Morningstar DBRS Changes Trends on Remaining Classes of Citigroup Commercial Mortgage Trust 2014-GC19

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on the Commercial Mortgage Pass-Through Certificates, Series 2014-GC19 issued by Citigroup Commercial Mortgage Trust 2014-GC19 as follows:

-- Class X-D at BB (high) (sf)
-- Class F at BB (sf)

In addition, Morningstar DBRS discontinued its credit ratings on Classes C, D, E, X-C, and PEZ. The trends on Classes F and X-D were changed from Stable to Negative.

Although the pool has been substantially repaid, with significant credit enhancement for the remaining rated principal class, Class F, the credit rating confirmation reflects Morningstar DBRS’ expectation that, although the remaining balance of $5.9 million is expected to be paid in full, the servicer could short interest payments to that certificate if all three remaining loans are ultimately with the special servicer. As of the March 2024 remittance, interest shortfalls stood at a cumulative $1.0 million, contained to the unrated Class G certificate, which has realized losses of $3.2 million and a remaining balance of $46.2 million. Morningstar DBRS has a tolerance for unpaid interest of up to six months for the BB (sf) credit rating category. In the event that loan dispositions are delayed, there is an increased propensity for interest shortfalls affecting Class F, supporting the trend change on the two remaining rated classes to Negative.

As of the March 2024 remittance, only three of the original 78 loans remain in the pool, with an outstanding balance of $52.0 million, representing a collateral reduction of 94.9% since issuance. Of the remaining three loans, two loans, representing 79.1% of the pool, were transferred to special servicing for maturity default, and one loan is on the servicer’s watchlist, with a likely transfer to special servicing on the horizon in the event that take-out financing cannot be obtained.

Since Morningstar DBRS’ last review, 63 loans have been repaid, and all three remaining loans are now beyond their original scheduled maturity dates in January of 2024. In a conservative scenario, Morningstar DBRS anticipates proceeds from the liquidation of all three loans will be sufficient to cover the outstanding balance on Class F. The rating on Class F is constrained by the possibility of accruing interest shortfalls prior to its full repayment. Interest shortfalls currently total $1.0 million, up from approximately $409,000 at the time of Morningstar DBRS’ last credit rating action.

The largest loan remaining in the pool is 136-138 West 34th Street (57.7% of the pool). The loan is collateralized by a 25,000-square foot (sf) Class B retail building in Manhattan that was occupied by two tenants, each occupying 50% of net rentable area (NRA). One of the two tenants, Simple Capital Partners, vacated its space at its lease expiry in December 2023, leaving the property 50% occupied. Given the recent lack of capital market appetite for Class B retail assets, as well as the recent vacancy, refinancing efforts have been difficult, eventually resulting in the loan’s transfer to special servicing in January 2024. Prior to Simple Capital Partners’ departure, the property was 100% occupied with a debt service coverage ratio (DSCR) of 1.12 times (x) and an annualized net cash flow (NCF) of $1.65 million, per the Q3 2023 financials. However, both DSCR and NCF figures are well below the Morningstar DBRS issuance values of 2.00x and $2.95 million, respectively. According to Reis, since 2019, the average sales price per square foot (psf) for all classes of retail properties within a 0.5 mile radius was $324 psf; this compares with the trust’s exposure of $1,200 psf on the principal balance of $30.0 million. With this review, Morningstar DBRS liquidated the loan from the pool based on a haircut of 85.0% to the collateral’s issuance value, resulting in a value of $366 psf and a loss severity of 80%.

Festival Plaza (21.4% of the pool), secured by an anchored retail property in Montgomery, Alabama, transferred to special servicing in May 2020 for monetary default and has been real estate owned since November 2022. As of the Q3 2023 financial reporting, the property was 88.0% occupied with a DSCR of 0.77x and an annualized NCF of approximately $697,000, well below the MDBRS NCF of $1.3 million. The property’s largest tenant, AMC Cinemas, had a lease expiration date at the end of December 2023, and has since renewed for one year through December 2024. The property was recently re-appraised in October 2023 at a value of $6.2 million, in line with its November 2022 value and 65.6% below its issuance value of $18.0 million. With this review, Morningstar DBRS liquidated the loan from the pool with a haircut to the October 2023 appraised value, resulting in a loss severity of 77.5%.

The third loan in the pool, 1415 North Loop West (20.9% of the pool), is secured by a suburban office property in Houston. The loan was scheduled to mature in January 2024 and is now being monitored on the servicer’s watchlist. The borrower has requested a 60-day forbearance agreement and is in contact with the master servicer. Per the YE2023 financials, the property was 84.2% occupied, in line with recent years, but below the issuance figure of 90.2%. The in-place tenant roster is granular, with no tenant representing more than 8.1% of NRA. DSCR was reported at 1.50x, representing a minor improvement from the YE2022 DSCR of 1.45x. Although the loan has performed in line with issuance expectations, given the current capitalization rate and interest rate environments, as well as the property’s suburban location, Morningstar DBRS believes the refinance could take longer to finalize, potentially increasing the exposure to shortfall risk for the Class F certificate.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) 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.

Class X-D is an interest-only (IO) certificate that references 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 1, 2024), which can be found on https://dbrs.morningstar.com under Methodologies & Criteria 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 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.

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

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),
https://dbrs.morningstar.com/research/428797
-- North American CMBS Insight Model v 1.2.0.0, (March 1, 2024),
https://dbrs.morningstar.com/research/428797
-- 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, (July 17, 2023)

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