DBRS Morningstar Confirms Ratings on All Classes of BANK 2018-BNK14

DBRS Limited (DBRS Morningstar) confirmed its ratings on all classes of the Commercial Mortgage Pass-Through Certificates, Series 2018-BNK14 issued by BANK 2018-BNK14 as follows:

-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (high) (sf)
-- Class X-B at A (high) (sf)
-- Class C at A (sf)
-- Class D at BBB (high) (sf)
-- Class X-D at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class X-F at BB (high) (sf)
-- Class F at BB (sf)
-- Class X-G at BB (low) (sf)
-- Class G at B (high) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which remains in line with DBRS Morningstar’s expectations since the prior rating action. Per the August 2023 reporting, 61 of the original 62 loans remain in the pool with an aggregate principal balance of $1.2 billion, representing collateral reduction of 9.1% since issuance as a result of scheduled loan amortization and the repayment of the fourth-largest loan in the pool. One loan, representing 0.7% of the pool, has been fully defeased. There are three loans, representing 8.3% of the pool, on the servicer’s watchlist, and two loans, representing 6.3% of the pool, in special servicing; however, these loans generally continue to exhibit healthy credit metrics. Based on the most recent financial reporting available, loans on the servicer’s watchlist and in special servicing reported weighted-average (WA) debt service coverage ratios (DSCRs) of 1.36 times (x) and 2.20x, respectively.

The largest specially serviced loan, DoubleTree Grand Naniloa Hotel (Prospectus ID#12, 3.7% of the pool) is secured by a 388-key, full-service hotel in Hilo, Hawaii. The loan transferred to special servicing in June 2020 for imminent monetary default, primarily resulting from travel restrictions put in place to curb the spread of the Coronavirus Disease (COVID-19) pandemic. While several news articles published in June 2023 indicate that the borrower was able to find alternative financing, the loan was delinquent as of the August 2023 reporting, with the last debt payment made in November 2021. While litigation is ongoing, the servicer is actively pursuing foreclosure and a receiver is in place. The servicer noted that a potential sale was scheduled to take place toward the end of August 2023; however confirmation has not been received as of the date of this press release. Despite the direction of the servicer’s workout resolution, performance has recently rebounded from the lows reported during the pandemic, leading to an improved property valuation, which should help to minimize loss if a liquidation from the trust were to occur.

Based on the YE2022 reporting, the property reported occupancy, average daily rate (ADR), and revenue per available room (RevPAR) metrics of 80.4%, $191.8, and $154.2, respectively, displaying significant growth in RevPAR when compared with the YE2021 and YE2020 figures of $105.8 and $56.9, respectively. Likewise, reported net cash flow (NCF) has trended upward with a trailing 12-month ended June 30, 2023, figure of $7.3 million (a DSCR of 2.57x), up from the YE2021 and YE2020 figures of $3.7 million (DSCR of 1.19x) and $2.0 million (DSCR of 0.73x), respectively. The most recent appraisal, dated June 2022, valued the property at $64.0 million, an improvement from the August 2021 appraised value of $56.4 million, but approximately 36.0% lower than the issuance appraised of $100.1 million. However, with the recent improvement in performance and a RevPAR figure in excess of $137.0, which DBRS Morningstar analyzed at issuance, it is likely an updated valuation would yield a higher value. While the loan has accumulated over $7.1 million in advances, DBRS Morningstar anticipates a negligible loss to the $44.2 million first-loss piece, if a liquidation were to occur.

The second loan in special servicing, Navika Six Portfolio (Prospectus ID#17, 2.6% of the pool), is secured by a portfolio of six hotel properties, totaling 803 keys in multiple states including Texas, California, Florida, and New Jersey. The loan had been on the servicer’s watchlist since April 2020 and was twice granted deferrals of both reserve and escrow payments from May 2020 through October 2020. The loan subsequently transferred to special servicing in March 2021 for payment default and remained delinquent until October 2022. However, a loan modification was executed in April 2023 and the loan is expected to be returned to the master servicer in the near term. The most recent appraisal, dated September 2022, valued the portfolio at $129.0 million, implying a moderate whole loan-to-value ratio (LTV) of 57.8%.

The pool is concentrated by property type with loans secured by retail, office, and lodging properties representing 41.1%, 23.3%, and 17.3% of the pool balance, respectively. In general, the office sector has been challenged, given the low investor appetite for that property type and high vacancy rates in many submarkets, driven by the shift in workplace dynamics. While the majority of loans secured by office properties in this transaction continue to exhibit healthy credit metrics, reflecting a WA debt yield and DSCR of 14.5%, and 2.2x, respectively, there are two loans showing increased credit risk. In its analysis for this review, DBRS Morningstar applied stressed LTV ratios or increased probability of default (POD) assumptions for these two loans, resulting in a WA expected loss (EL) nearly triple the pool average.

The largest loan on the servicer’s watchlist, Executive Towers West (Prospectus ID#6, 4.6% of the pool), is secured by an office campus composed of 671,416 square feet (sf) across three Class A office buildings. The collateral is in the suburb of Downers Grove, Illinois, approximately 22 miles west of Chicago’s central business district. The buildings were constructed between 1983 and 1987 and were most recently renovated between 2012 and 2017. The loan is currently on the servicer’s watchlist for a decline in occupancy, that was primarily driven by State Farm’s departure. Formerly the largest tenant at the property, State Farm, which occupied 15.1% of the net rentable area (NRA), exercised its lease termination option in December 2021, pushing occupancy down to 69.0% from 86.0%. Tenant roll-over risk is elevated, with leases totaling approximately 22.4% of NRA set to roll within the next 12 months, including the largest tenant at the property, Zachry Engineering Corporation (11.5% of the NRA).

According to the YE2022 financial reporting, NCF and DSCR were $5.2 million and 1.30x, respectively, considerably lower than the prior year’s figures of $7.4 million and 1.9x. No updated appraisal has been provided since issuance, when the property was valued at $84.9 million; however, given the low occupancy rate and general challenges for office properties in today’s environment, DBRS Morningstar notes that the collateral’s as-is value has likely declined significantly, elevating the credit risk to the trust. As such, DBRS Morningstar applied a stressed LTV ratio in its analysis, resulting in an EL that was nearly four times the pool average.

At issuance, six loans, representing 26.1% of the pool balance, were shadow-rated investment grade. With this review, DBRS Morningstar confirmed that the performance of five of those loans—685 Fifth Avenue Retail (Prospectus ID#1; 8.0% of the pool), Aventura Mall (Prospectus ID#2; 8.0% of the pool), Millennium Partners Portfolio (Prospectus ID#9; 4.0% of the pool), 1745 Broadway (Prospectus ID#10; 4.0% of the pool), and Pfizer Building (Prospectus ID#19; 0.5% of the pool)—remains consistent with investment-grade characteristics. This assessment continues to be supported by the loan’s strong credit metrics, experienced sponsorship, and the underlying collateral’s historically stable performance.

With this review, DBRS Morningstar removed the investment-grade shadow rating for one loan, Cool Springs Galleria (Prospectus ID#18; 2.2% of the pool). In addition to loan-specific challenges including the sponsor’s November 2020 bankruptcy filing, the super-regional mall, located in Franklin, Tennessee has seen a 12.5% decline in NCF between issuance and YE2022, and has exposure to a number of large tenants who have faced recent financial hardship, including JCPenney, Forever 21, and Belk.

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/416784 (July 4, 2023).

Classes X-A, X-B, X-D, X-F, and X-G 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 credit ratings are subject to surveillance, which could result in credit 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 credit rating assigned to Class B materially deviates from the credit rating implied by the predictive model. DBRS Morningstar typically expects there to be a substantial likelihood that a reasonable investor or other user of the credit rating would consider a three-notch or more deviation from the credit rating stresses implied by the predictive model to be a significant factor in evaluating the credit rating. The rationale for the material deviations is the uncertain loan-level event risk, primarily associated with the pool’s high concentration of loans secured by office properties, some of which are showing increased risks from issuance, as described in more detail above.

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 credit rating was initiated at the request of the rated entity.

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

This is a solicited credit rating.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

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

The credit 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 (August 23, 2023; https://www.dbrsmorningstar.com/research/419592)

Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023; https://www.dbrsmorningstar.com/research/415687)

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

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/417279.

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