DBRS Morningstar Downgrades Ratings on Two Classes of COMM 2014-CCRE20 Commercial Mortgage Trust

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

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

In addition, 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 E at C (sf)
-- Class F at C (sf)
-- Class G at C (sf)

Classes E, F, and G have ratings that typically do not carry trends. All other trends are Stable.

The downgrades to Classes X-C and D reflect DBRS Morningstar’s deteriorating outlook on one of the three specially serviced loans, Crowne Plaza Houston Katy Freeway (Prospectus ID#9, 3.2% of the pool), further described below. The rating confirmations and Stable trends reflect the otherwise overall performance of the transaction, with the remaining loans in the pool having experienced minimal changes since the last rating action.

As of the January 2023 remittance, 52 of the original 64 loans remained in the pool, with an aggregate principal balance of $895.1 million, reflecting a collateral reduction of 24.3% since issuance as a result loan repayments, scheduled amortization, and loan liquidations. The pool benefits from defeasance, with 20 loans, representing 23.7% of the pool, secured by collateral that has been fully defeased. There are seven loans, representing 7.2% of the pool, on the servicer’s watchlist, and three loans, representing 14.1% of the pool, in special servicing.

All three of the loans in special servicing are in the top 10, with two of these loans, representing a combined 9.3% of the pool, having been owned by the trust since 2021. In its analysis for this review, DBRS Morningstar liquidated both REO loans from the trust, resulting in an implied loss of nearly $55.0 million. While the treatment of the Harwood Center (Prospectus ID#4, 6.1% of the pool) liquidation remained similar to the previous review, the liquidation of Crowne Plaza Houston Katy Freeway resulted in a loss severity near 100% based on updated information from the servicer regarding the disposition of the asset. Based on these results, the credit enhancement provided to Class D was significantly eroded, warranting the downgrade action, while continuing to suggest that Classes E, F, G, and H are the most exposed to loss upon resolution.

The Crowne Plaza Houston Katy Freeway is secured by a full-service hotel in Houston, Texas, approximately five miles from 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. The most recent June 2022 appraisal valued the property at $25.7 million, reflecting a 53.4% decline from $48.1 million at issuance; however, the servicer has indicated that the lender is currently under contract to sell the asset to a prospective buyer at a lower value, with resolution expected to occur in Q2 2022.

The largest specially serviced loan, Harwood Center (Prospectus ID#4, 6.1% of the pool), is secured by the leasehold interest in an office building in downtown Dallas, Texas. 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. According to the servicer, the lender is working to lease up and stabilize the asset, including renovating the property throughout 2023. The most recent appraisal on file is dated June 2022, with an as-is value of $75.9 million, a marginal increase from $78.0 million in July 2021, but a 61.2% decline from $124.0 million at issuance. DBRS Morningstar maintained its liquidation approach from last review, resulting in a loss severity exceeding 45.0%.

The Beverly Connection pari passu loan (Prospectus ID#7, 4.9% of the pool) is the second-largest specially serviced loan, secured by an anchored retail property in Los Angeles. The loan transferred to special servicing in August 2020 and is delinquent; however, a forbearance agreement has been reached and will include reinstating the loan, pending the B note holders approval. The most recent appraisal on file is dated October 2022, which provided an as-is value of $239.0 million, less than a 10.0% decline from $260 million at issuance. Based on the updated workout of the loan paired with the low loan to value ratio of 18.3%, DBRS Morningstar did not consider this loan to pose a significant credit risk to the trust.

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/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022).

DBRS Morningstar did not perform an updated model run given the lack of meaningful changes in performance since the last review. As of the previous actions published on November 4, 2022, material deviations from the North American CMBS Insight Model were reported for Classes C and PEZ, as the quantitative results suggested lower ratings. The material deviations were warranted given the uncertain loan-level event risk with the loans in special servicing.

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.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology (October 3, 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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