DBRS Morningstar Changes Trend on Three Classes, Confirms All Ratings of Morgan Stanley Bank of America Merrill Lynch Trust 2014-C18

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2014-C18 issued by Morgan Stanley Bank of America Merrill Lynch Trust 2014-C18 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 B at AA (sf)
-- Class C at A (low) (sf)
-- Class PST at A (low) (sf)
-- Class X-B at BBB (low) (sf)
-- Class D at BB (high) (sf)
-- Class E at B (low) (sf)
-- Class F at CCC (sf)

DBRS Morningstar also confirmed the ratings on the following non-pooled rake bonds of the Commercial Mortgage Pass-Through Certificates, Series 2014-C18, which are backed by the $244.4 million subordinate B note of the 300 North LaSalle loan:

-- Class 300-A at AA (high) (sf)
-- Class 300-B at A (sf)
-- Class 300-C at BBB (sf)
-- Class 300-D at BB (sf)
-- Class 300-E at B (high) (sf)

DBRS Morningstar changed the trends on Classes D, E, and X-B to Stable from Negative. All other classes carry Stable trends with the exception of Class F, which is assigned a rating that does not typically carry a trend in Commercial Mortgage-Backed Securities (CMBS).

The rating confirmations reflect the overall stable performance of the transaction, in line with DBRS Morningstar expectations. The CCC (sf) rating on Class F is reflective of DBRS Morningstar’s continued loss expectations for two loans in special servicing, as discussed below. Several classes had been carrying Negative trends because of concerns related to the performance of hospitality properties, which represent 16.8% of the pool balance and have generally reported a decline in performance because of the impact of the Coronavirus Disease (COVID-19) pandemic. However, performance has generally rebounded and is trending toward a positive direction, thereby supporting the trend change to Stable.

As of the April 2023 remittance, 47 of the original 65 loans remain in the pool, representing a collateral reduction of 42.3% since issuance. The pool is concentrated by property type with loans secured by office, retail, and hotel properties representing 31.7%, 30.1%, and 16.8% of the pool balance, respectively. DBRS Morningstar stressed the loans backed by office properties given their proximity to maturity and low investor appetite for the property type, with a resulting weighted-average expected loss that was approximately 65% above the expected loss for the pool as a whole.

Ten loans, representing 12.1% of the pool, are fully defeased. Three loans are in special servicing and six loans are on the servicer’s watchlist, representing 8.0% and 20.1% of the current pool, respectively. The largest specially serviced loan is Louisiana Retail Portfolio (Prospectus ID#11; 4.1% of the pool), which is secured by a portfolio of 15 unanchored retail properties located across various markets throughout Louisiana and Mississippi. The loan transferred to special servicing in December 2019 because of a default on the October 2019 maturity date. The portfolio became real estate owned in November 2022 and, according to the servicer’s commentary, three properties have been sold to date while the remaining properties are expected to be sold by November 2023. An updated appraisal from November 2022 reported a value of $27.2 million, which is down 35.1% from the issuance value of $41.9 million. DBRS Morningstar has requested an update from the servicer regarding the details of the sale of the three properties but a response is pending as of the date of this press release. DBRS Morningstar analyzed this loan with a liquidation scenario, which resulted in a loss severity in excess of 30.0%.

The second-largest loan in special servicing is 25 Taylor (Prospectus ID#16; 2.9% of the pool), which is secured by a 55,124 square foot (sf) high-rise office building in San Francisco. The loan transferred to special servicing in February 2023 because of monetary default, considering the occupancy rate has fallen considerably from issuance. The former largest tenant, WeWork (96.7% of the net rentable area), vacated the property at YE2021, bringing the occupancy rate down to 3.3%. The borrower was funding operating shortfalls out of pocket as the property reported negative net cash flows while litigation proceedings against WeWork were ongoing; however, the loan stopped making its debt service payments in January 2023. A prenegotiation letter was executed and, while workout discussions are ongoing, the special servicing is dual tracking foreclosure. Given the negative net cash flow and sustained low occupancy rate since 2021, the value of the property has declined significantly from issuance. An updated appraisal from March 2023 reported a value of $9.5 million, which is down 66.2% from the issuance value of $28.1 million. As such, DBRS Morningstar analyzed the loan with a stressed loan-to-value ratio and an elevated probability of default, resulting in an expected loss that is double the pool average expected loss.

The 300 North LaSalle loan is secured a 1.3 million-sf Class A office building in Chicago’s River North submarket. Asides from the rake bonds, the senior debt is held in the trust and is pari passu with a loan secured in Morgan Stanley Bank of America Merrill Lynch Trust 2014-C19 (MSBAM 2014-C19), which is also rated by DBRS Morningstar. At issuance, the senior debt portion of the loan was shadow-rated as investment grade based on the property’s above-average quality, 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 is 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 increasing the expected loss in its analysis. For more information on this loan, please see the press release titled “DBRS Morningstar Confirms All Ratings of Morgan Stanley Bank of America Merrill Lynch Trust 2014-C19,” published on April 11, 2023, on the DBRS Morningstar website.

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 (May 17, 2022) at https://www.dbrsmorningstar.com/research/396929.

Classes X-A and X-B 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 (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.

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

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

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

North American Single-Asset/Single-Borrower Ratings Methodology (February 23, 2023)
https://www.dbrsmorningstar.com/research/410191

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].