DBRS Morningstar Downgrades Two Classes, Withdraws Rating on One Class of COMM 2014-UBS6 Mortgage Trust

DBRS Limited (DBRS Morningstar) downgraded the ratings on the following two classes of Commercial Mortgage Pass Through Certificates, Series 2014-UBS6 issued by COMM 2014-UBS6 Mortgage Trust as follows:

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

In addition, DBRS Morningstar confirmed the ratings on the following classes:

-- Class A-4 at AAA (sf)
-- Class A-5 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 X-C at BBB (sf)
-- Class D at BBB (low) (sf)
-- Class G at C (sf)

DBRS Morningstar withdrew the rating on Class X-D because the interest-only (IO) certificate references a class that was downgraded to CCC (sf) or lower. DBRS Morningstar also changed the trends on Classes D and E to Stable from Negative. All remaining classes have Stable trends with the exception of Classes F and G, which have ratings that do not typically carry a trend for Commercial Mortgage Backed Securities ratings.

The rating downgrades on Classes E and F, reflects increased credit risk for select loans within the transaction, the majority of which are in special servicing or, on the servicer’s watchlist. DBRS Morningstar’s most recent analysis suggests the near- to moderate-term downside risks for these loans of concern are reflected within the current ratings. As such, the overall outlook for the transaction remains generally stable, for reasons which are further described below, supporting the rating confirmations and Stable trends with this review.

At issuance, the transaction consisted of 89 fixed-rate loans secured by 267 commercial and multifamily properties with an original principal balance of $1.28 billion. As of the August 2022 remittance, 73 loans remain in the pool, which has a current balance of $1.01 billion, representing a collateral reduction of 21.2%. To date, three loans have liquidated, with losses of $18.7 million contained to the non-rated Class H Certificate. Loans secured by retail properties account for the largest concentration by property type, representing more than 30.0% of the current pool balance, with loans backed by lodging properties having the second-highest concentration at approximately 18.0% of the current pool balance. As of the August 2022 reporting, five loans are in special servicing (representing 11.0% of the pool) and 11 loans are being monitored on the servicer’s watchlist (representing 15.6% of the pool).

The largest loan in special servicing, University Village (Prospectus ID #5; 3.7% of the current pool balance), is secured by a 456-unit (1,164-bed) student housing complex located less than two miles from the University of Alabama in Tuscaloosa. The loan transferred to special servicing in July 2019 for imminent default, with the sponsor noting that preleasing was negatively affected by numerous shootings and criminal activity at the property. A receiver was subsequently appointed in 2019 and shortly after the property was rebranded and named The Path at Tuscaloosa. Updated financial information has been limited, but the special servicer’s most recent commentary, dated July 2022, noted that the property was only 39.7% occupied, below the July 2021 and issuance occupancy rates of 46.3% and 96.3%, respectively. The servicer also noted that the asset was included in a June 2022 auction, with the original closing date scheduled for August 8, 2022. However, the buyer has exercised its final extension option and now has until September 6, 2022, to close on the transaction. An updated appraisal received in March 2021 valued the property at $24.4 million, $100,000 more than the March 2020 appraisal but 60% lower than the issuance value, and well below the loan’s total exposure of $48.7 million as of the August 2022 remittance. In its analysis, DBRS Morningstar assumed a haircut to the March 2021 appraised value and liquidated the loan from the trust, resulting in a modelled loss severity approaching 87.0%.

Three other specially serviced loans in the pool, University Edge, Wyndham Garden – San Jose, and Four Points by Sheraton – San Francisco Bay Bridge, were analyzed with elevated probability of default (POD) penalties to reflect the performance and/or value declines of the underlying collateral. University Edge (Prospectus ID #7; 3.4% of the current pool balance), the second-largest specially serviced loan, transferred to special servicing in March 2022 for imminent default because of the borrower’s inability to continue covering cash flow shortfalls. The collateral is a 578-bed, 148-unit, off-campus student housing building in Akron, Ohio. The property includes 18,225 sf of street level retail and a 40-space parking garage. The loan is current, and the borrower has presented a loan modification proposal that is currently under review. In addition, the servicer noted that legal counsel has been engaged to dual-track receivership and foreclosure if a default event occurs. According to the YE2021 financial reporting, the property was 87.0% occupied with a debt service coverage ratio (DSCR) of 0.77 times (x). As of the August 2022 remittance report, the loan has an unpaid principal balance of $34.7 million. No updated appraisal has been provided since issuance when the property was valued at $46.4 million.

The second-largest loan on the servicer’s watchlist, Highland Oaks I (Prospectus ID #8; 3.3% of the pool), is secured by two office properties totalling 319,665 sf in Downers Grove, Illinois. According to the rent roll dated December 2021, the largest tenant, Health Care Service Corporation occupying 177,797 sf (55.62% of NRA), has a lease expiring in December 2022, which will not be renewed. The servicer noted that the borrower is working aggressively with its leasing team to find new tenants to backfill the space and potentially refreshing the interior and exterior of the building. Rental rates at the property have remained resilient, but concession packages have increased. As of the March 2022 reporting, the occupancy rate and DSCR were 86.5% and 1.45x, respectively. In its analysis, DBRS Morningstar applied a POD penalty to significantly increase the expected loss for this loan, with the results further supporting the rating actions taken with this review.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance 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.

Classes X-A, X-B, and X-C are 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 loan 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.

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

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