Morningstar DBRS Changes Trends on Six Classes of COMM 2014-UBS6 Mortgage Trust to Negative; Confirms All Credit Ratings

DBRS Limited (Morningstar DBRS) confirmed the credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2014-UBS6 issued by COMM 2014-UBS6 Mortgage Trust as follows:

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

The trends on Classes C, D, E, X-B, X-C, and PEZ were changed from Stable to Negative. Classes F and G have credit ratings that do not typically carry trends in commercial mortgage-backed securities (CMBS) credit ratings. The trends on all remaining classes are stable.

The credit rating confirmations on Classes F and G, which are rated CCC (sf) and C (sf), respectively, are reflective of Morningstar DBRS’ loss expectations for the loans in special servicing, representing 7.5% of the current pool balance. In the analysis for this review, Morningstar DBRS assumed a liquidation scenario for these loans, resulting in a cumulative projected loss of $33.8 million, which would fully erode the non-rated Class H balance and a majority of the Class G balance. The Negative trends are partially reflective of the increased propensity for interest shortfalls related to the loans in special servicing. In addition, the majority of remaining loans in the pool are scheduled to mature in 2024, including several office-backed loans, which Morningstar DBRS believes will have difficulty securing replacement financing in the near to moderate term as performance declines from issuance and decreased tenant demand have likely eroded property values. As such, these loans were analyzed with stressed scenarios in the analysis for this review, with the increased expected loss for the pool as a whole also contributing to the Negative trends assigned to six classes with this review.

These loans include the 811 Wilshire loan (Prospectus ID#6, 3.9% of the pool balance), backed by a 20-story office property in Downtown Los Angeles; the loan is currently on the servicer’s watchlist due to a low occupancy rate, which has been below 60.0% since 2021. Despite the low occupancy rate, the debt service coverage ratio (DSCR) continues to report above issuance levels in the last few years. The servicer’s commentary noted that the property, which was constructed in 1960, was renovated in 2022, suggesting the sponsor remains committed to stabilizing the property, but the low occupancy rate, Downtown Los Angeles location, and increased capitalization rate environment will likely combine for a significant decline in the as-is value from issuance, complicating the upcoming maturity in November 2024. The issuance loan-to-value ratio (LTV) was relatively low, at 57.4%, providing some cushion against the value deterioration to date. This loan was analyzed with an increased probability of default (POD) and a stressed value, with the resulting expected loss in line with the expected loss for the pool as a whole.

The credit rating confirmations and Stable trends for the remaining classes in the pool reflect the overall stable performance for most of the loans in the transaction, as evidenced by the pool’s generally healthy WA DSCR of 2.13 times (x) based on the most recent year-end financials. As of the February 2024 remittance, 70 of the original 89 loans remain in the pool, representing a collateral reduction of 28.5% since issuance. Another 27 loans, representing 22.0% of the pool balance, have been fully defeased. To date, the trust has incurred $25.8 million of losses, all contained to the non-rated Class H. Fourteen loans are on the servicer’s watchlist, representing 33.8% of the pool balance. Since last review, University Edge (Prospectus ID#7, 3.7% of the pool balance) was returned to the master servicer in May 2023 as a corrected loan but is currently on the servicer’s watchlist for a low DSCR. The loan is secured by a student housing property in Akron, Ohio, and performance has been trending downwards in the last few years, reporting DSCRs near or below break-even. Although the loan is no longer in special servicing, performance continues to be depressed and as such, the loan was analyzed with a stressed POD and LTV based on an updated value provided when the loan was in special servicing, resulting in an expected loss that was more than triple the deal average.

The largest specially serviced loan is Highland Oaks Portfolio (Prospectus ID#8, 3.5% of the pool balance), which is secured by two Class B office properties in the Chicago suburb of Downers Grove, Illinois. The loan transferred to special servicing in February 2023 for imminent monetary default following the departure of the former largest tenant, Health Care Service Corporation (Health Care, 55.6% of net rentable area (NRA)) at its December 2022 lease expiration, resulting in occupancy dropping to about 30.0%. The last loan payment received was in February 2023, and the servicer is pursuing foreclosure. According to the July 2023 appraisal, the property was valued at $9.4 million, which is a steep decline from the issuance value of $48.1 million and is well below Morningstar DBRS’ projected trust exposure at liquidation of approximately $36.0 million. According to Reis, office properties located in the Chicago West submarket reported a Q4 2023 vacancy rate of 24.7%, an increase from the Q4 2022 vacancy rate of 22.3% but is expected to decline slightly to 20.2% by 2028. Considering the soft submarket, low investor appetite for suburban office property types and the current high interest rate environment, the ultimate sale price could be significantly below the appraised value. As such, Morningstar DBRS liquidated the loan in its analysis with a stressed haircut to the July 2023 appraisal value, resulting in a loss amount approaching $30.0 million and a loss severity just under 90.0%.

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 Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at (January 23, 2024) https://dbrs.morningstar.com/research/427030

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 credit 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 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.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The Morningstar DBRS Long-Term Obligation Rating Scale definition indicates that credit 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.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS’ outlooks and credit ratings are monitored.

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)

-- 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)

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

--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].