foot (sf) regional mall in Caguas, Puerto Rico, owned by Urban Edge Properties. The loan was returned to the master servicer in May 2021, after it had transferred to the special servicer in June 2020 for imminent monetary default as a result of the Coronavirus Disease (COVID-19) pandemic. The property had been struggling prior to the pandemic, however, as the occupancy decreased significantly when Kmart, which formerly represented 34.5% of the collateral net rental area (NRA), vacated in January 2019. More recently, in February 2021, the shadow anchor Sears went dark. A loan modification was finalized in December 2020 and allows the borrower a discounted payoff option (DPO) available in August 2023 to repay the loan at a discounted amount of $72.5 million without any fee or prepayment penalty. This figure is well below the whole-loan balance of $128.8 million, meaning a significant loss will be realized if the DPO option is exercised. Given the mall’s downward performance over recent years, however, the DPO option may be the most favorable resolution outcome for both the borrower and the trust.

The largest specially serviced loan, 10333 Richmond (Prospectus ID#7; 3.5% of the pool), is secured by an 11-story office building in the Westchase submarket of Houston. The loan transferred to special servicing in December 2017 because of tenancy issues and is currently more than 90 days delinquent. An updated November 2021 appraisal reported an as-is property value of $13.4 million, a further decline from the February 2020 appraised value of $19.9 million and the February 2018 appraised value of $23.3 million. In comparison with issuance, the property was valued at $46.4 million. According to the September 2021 rent roll, the property was 49.4% occupied, down from the issuance occupancy rate of 94.0%. The latest servicer commentary indicates the special servicer has initiated the foreclosure process, after sending a notice of default and guarantor demand letter in November 2021. As a result of the pending foreclosure, the likelihood of a loss at resolution is high considering the sharp value decline and limited prospects for performance improvement as the submarket remains weak.

The second-largest specially serviced loan, Charlottesville Fashion Square (Prospectus ID#15; 1.8% of the pool), is secured by a 360,249-sf leasehold portion of a 576,749-sf regional mall in Charlottesville, Virginia, owned by Washington Prime Group. The loan transferred to the special servicer in October 2019 for imminent monetary default following the departure of collateral anchor tenant Sears. The closure of two additional anchor tenants in 2020, including noncollateral tenant JCPenney and one of two collateral Belk stores, further stressed performance at the property. Occupancy at the property has declined to 60.1% as of the April 2021 rent roll from 78.1% at YE2020 and 91.0% at issuance. The only remaining anchor tenant is a consolidation of the former Belk Women’s and Belk Men & Home spaces, which represents 16.8% of the NRA with a lease expiry in January 2024. Additional tenants, combining to occupy 13% of the NRA, have scheduled lease expirations within the next 12 months. The special servicer has not provided a 2021 OSAR; however, DBRS Morningstar expects performance has declined further from the YE2020 debt service coverage ratio of 0.85 times based on recent additional vacancies. The asset became real estate owned in October 2021, and efforts to sell the property are ongoing. According to the most recent appraisal, conducted in August 2020, the property’s as-is value was $7.5 million, while the stabilized value was $15.0 million. Both figures are significantly below the issuance value and current whole-loan balance of $83.9 million and $43.0 million, respectively. Based on the liquidation scenario DBRS Morningstar assumed as part of this review, the loss severity approaches 100% at disposition of this asset.

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.

Class X-A is an interest-only (IO) certificate 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.

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

-- Prospectus ID#3 – Las Catalinas Mall (7.8% of the pool)
-- Prospectus ID#7 – 10333 Richmond (3.5% of the pool)

The DBRS Morningstar 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 the North American CMBS Surveillance Methodology (March 4, 2022), 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.

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 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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