DBRS Morningstar Downgrades Two Classes of COMM 2014-CCRE14 Mortgage Trust

DBRS, Inc. (DBRS Morningstar) downgraded ratings on the Commercial Mortgage Pass-Through Certificates, Series 2014-CCRE14 issued by COMM 2014-CCRE14 Mortgage Trust as follows:

-- Class E to CCC (sf) from B (low) (sf)
-- Class F to C (sf) from CCC (sf)

In addition, DBRS Morningstar confirmed the following ratings:

-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-M at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class PEZ at A (low) (sf)
-- Class D at BB (high) (sf)

DBRS Morningstar changed the trend on Class D to Negative from Stable. Classes E and F do not carry a trend given the CCC (sf) or lower rating. The trends on the other remaining classes are Stable. The rating downgrades and the Negative trend are primarily driven by the increased certainty of loss associated with the largest loan in special servicing, 175 West Jackson (Prospectus ID#8, 3.8% of the pool), which recently transferred to special servicing.

The 175 West Jackson loan is secured by a 22-story, 1.54 million-square-foot (sf) office tower in the Chicago central business district. The loan has exhibited year-over-year performance declines since issuance and first transferred to the special servicer in 2018. It was returned to the master servicer in September 2018 following Brookfield Asset Management’s (Brookfield) acquisition of the property for $305 million ($218/sf), which represented a 26% cut to the at-issuance appraised value. The loan transferred to the special servicer for a second time in November 2021 and remains due for the November 2021 and all subsequent debt service payments.

There has been very little leasing activity in the Central Loop submarket, which reported a vacancy rate of 14.1% for office space as of Q4 2021 according to Reis. Property occupancy has improved marginally to 65.2% as of December 2021 from 61% as of YE2018. The servicer reported a YE2021 debt service coverage ratio of 0.34 times (x) compared with 0.50x at YE2020 and 0.82x at YE2019. The year-over-year decline was attributed to increased expenses and 12 months of rental abatements given to Sedgwick (9.1% of net rentable area, expiring May 2033) upon its lease renewal. The special servicer is in discussions with the borrower and has not yet determined a workout strategy. Based on the property’s declining performance and assumed valuation, weakened submarket fundamentals, and Brookfield’s demonstrated willingness to walk away from underperforming assets, DBRS Morningstar’s analysis of this loan included a hypothetical liquidation scenario, using a haircut to the 2018 purchase price, which resulted in an implied loss severity of nearly 55%.

As of the April 2022 remittance, 42 of the original 59 loans remain in the pool. The initial pool balance of $1.38 billion has been reduced by 29.7%, to $968.5 million. To date, six loans have incurred losses totaling $34.9 million, which is confined to the nonrated Class G certificate. Fourteen loans, representing 21.4% of the pool, are defeased. There are two loans, representing 4.7% of the pool, in special servicing. One loan in the pool, 625 Madison Avenue (Prospectus ID#3, 11.3% of the pool) had an anticipated repayment date in April 2018 and has since been amortizing. The loan has a final maturity date of December 2026, and according to the servicer, the borrower continues to make debt service payments. All remaining nondefeased loans in the pool are scheduled to mature in 2023 (40.0% of the pool) and 2024 (27.3% of the pool).

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 loan in the transaction:

-- Prospectus ID#8 – 175 West Jackson (3.8% of the pool)

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.

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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