DBRS Morningstar Upgrades Six Classes of COMM 2014-CCRE21 Mortgage Trust, Changes Trends on Five Classes

DBRS Limited (DBRS Morningstar) upgraded the ratings on six classes of Commercial Mortgage Pass-Through Certificates issued by COMM 2014-CCRE21 as follows:

-- Class B to AA (high) (sf) from AA (low) (sf)
-- Class C to A (sf) from A (low) (sf)
-- Class PEZ to A (sf) from A (low) (sf)
-- Class X-B to A (high) (sf) from A (sf)
-- Class X-C to BB (low) (sf) from B (high) (sf)
-- Class D to B (high) (sf) from B (sf)

In addition, DBRS Morningstar confirmed the following ratings:

-- 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 E at CCC (sf)
-- Class F at C (sf)
-- Class G at C (sf)

DBRS Morningstar changed the trends on Classes X-B, X-C, C, D, and PEZ to Stable from Negative, and removed the Negative trends on Classes E, F, and G as those classes have either CCC (sf) or C (sf) ratings, which do not typically carry trends. In addition, DBRS Morningstar removed the Interest in Arrears designation on Classes D and E. The Interest in Arrears designation was maintained on Classes F and G.

As discussed in further detail below, the rating upgrades and trend changes reflect positive developments for the transaction since DBRS Morningstar’s last review. These developments include meaningful value improvements for two of the properties securing loans in special servicing as well as increased defeasance.

At the last review in August 2021, DBRS Morningstar downgraded five classes and placed or maintained Negative trends on eight classes, which primarily reflected DBRS Morningstar’s loss expectations for the largest specially serviced loan, Kings’ Shops (Prospectus ID#3; 7.5% of the current pool balance), which was showing a drastic value decline according to the most recent appraisal at the time, dated February 2021. Six loans were in special servicing at the last review and DBRS Morningstar liquidated four of these loans, with a combined projected loss of $56.9 million. Since that review, two of the six loans (3.5% of the current pool) have been returned to the master servicer and the remaining four have all reported updated appraisals. In all cases, the values have improved from the prior figures, with the improvements ranging from a nominal 0.1% to a significant 106.5% on a percentage basis. Based on the updated appraised values, DBRS Morningstar adjusted the projected loss scenarios and, for the three loans liquidated in the analysis, the combined loss figure was $38.3 million. This results in a marginal erosion of Class F by 8.0% but suggests a full loss for the three classes below (Class G and the unrated Classes H and J).

As of the June 2022 reporting, 52 of the of the original 59 loans remain in the pool, representing a collateral reduction of 22.3% since issuance, as a result of loan amortization, repayments, and proceeds recovered and losses realized from loan liquidations. Defeasance has significantly increased from the last review, growing to $173.9 million (27.1% of the current pool) as of the June 2022 reporting, including the largest loan, One Memorial (Prospectus ID#1; 12.5% of the current pool) from $68.9 million. By property type, the pool is most concentrated by retail, lodging, and multifamily properties, which represent 22.9%, 18.8%, and 15.9% of the current pool, respectively. Excluding defeasance, only three loans (4.8% of current pool balance) are secured by office properties.

The Kings’ Shops loan is secured by a 69,023-square foot (sf) retail property in Waikoloa, Hawaii. 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. According to the most recent servicer commentary, foreclosure has been filed and a receiver has been granted by the court, with the foreclosure sale expected to occur sometime in July 2022. The property was reappraised in August 2021 with an as-is value of $45.8 million, a 106.3% increase from the February 2021 value of $22.2 million, but remains well below the issuance value of $84.0 million. With this review, DBRS Morningstar updated its liquidation scenario based on a haircut to the updated appraisal. This resulted a projected loss of a little more than $15.0 million (loss severity of 31.8%), significantly improved from the loss severity in excess of 60% at last review. DBRS Morningstar was comfortable adjusting the liquidation scenario with the updated valuation given the significant improvements in the outlook for economies with significant reliance on tourism as the effects of the Coronavirus Disease pandemic have waned in the last year.

The second-largest specially serviced loan, Hilton College Station (Prospectus ID#7; 4.8% of the pool), is secured by a 303-key, full-service hotel in College Station, Texas, the home of Texas A&M University. The loan transferred to special servicing in August 2019 and the trust took title to the property in June 2020. The most recent appraisal obtained by the special servicer, dated December 2021, estimated an as-is value of $20.7 million, a 22.5% increase from the April 2021 value of $16.9 million, but well below the issuance value of $54.8 million. Given the improved outlook for hotel properties over the last year, DBRS Morningstar considered the updated appraised value in its liquidation scenario for this review. The loss amount remains high, however, at approximately $8.5 million, which results in a loss severity of 72.6%.

The Marine Club Apartments loan (Prospectus ID#9; 3.6% of the pool) is secured by a fractured condominium community, with 204 of the total 301 units serving as collateral, and the remaining 97 units owned by individual owners. The loan was transferred to special servicing in October 2020 for payment default. As of October 2021, the property was valued at $35 million on an as-is basis, which is a 0.1% increase from the issuance value of $34.95 million. In April 2022, the borrower made two settlement offers, both of which were rejected by the special servicer. The preferred equity holder has since initiated a process to replace the manager of the borrower, and the lender is dual tracking a foreclosure process while discussing workout alternatives. With this review, DBRS Morningstar noted the significant increase in outstanding advances since the August 2021 remittance, and increased the probability of default adjustment to increase the expected loss.

The Manhattan Place loan (Prospectus ID#20; 1.6% of the pool) is secured by a 137,315-sf community retail centre in Harvey, Louisiana, and was transferred to special servicing in January 2020 after the borrower failed to pay off the loan at the November 2019 maturity. While the foreclosure sale was originally scheduled in January 2022, the borrower filed for bankruptcy and delayed the proceedings in the process. As of September 2021, the property was valued at $16 million, which is an 11.1% increase from the issuance value of $19 million. With this review, DBRS Morningstar assumed a liquidation scenario that resulted in a nominal loss to the trust.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/ Social/Governance (ESG) factors that had a significant or relevant effect on the credit analysis.

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/396929.

DBRS Morningstar materially deviated from its North American CMBS Insight Model when determining the rating assigned to Classes D and E as the quantitative results suggested a higher rating. The material deviation is warranted given the uncertain loan level event risks for the loans in special servicing and on the servicer’s watchlist.

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 this transaction.

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 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.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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