Morningstar DBRS Confirms Credit Ratings on All Classes of COMM 2014-CCRE21 Mortgage Trust

DBRS Limited (Morningstar DBRS) confirmed all credit ratings on the Commercial Mortgage Pass-Through Certificates issued by COMM 2014-CCRE21 as follows:

-- Class A-3 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-M at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class X-B at A (high) (sf)
-- Class C at A (sf)
-- Class PEZ at A (sf)
-- Class X-C at BB (low) (sf)
-- Class D at B (high) (sf)
-- Class E at B (low) (sf)
-- Class F at C (sf)
-- Class G at C (sf)

All trends are Stable, with the exception of Class F and Class G, which are assigned credit ratings that do not typically carry trends in commercial mortgage-backed securities (CMBS). Morningstar DBRS’ expectations for the pool remain in line with the last rating action in February 2023. The transaction is winding down with the majority of loans well positioned to repay at or ahead of the scheduled 2024 maturity; however, there remain challenges for loans in special servicing and select loans displaying elevated levels of refinance risk.

Since last review, one specially serviced loan (previously 1.6% of the pool) was disposed from the trust with a slightly better recovery than Morningstar DBRS previously anticipated; however, two loans (2.3% of the pool) have transferred to special servicing. As of the January 2024 reporting, the unrated bonds had been reduced by approximately 72.6% since issuance to $15.0 million, while interest shortfalls had accrued to $3.6 million through to the first-rated Class G certificate. In its analysis for this review, Morningstar DBRS considered liquidation scenarios for all four specially serviced loans (14.6% of the pool) and, based on those scenarios, Morningstar DBRS expects losses to write down the principal balance of Class G by nearly 50%, significantly eroding the credit support to Class F, supporting the C (sf) ratings for those certificates.

As of the January 2024 reporting, 47 of the original 59 loans remain in the pool, representing a collateral reduction of approximately 30.5% since issuance as a result of loan amortization, repayments, and liquidations. Since Morningstar DBRS’ last credit rating action, four loans have been fully defeased, increasing trust defeasance to 38.2%. By property type, the transaction is most concentrated by loans backed by retail properties (21.7% of the pool) and benefits from minimal exposure to loans backed by office properties (4.8% of the pool). There are 12 loans (18.8% of the pool) on the servicer’s watchlist being monitored primarily for low debt service coverage ratios (DSCRs) and/or items of deferred maintenance.

The loan with the largest loss projection is Kings’ Shops (Prospectus ID#3, 8.4% of the pool), which is secured by a 69,023 square foot retail property in Waikoloa, Hawaii. Kings’ Shops is an upscale retail center located within walking distance of the Waikoloa Beach Marriott Resort & Spa and the Hilton Waikoloa Village. The loan transferred to special servicing in September 2020 for payment default and became real estate owned in February 2023. According to the special servicer’s most recent update, a potential purchase and sale agreement is currently in the works. At issuance, the property was anchored by Macy’s, which closed in early 2020 and led occupancy to drop to 78% as of June 2020, down from 91.0% at YE2019 and 94.0% at issuance. Since then, several short-term leases have been signed, resulting in an occupancy rate of 81.1% as of September 2023 and a DSCR that is slightly above breakeven. An October 2023 appraisal valued the property at $49.1 million, slightly above the previous two appraisals of $49.0 million and $47.5 million from February 2023 and May 2022, respectively, but well below the issuance appraised value of $84.0 million. Morningstar DBRS views the relatively stable valuations as evidence that the outlook for economies with reliance on tourism has improved. However, given the loan’s exposure relative to the value, reflecting a loan-to-value (LTV) above 100%, Morningstar DBRS liquidated the loan in its analysis with an implied loss of nearly 25%.

The second-largest specially serviced loan is Marine Club Apartments (Prospectus ID#9; 3.9% of the pool), which is secured by a fractured condominium community in Philadelphia, with 204 of the total 301 units serving as collateral. The loan was transferred to special servicing in October 2020 for payment default. Following the special servicer’s objection to the borrower’s two settlement offers in April 2022, the preferred equity holder has replaced the manager of the borrower. Given the ongoing appeals, the foreclosure sale, which was originally scheduled in March 2023, has been delayed. As such, the lender continues to dual track foreclosure and discuss workout alternatives. A March 2023 appraisal valued the property at $35.8 million, a moderate improvement over the issuance value of $35.0 million and above the outstanding loan amount of $22.2 million. However, the loan has accrued $7.2 million of advances to date, with an increasing exposure growing from $4.5 million from the prior review, resulting in an LTV nearing 90.0%. Based on a stressed value of the property, Morningstar DBRS liquidated the loan in its analysis with an implied loss of nearly 20%.

The Santa Fe Arcade (Prospectus ID#22; 1.9% of the current pool) is secured by a mixed-use property that consists of office and retail space in Santa Fe, New Mexico. The loan has been in special servicing twice, with the most recent transfer in October 2023 due to payment default. While the property reported healthy performance metrics, over 20.0% of the net rentable area (NRA) is scheduled to expire through the end of 2024, and according to January 2024 reporting, the workout strategy has yet to be specified. As a new appraisal is currently pending, the most recent appraisal Morningstar DBRS has on hand is dated as of August 2020, which valued the property at $12.3 million, below the current loan exposure of $12.6 million. As such, Morningstar DBRS does not expect the loan amount to be fully recovered at disposition.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at (July 4, 2023) https://dbrs.morningstar.com/research/416784.

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 credit ratings are subject to surveillance, which could result in credit ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by Morningstar DBRS.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology (March 16, 2023; https://dbrs.morningstar.com/research/410912).

Other methodologies referenced in this transaction are listed at the end of this press release.

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.

Morningstar DBRS 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.

Morningstar DBRS notes that a sensitivity analysis was not performed for this review as the transaction is in its maturity year. In such cases, Morningstar DBRS credit ratings are typically based on a recoverability analysis for the remaining loans.

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://dbrs.morningstar.com/about/methodologies.

North American CMBS Multi-Borrower Rating Methodology (November 3, 2023)/North American CMBS Insight Model v 1.2.0.0
(https://dbrs.morningstar.com/research/422859)

Rating North American CMBS Interest-Only Certificates (December 13, 2023;
https://dbrs.morningstar.com/research/425261)

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

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 22, 2023;
https://dbrs.morningstar.com/research/420982)

North American Commercial Mortgage Servicer Rankings (August 23, 2023;
https://dbrs.morningstar.com/research/419592)

Legal Criteria for U.S. Structured Finance (December 7, 2023;
https://dbrs.morningstar.com/research/425081)

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

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