DBRS Morningstar Confirms All Ratings of Morgan Stanley Bank of America Merrill Lynch Trust 2014-C19

DBRS Limited (DBRS Morningstar) confirmed its ratings on all classes of the Commercial Pass-Through Certificates, Series 2014-C19 issued by Morgan Stanley Bank of America Merrill Lynch Trust 2014-C19 as follows:

-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)
-- Class B at AA (high) (sf)
-- Class X-C at AA (low) (sf)
-- Class C at A (high) (sf)
-- Class PST at A (high) (sf)
-- Class X-D at BBB (sf)
-- Class D at BBB (low) (sf)
-- Class X-E at B (high) (sf)
-- Class E at B (sf)
-- Class F at C (sf)

All trends are Stable with the exception of Class F, which is assigned a rating that does not typically carry trends in commercial mortgage-backed securities (CMBS) ratings.

The rating confirmations reflect the stable performance of the transaction, which has remained in line with DBRS Morningstar expectations. The C (sf) rating on Class F is reflective of DBRS Mornignstar's continued loss expectations for several loans in special servicing, as discussed below. In addition, the transaction is concentrated by property type with approximately 28.0% of the pool secured by office properties, including the largest loan, 300 North LaSalle (Prospectus ID#2, 11.4%). Loans backed by office properties were generally stressed given the proximity to maturity and low investor appetite for the property type, with a resulting weighted-average expected loss that was almost triple the expected loss for the pool as a whole.

Per the March 2023 remittance, 63 of the original 77 loans remain in the pool, representing a collateral reduction of 28.5% since issuance as a result of loan amortization, loan repayments, and the liquidation of six loans from the pool. The liquidation resulted in a realized loss of $10.8 million, which was contained to the nonrated Class G. Thirteen loans, representing 16.4% of the current trust balance, are fully defeased. There are seven loans in special servicing (11.0% of the current pool balance), three of which are lodging, two are multifamily, and the remaining two are mixed-use and retail properties. There are also seven loans (4.8% of the current pool balance) on the servicer’s watchlist.

The largest loan in the pool, 300 North LaSalle, is secured by a trophy Class A office building in Chicago, Illinois, totalling 1.3 million square feet (sf). According to the YE2022 rent roll, the property was 92.9% occupied; 21 tenants, representing 23.5% of the net rentable area (NRA), have leases scheduled to roll in the next 12 months. The largest tenant, Kirkland & Ellis, LLP (Kirkland & Ellis, 51.5% of NRA), has a lease extending to February 2029 but has a one-time termination available, effective February 2025, for which the borrower must provide a 24-month notice and pay a termination fee of $51.2 million. In August 2021, the Chicago Sun Times reported that Kirland & Ellis will be relocating from the subject to the newly constructed Salesforce Tower Chicago at Wolfpoint, which is expected to open by Spring 2023. This suggests the tenant may exercise its termination option in the near term to facilitate the move. DBRS Morningstar has requested an update from the servicer.

In addition, the second-largest tenant, Boston Consulting Group (BCG, 11.4% of NRA), is leaving the subject upon its December 2024 lease expiration and relocating to 360 North Green Street, as reported by The Real Deal in December 2021. However, a potential replacement tenant, Winston & Strawn, is in discussions with the borrower to backfill majority of BCG’s space. A March 2023 article from The Real Deal reported that Irvine Company, which is affiliated with the loan sponsor, is planning to complete a $30 million upgrade to the subject in order to retain and attract tenants, which speaks to the sponsor’s continued commitment to the property. Also, at issuance, $380.0 million of equity was contributed to purchase the property at a price of $850.0 million. The loan continues to report a healthy debt service coverage ratio (DSCR) of 1.71 times (x) based on the trailing 12-month ended (T-12) June 30, 2022, financials. At issuance, the loan was shadow-rated investment grade given the strong sponsorship strength and historically stable performance; currently, DBRS Morningstar believes the subject is better positioned than others in the submarket that have reported performance declines and have upcoming loan maturities. However, the overall refinance risk has elevated given the current environment and the significant tenant rollover risk. As such, DBRS Morningstar took a conservative approach in its review by removing the shadow rating and increased the expected loss in its analysis.

The largest loan in special servicing, PacStar Retail Portfolio (Prospectus ID#9.0, 4.4% of the pool), is secured by two anchored retail properties totaling 398,131 sf. The larger of the two properties, Yards Plaza, is a 259,137-sf shopping center located eight miles southwest of downtown Chicago. The smaller property, Willowbrook Court Shopping Center, is a 137,650-sf shopping center located within a highly trafficked retail corridor of northwest Houston. The loan transferred to special servicing in September 2021 for imminent nonmonetary default but defaulted on its payment as the loan was last paid through April 2022. Willowbrook Court has reported depressed occupancy and cash flows after former anchor tenant, Toys R’ Us (42.3% of NRA) filed for bankruptcy and vacated the property in 2018. However, according to the servicer commentary, the 58,000-sf space was backfilled by Best Buy as of October 2022, bringing occupancy up to approximately 60.0%. According to the June 2022 rent roll, Yards Plaza was 97.5% occupied but tenants representing 56.7% of NRA are currently on month-to-month leases. The borrower had indicated its willingness to transition the properties to the lender upon the loan’s transfer to special servicing. A receiver was appointed in 2022 but structural damage to the Yards Plaza property, which the borrower had incurred unpermitted debt, triggered recourse to the guarantors, which the special servicer is pursuing through litigation. Based on the November 2022 value, the properties were valued at $30.9 million, a decrease from the issuance value of $69.6 million and below the outstanding loan balance of $43.6 million. DBRS Morningstar analyzed this loan with a liquidation scenario, resulting in a loss severity in excess of 50.0%.

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, X-C, X-D, and X-E 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; https://www.dbrsmorningstar.com/research/410912).

Other methodologies referenced in this transaction are listed at the end of this press release.

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 rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process for this rating action.

DBRS Morningstar had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is a solicited credit rating.

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.

DBRS Limited
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North American CMBS Multi-Borrower Rating Methodology (March 16, 2023)/North American CMBS Insight Model v 1.1.0.0 (https://www.dbrsmorningstar.com/research/410913)

Rating North American CMBS Interest-Only Certificates (December 19, 2022; https://www.dbrsmorningstar.com/research/407577)

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 12, 2022; https://www.dbrsmorningstar.com/research/402646)

North American Commercial Mortgage Servicer Rankings (September 8, 2022; https://www.dbrsmorningstar.com/research/402499)

Interest Rate Stresses for U.S. Structured Finance Transactions (August 30, 2022; https://www.dbrsmorningstar.com/research/402153)

Legal Criteria for U.S. Structured Finance (December 7, 2022; https://www.dbrsmorningstar.com/research/407008)

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