Morningstar DBRS Downgrades Credit Ratings on 11 Classes of JPMBB Commercial Mortgage Securities Trust 2014-C25, Changes Trends on Nine Classes to Negative

DBRS Limited (Morningstar DBRS) downgraded its credit ratings on 11 classes of Commercial Mortgage Pass-Through Certificates, Series 2014-C25 issued by JPMBB Commercial Mortgage Securities Trust 2014-C25 as follows:

-- Class B to A (sf) from AA (high) (sf)
-- Class X-A to AA (sf) from AAA (sf)
-- Class X-B to A (high) (sf) from AAA (sf)
-- Class X-C to A (low) (sf) from AA (low) (sf)
-- Class C to BBB (high) (sf) from A (high) (sf)
-- Class EC to BBB (high) (sf) from A (high) (sf)
-- Class X-D to BB (low) (sf) from BBB (sf)
-- Class D to B (high) (sf) from BBB (low) (sf)
-- Class X-E to CCC (sf) from B (sf)
-- Class E to CCC (sf) from B (low) (sf)
-- Class F to C (sf) from CCC (sf)

In addition, Morningstar DBRS confirmed the following credit ratings:

-- Class A-4A1 at AAA (sf)
-- Class A-4A2 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-S at AAA (sf)

Morningstar DBRS also changed the trends on Classes A-S, B, X-A, and X-B to Negative from Stable. Classes C, D, X-C, X-D, and EC continue to carry the Negative trends from last review Classes E, F, and X-E have credit ratings that do not carry a trend in commercial mortgage-backed securities (CMBS) credit ratings. The trends on all remaining classes are Stable.

The credit rating downgrades and Negative trends reflect increased loss expectations for the pool driven primarily by one loan in special servicing as well as a number of loans identified by Morningstar DBRS as being at increased risk of maturity default. Since the last credit rating action, two loans have transferred to special servicing, and making a current total of five loans, representing 13.8% of the pool, in special servicing. The implied credit deterioration resulting from Morningstar DBRS’ loss projections for these loans is the primary driver for the credit rating actions on Classes D, E, and F.

As of the March 2024 remittance, 51 of the original 65 loans remain in the trust with an aggregate balance of $859.9 million. All outstanding loans are scheduled to mature by the end of 2024. Morningstar DBRS believes that a select number of these loans may default at maturity, given observed performance declines, concentrated upcoming tenant roll, and other refinance concerns. Should these loans transfer to special servicing, or should the loans currently in special servicing experience further declines in performance and/or value, Morningstar DBRS’ loss projections may increase. In a wind-down scenario where performing loans successfully repay from the pool, Morningstar DBRS remains concerned with adverse selection, significant exposure to defaulted assets, and increased propensity for interest shortfalls, even for the bonds that are expected to ultimately be recoverable. These concerns are the primary drivers for the credit rating actions on Classes B and C.

The largest loan to have transferred to special servicing since the last credit rating action is the 9525 West Bryn Mawr Ave (Prospectus ID#10; 2.9% of the pool balance) loan, which is secured by a 246,841 square foot (sf) office property in Rosemont, Illinois. The loan transferred to the special servicer in May 2023 for imminent monetary default and the special servicer is now pursuing foreclosure. The September 2023 rent roll reported an occupancy rate of 73.0%, an increase from the YE2022 occupancy rate of 49.8%, but still below issuance occupancy rate of 87.5%. The largest tenant is Life Fitness, which occupies 23.2% of the net rentable area (NRA) on a lease through February 2030. According to Reis, office properties in the O’Hare submarket reported a vacancy rate of 20.3% as of YE2023 with an average effective rental rate of $22.07 per sf (psf), which is well above the property’s in-place average rental rate of $18.27 psf per the September 2023 rent roll. The property was reappraised in October 2023 at $12.4 million, representing a 70.4% decline from the issuance appraised value of $41.8 million. Given the drop-off in performance, softening submarket metrics, and significant value reduction since issuance, Morningstar DBRS’ analysis includes a liquidation scenario based on a stress to the most recent value, resulting in a projected loss severity approaching 70.0%.

The largest loan in special servicing, Hilton Houston Post Oak (Prospectus ID#6; 4.6% of the pool balance), is secured by a luxury hotel in Houston. The loan transferred to special servicing in May 2020 for imminent monetary default and has been real estate owned since September 2022. The subject was significantly underperforming its issuance expectations for several years prior to the 2020 default. The asset’s revenue per available room (RevPAR) penetration was 111.3% according to the December 2023 STR report, which is in line with the RevPAR penetration of 103.5% at issuance. A July 2023 appraisal valued the property at $69.0 million, reflecting a moderate growth from the figures reported in prior years— the lowest being $57.5 million in 2020—but ultimately representing a 45.3% decline from the issuance appraised value of $126.2 million. With this review, DBRS Morningstar maintained its liquidation of this loan from the trust, with a projected loss severity approaching 40%.

To date, the trust has had $14.2 million in realized losses that have been contained in the nonrated Class NR, which had a remaining balance of $37.6 million as of the March 2024 remittance. There are 11 loans, representing 18.3% of the current pool balance, on the servicer’s watchlist being monitored primarily for upcoming maturity, debt service coverage ratio (DSCR), and/or occupancy rate declines. The pool is concentrated by property type, with office collateral representing 34.3% of the pool balance. Financing has become more limited for this property type given general concerns with the sector amid changes in space usage, increasing vacancy rates, and slowed rent growth.

Outside of the specially serviced loans in the pool, Morningstar DBRS has identified eight loans, representing 31.1% of the current pool balance, as being at risk for maturity default, including the largest loan in the pool, CityPlace (Prospectus ID#1; 11.7% of the pool), which is secured by five office properties and one mixed-use property in the CityPlace Campus in Creve Coeur, Missouri. The September 2023 rent roll reported an occupancy rate of 83.8% compared with 89.9% at issuance. From a cash flow perspective, performance is relatively in line with issuance; however, there is concentrated rollover in the near term. Leases representing more than 40% of the NRA are scheduled to expire by YE2025, including the leases of three of the top five tenants. Given the submarket’s high vacancy rate, Morningstar DBRS believes it may be challenging to backfill these spaces should the tenants not renew.

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

Classes X-A, X-B, X-C, X-D, and X-E 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 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 1, 2024), https://dbrs.morningstar.com/research/428798.

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
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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 (March 1, 2024)/North American CMBS Insight Model v 1.2.0.0, https://dbrs.morningstar.com/research/428797

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

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].