DBRS Morningstar Confirms Ratings on All Classes of WFRBS Commercial Mortgage Trust 2014-C21

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2014-C21 issued by WFRBS Commercial Mortgage Trust 2014-C21 as follows:

-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-SBFL at AAA (sf)
-- Class A-SBFX at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class PEX at A (low) (sf)
-- Class X-B at BBB (low) (sf)
-- Class D at BB (high) (sf)
-- Class X-C at B (sf)
-- Class E at B (low) (sf)
-- Class F at CCC (sf)

All trends are Stable, with the exception of Class F, which has a rating that does not typically carry a trend in commercial mortgage-backed securities (CMBS) ratings. The rating confirmations reflect the overall stable performance of the transaction since DBRS Morningstar’s last review. The CCC (sf) rating on Class F is reflective of the ongoing concerns with the loans in special servicing. In addition, the transaction is concentrated by property type with approximately 32.0% of the pool secured by office properties. Loans backed by office properties were generally stressed given the proximity to maturity and low investor appetite for the property type, resulting in a weighted-average expected loss that was approximately 30.0% more than the weighted-average pool expected loss.

Per the April 2023 remittance, 92 of the original 121 loans remain in the trust, with an aggregate principal balance of $993.6 million, representing a collateral reduction of 30.2% since issuance. The pool benefits from 34 loans that are fully defeased, representing 21.4% of the pool. There are 12 loans on the servicer’s watchlist, representing 23.8% of the pool, which are primarily being monitored for declines in occupancy and/or debt service coverage ratios (DSCRs), or deferred maintenance items. There are two loans in special servicing, representing 6.0% of the pool.

The largest loan in special servicing, Tryp by Wyndham Times Square (Prospectus ID#8, 3.9% of the current pool balance), is secured by a hotel in the Theatre District of Midtown in New York. The loan transferred to special servicing in April 2020 because of imminent monetary default. The loan was last paid through February 2021 and the foreclosure was filed in December 2022. Initially, a receiver was denied by the court because of the borrower’s noncompliance with setting up cash management but based on the servicer’s update, funds are being deposited into a lockbox and as such, a hearing to appoint a receiver was set in April 2023. According to the December 2022 STR report, the property reported a trailing twelve-month (T-12) occupancy rate, average daily rate, and revenue per available room (RevPAR) of 78.6%, $250.51, and $196.99, respectively, which represents a RevPAR penetration of 111.8%. This is an improvement from the YE2020 RevPAR of $44.00 as reported in the financials but is still below pre-Coronavirus Disease (COVID-19) pandemic levels when YE2019 RevPAR was $229.23.

Based on the July 2022 appraisal, the property was valued at $56.6 million, which is unchanged from the October 2021 value but is ultimately 34.9% less than the $87.2 million appraised value at issuance. Although the performance of the property has improved, the metrics still lag behind pre-pandemic levels, and the value continues to be depressed. As such, DBRS Morningstar applied a stressed loan-to-value (LTV) and an elevated Probability of Default (POD) to increase the expected loss for this review.

The Oak Court Mall (Prospectus ID#15, 2.0% of the pool balance) loan is secured by a 240,197-square-foot (sf) portion of a 723,014-sf super-regional mall in Memphis, Tennessee. The loan is pari passu with Wells Fargo Commercial Mortgage Trust 2014-LC16, which is also rated by DBRS Morningstar. The loan transferred to special servicing in May 2020 for imminent monetary default and the loan sponsor, Washington Prime Group, ultimately notified the servicer of its desire to transfer title to the trust. According to the March 2022 appraisal, the subject was valued at $26.1 million, an increase from the April 2021 value of $15.5 million but still less than the issuance value of $61.0 million and the outstanding whole-loan balance of $33.6 million. DBRS Morningstar analyzed this loan with a liquidation scenario, resulting in a loss severity in excess of 50.0%. For more information on this loan, please see the press release titled “DBRS Morningstar Confirms Ratings on All Classes of Wells Fargo Commercial Mortgage Trust 2014-LC16” published on February 13, 2023, on the DBRS Morningstar website.

The Cedar Crest Professional Park loan (Prospectus ID#5, 5.1% of the current pool balance) is secured by seven specialized medical office buildings and a three-story parking garage located in Allentown, Pennsylvania. This loan is on the servicer’s watchlist because of low occupancy levels, which was most recently reported at 59.6% as per the December 2022 rent roll, compared with the YE2021, YE2020, and issuance occupancy rates of 61.9%, 64.8%, and 80.5%, respectively. The decline in occupancy from issuance was because of the downsizing of the largest tenant, Lehigh Valley Health Network (LVHN; 37.2% of the net rentable area (NRA), multiple lease expiries ranging from January 2023 to February 2025), which initially occupied 45.7% of the NRA at issuance but gave back a portion of its space over the years. It is noteworthy that all of LVHN’s space is leased to affiliates of the hospital under a main lease structure; however, approximately 6.3% of the NRA currently occupied by LVHN affiliates are expected to leave the subject and relocate to Center Valley. There is also tenant rollover risk of 11.2% where leases are expiring prior to the July 2024 loan maturity.

According to the most recent financial reporting, the loan reported a T-9 September 30, 2022, DSCR of 1.20 times (x), which is also the DSCR trigger that activates a cash flow sweep, compared with the YE2021 and YE2020 DSCRs of 1.27x and 1.49x, respectively. Given the low-in place occupancy rate, which is likely to deteriorate further upon departure of the LVHN affiliates and because of lack of leasing traction, the value of the property has likely decreased from issuance and securing takeout financing will be challenging. DBRS Morningstar analyzed this loan with a stressed LTV and POD figure to increase the expected loss in its analysis.

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; 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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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/North American CMBS Insight Model v 1.1.0.0 (March 16, 2023), 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].