DBRS Morningstar Confirms All Ratings of COMM 2014-CCRE18 Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed all classes of Commercial Mortgage Pass-Through Certificates, Series 2014-CCRE18 issued by COMM 2014-CCRE18 Mortgage Trust as follows:

-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-M at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (high) (sf)
-- Class PEZ at A (high) (sf)
-- Class X-B at BBB (sf)
-- Class D at BBB (low) (sf)
-- Class E at B (high) (sf)
-- Class F at CCC (sf)

All trends are Stable with the exception of Class F, which has a rating which does not typically carry a trend in commercial mortgage-backed securities (CMBS) ratings. The rating confirmations reflect the overall stable performance of the underlying collateral, which remains in line with DBRS Morningstar’s expectations since the last review. At issuance, the transaction consisted of 49 loans with an original trust balance of $996 million. As of the April 2023 remittance report, 35 loans remained in the transaction with a current trust balance of $589 million, representing a collateral reduction of approximately 40.9% since issuance. In addition to significant paydown from issuance, the transaction also benefits from defeasance, as 11 loans, totaling 30.0% of the pool, are fully defeased. Five loans, representing 9.9% of the pool, are currently monitored on the servicer’s watchlist, and there are no loans currently in special servicing. The pool benefits from the relatively low concentration of loans backed by office properties (15.9%): however, these loans are generally significantly weaker than the pool as a whole, with the weighted-average expected loss (EL) at approximately 150% of the pool average EL.

The second-largest loan in the pool, Southfield Town Center (Prospectus ID#4, 9.5% of the pool), is secured by a 2.15 million square-foot (sf), five-building suburban office property located in the Detroit suburb of Southfield, Michigan. The loan was previously added to the servicer’s watchlist in March 2020 due to cash flow declines, but performance has since improved. According to the year-end (YE) 2022 financials, net cash flow (NCF) was reported at $17.8 million (representing a debt service coverage ratio (DSCR) of 2.00 times(x)), an increase of 6.1% from YE2021 when NCF was reported at $15.7 million (a DSCR of 1.77x), and above the issuance figure of $16.4 million (a DSCR of 1.85x). Occupancy remains stable at 79.6%, with 13 new leases signed throughout 2022 at an average rental rate of $16.20 per square foot (psf). Additionally, leases representing 11.5% of total net rentable area (NRA) will expire in 2023. Although the collateral is performing, the suburban location and relatively high loan-to-value (LTV) of 78.5% on the issuance balance pushes the loan’s baseline EL up significantly, with the resulting figure 168.0% higher than the pool average.

The largest loan on the servicer’s watchlist, 399 Thornall Street (Prospectus ID#8, 5.6% of the pool), is secured by a 335,000 sf suburban office property in Edison, New Jersey. The loan was first added to the watchlist in 2017 when the occupancy fell to 39.0% in 2019 due to the former largest and second-largest tenants, Daiichi Sankyo, Ltd. (Daiichi Sankyo) and Oracle Corp. (Oracle), respectively, downsizing. Daiichi Sankyo now occupies 7.2% of the NRA with a lease expiring in May 2024, while Oracle exercised its termination option and vacated the property in 2021. Following these moves, the physical occupancy rate fell to 39.0%. Additionally, it was confirmed that four new leases were signed throughout 2021 and 2022 representing 11.8% of NRA which brought the average rental rate at the property up to $32.40 psf as of September 2022. As of Q3 2022, the property was 43.6% occupied with leases representing 11.4% of NRA scheduled to expire throughout 2023. Additionally, according to Reis, the Metropark submarket had average rental and vacancy rates of $28.20 psf and 12.5%, respectively, at YE2022.

As of Q3 2022, the loan reported a DSCR of 0.56x, down from 1.39x at YE2021, and cash flows were down 44.0% from the DBRS Morningstar NCF derived at issuance. The loan remains current and the borrower appears committed to the property as of now. However, there are significant challenges for the property given the very low in-place occupancy rate. As a result, DBRS Morningstar applied a stressed LTV for this loan that resulted in an EL that was 153.0% higher than the pool EL.

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 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/north-american-cmbs-surveillance-methodology

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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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 )

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].