DBRS Morningstar Confirms All Classes of COMM 2014-UBS6 Mortgage Trust

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

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

All trends are Stable, with the exception of Classes F and G, which have ratings that do not carry trends.

DBRS Morningstar’s expectations for the pool remain in line with the last rating action in November 2022. Since then, University Village (Prospectus ID#5) was disposed from the pool with a better recovery than DBRS Morningstar had anticipated; however, Highland Oaks Portfolio (Prospectus ID#8, 3.4% of the pool) transferred to special servicing with the March 2023 reporting for imminent default following the loss of the property’s largest tenant in December 2022 at lease expiration, which occupied over half of net rentable area (NRA).

To date, five loans have been liquidated from the trust with losses totaling $25.8 million contained to the nonrated Class H Certificate, which has been reduced by nearly 65% to $14.1 million. As noted above, the most recent liquidation was the $39.9 million University Village loan, which was secured by a student housing property in Tuscaloosa, Alabama, and incurred a loss of $7.1 million upon disposition. In its previous review, DBRS Morningstar had assumed a haircut to the May 2022 appraised value of $30.9 million and liquidated the loan from the trust with a projected loss of $24.1 million, factoring in the $9.5 million of accumulated servicer advances. With this review, DBRS Morningstar increased the expected loss on six loans reflective of the individual credit risk profiles, but only liquidated one loan from the trust with a projected loss under $0.5 million.

As of the March 2023 reporting, 73 of the original 89 loans remained in the trust, with an aggregate principal balance of $954.2 million, reflecting a collateral reduction of 25.2% since issuance, as a result of loan repayments, scheduled loan amortization, and loan liquidations. In addition, 25 loans, representing 20.0% of the pool, are secured by collateral that has been fully defeased. There are eight loans, representing 14.0% of the pool, on the servicer watchlist, and five loans, representing 10.9% of the pool, in special servicing.

The largest loan in special servicing, University Edge (Prospectus ID#7, 3.6% of the pool), transferred to special servicing in October 2022 for imminent default because of the borrower’s inability to continue covering property cash flow shortfalls. The collateral is a 148-unit (578-bed) off-campus student housing complex in Akron, Ohio, across from University of Akron’s main campus. The property also includes 18,225 square feet (sf) of street-level retail and a 40-space parking garage. The borrower has managed to keep the loan current despite consistently reporting lower than breakeven cash flows, which were amplified by the outbreak of the Coronavirus Disease (COVID-19) pandemic, and has requested a loan modification to extend the maturity beyond the November 2024 maturity date, while attempting to increase cash flows by implementing a new lease structure that would allow expenses to be passed through to tenants. According to the servicer, any extensions would typically require capital infusion from the borrower along with covering the fees and costs associated with the transaction. Discussions and negotiations are currently ongoing.

As of the August 2022 rent roll, the student housing portion of the property reported an occupancy rate comparable with issuance figures of 98.1%, trending positively over the December 2021 figure of 87.0% and recovering from a low of 82.7% in December 2020 as a result of the impacts of the pandemic on enrollment. University of Akron’s total enrollment had been steadily declining since 2012, a trend that was amplified by the impact of the coronavirus pandemic and is mirrored among several northeast Ohio public universities; however, according to an article published by Ideastream Public Media in February 2023, there are signs that enrollment may be stabilizing. Per the August 2022 rent roll, the property reported an average rental rate of $544 per bed, reflecting an 18.1% decline from $664 per bed prior to the pandemic in June 2019. For the academic year of 2023–24, Reis projected the University of Akron submarket would have a vacancy rate of 2.7% and an asking rental rate of $570 per ped, slightly above the property’s average rental rate. Reis forecasts rent growth of 1.8% by the 2024–25 academic year. The property’s retail portion was 80.6% occupied by nine tenants, with no rollover within the next 12 months.

According to the trailing six-month financials ended June 30, 2022, the loan reported an annualized net cash flow of $1.9 million (a debt service coverage ratio (DSCR) of 0.90 times (x)), an increase from a low of $1.6 million at YE2020 (a DSCR of 0.74x), but below the pre-pandemic figure of $2.6 million (a DSCR of 1.51x) at YE2019. Given the loan’s historical performance challenges and University of Akron’s total enrollment decline of more than 40% since issuance, DBRS Morningstar has concerns about the loan being able to secure refinancing at maturity in November 2024. No updated appraisal has been provided since issuance when the property was valued at $46.4 million; however, property value has likely declined significantly, elevating the loan’s leverage and credit risk to the trust. As a result, DBRS Morningstar has elevated its probability of default (POD) from the previous year and stressed the loan-to-value assumption, increasing the loan’s expected loss.

With the March 2023 remittance, the Highland Oaks Portfolio (Prospectus ID#8, 3.4% of the current pool balance) was transferred to special servicing for imminent default following the departure of the property’s largest tenant, Health Care Service Corporation (Health Care; 55.6% of NRA), which vacated as expected upon its lease expiration in December 2022, bringing occupancy down to its current rate of 33.8%. Another two tenants, representing 5.0% of NRA, have lease expirations in the next 12 months. The property is secured by two Class B office properties totaling 319,665 sf in Downers Grove, Illinois. While the servicer had previously noted the borrower’s aggressive leasing efforts to find new tenants to backfill the space and potentially refreshing the interior and exterior of the building, no prospective tenants have been reported to date. The loan has nearly $5.0 million in reserves to aid with leasing efforts; however, the March 2023 site inspections reported that no capital expenditures were under way or planned. According to Reis, comparable properties within the West submarket of Chicago reported asking and effective rental rates of $22.54 per sf (psf) and $16.85 psf as of Q4 2022, respectively, compared with the subject’s current rental rate of $16.24 psf.

Prior to the Health Care departure, performance had been healthy as the loan reported a DSCR of 1.73x as of Q3 2022; however, coverage has abruptly declined with the borrower unable to cover property shortfalls. Given the sharp increase in vacancy paired with the soft submarket conditions—which reported a vacancy figure of 22.8% as of Q4 2022 according to Reis data—DBRS Morningstar applied a POD penalty to significantly increase the expected loss for this loan.

DBRS Morningstar ran an updated model given the meaningful changes since last review. Material deviations from the North American CMBS Insight Model were reported for Class E, as the quantitative results suggested higher ratings. The material deviations were warranted given the uncertain loan-level event risk with the increase in defeasance, and the loan’s on the servicer’s watchlist and in special servicing.

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 (May 17, 2022).

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 the North American CMBS Surveillance Methodology (March 16, 2023), 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 info@dbrsmorningstar.com.

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 info@dbrsmorningstar.com.

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