DBRS Morningstar Confirms Its Ratings on All Classes of Morgan Stanley Bank of America Merrill Lynch Trust 2014-C14

DBRS Limited (DBRS Morningstar) confirmed the ratings on all classes of the Commercial Mortgage Pass-Through Certificates, Series 2014-C14 issued by Morgan Stanley Bank of America Merrill Lynch Trust 2014-C14 as follows:

-- Class A-5 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at AA (low) (sf)
-- Class PST at AA (low) (sf)
-- Class D at BBB (sf)
-- Class E at BB (high) (sf)
-- Class F at BB (sf)
-- Class X-C at B (high) (sf)
-- Class G at B (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which remains generally in line with DBRS Morningstar’s expectations since the last review. As of the May 2023 remittance, 37 of the original 58 loans remain in the pool with a current trust balance of $623.1 million, representing a collateral reduction of 57.9% since issuance as a result of repayment and loan amortization. The pool benefits from nine loans, representing 11.3% of the pool, that have been fully defeased. Two loans, representing 2.9% of the pool, are specially serviced while seven loans, representing 25.0% of the pool, are currently on the servicer watchlist, three of which are being monitored for performance-related issues. There are three remaining office properties in the pool, representing 8.3% of the pool, while retail properties make up the largest concentration with 41.0% of the pool. Where applicable, DBRS Morningstar increased the probability of default (POD) penalties, and, in certain cases, applied stressed loan-to-value ratios for loans that are secured by office properties. The weighted-average expected loss for those loans was more than double than the weighted-average pool expected loss.

The largest watchlisted loan in the pool, Stonestown Galleria (Prospectus ID#8, 7.4% of the pool), is secured by a 585,830-square-foot (sf) portion of an 853,618-sf regional mall in San Francisco.

The loan has been on the servicer’s watchlist since March 2020 for low performance and, more recently, the loan was flagged for its upcoming maturity in October 2023. Net cash flow (NCF) and occupancy dropped significantly following the departure of collateral tenant, Nordstrom (27.4% of net rentable area (NRA)), in 2019, ahead of its 2022 lease expiration. However, Target—which had taken over the dark Sports Authority space adjacent to Nordstrom in 2017—extended its footprint by approximately 55,000 sf into a portion of the Nordstrom space and currently occupies 15.7% of NRA on a lease through January 2037. At issuance, the property was anchored by a noncollateral Macy’s but the tenant departed in 2017, and its space was repurposed for multitenant use with majority of the area leased to Regal Entertainment Group, Sports Basement, and Whole Foods Market.

As of the December 2022 rent roll, the collateral was 66.1% occupied, down from 72.1% at YE2021 and 94.5% at issuance. Although there has been a slight improvement in occupancy, with the trailing three months (T-3) ended March 31, 2023, financials reporting an occupancy rate of 68.1% and new tenants, representing 3.2% of NRA, having signed new leases, the impact is muted by the tenant rollover risk of 11.2% of NRA occurring in the next 12 months. Sales at the subject have been improving, with the T-12 ended March 31, 2023, tenant sales report noting $616.59 per sf (psf) for in-line tenants occupying less than 10,000 sf and excluding Apple. This was above the T-12 ended December 31, 2022, and September 30, 2021, sales figures of $597.72 psf and $393.68 psf, respectively. For tenants occupying more than 10,000 sf, sales for those same time periods were reported at $656.15 psf, $572.00 psf, and $294.60 psf, respectively.

Based on the most recent financials, the loan reported a YE2022 debt service coverage ratio (DSCR) of 1.36 times (x), compared with the YE2021 DSCR of 1.20x, YE2020 DSCR of 1.12x, and the DBRS Morningstar DSCR of 1.47x. Given the sustained occupancy decline and the sharp decline in performance since issuance expectations, the refinanceability of this loan will be challenged. As such, for this review, DBRS Morningstar applied a stressed POD penalty, resulting in an elevated expected loss.

The second largest loan on the servicer’s watchlist, Hilton San Francisco Financial District (Prospectus ID#10, 6.5% of the pool), is secured by the fee-simple interest in the 543-key, full-service hotel located in downtown San Francisco between the Financial District and Chinatown. The loan was added to the servicer’s watchlist in October 2020 for a low DSCR in light of reduced demand, driven by the Coronavirus Disease (COVID-19) pandemic. As of the most recent financials, the loan reported a YE2022 DSCR of 1.09x, a significant improvement from YE2021 and YE2020, when the property was reporting negative NCFs, but is still well below the DBRS Morningstar DSCR of 1.42x. According to the T-12 ended December 31, 2022, STR report, the property reported occupancy, average daily rate, and revenue per available room (RevPAR) figures of 85.4%, $205.65, and $175.65, respectively. The subject outperformed its compset, reporting a RevPAR penetration of 124.4%. Overall, the subject has improved considering the RevPAR figures during 2020 and 2021 were less than $100; however, it is below issuance performance when RevPAR was reported at $191.17. Although performance has rebounded from the lows of YE2020 and YE2021, the NCF and DSCR still remain below DBRS Morningstar expectations from issuance. The STR metrics, as of the December 2022 report, do provide some comfort that demand for the subject is approaching issuance levels; however, the prolonged recovery into 2023 and upcoming maturity in January 2024 does pose further concern as the borrower begins to seek takeout financing. For this review, DBRS Morningstar applied a stressed POD to increase the expected loss in its analysis for this loan.

At issuance, DBRS Morningstar shadow-rated the JW Marriott and Fairfield Inn & Suites loan (Prospectus ID#5, 11.2% of the pool balance) as investment grade. The loan is secured by two hotel properties (JW Marriott Hotel and Fairfield Inn & Suites) in Indianapolis, well located near the Indiana Convention Center and Lucas Oil Stadium. The loan was previously on the servicer’s watchlist because of a low DSCR driven by the challenges brought on by the coronavirus pandemic. As of this review, the loan is no longer on the servicer’s watchlist and reported a very strong YE2022 DSCR of 4.35x. With this review, DBRS Morningstar confirms that the loan performance remains in line with the investment-grade loan characteristics.

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 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.

DBRS Limited
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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/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].