Morningstar DBRS Downgrades Five Classes of JPMBB Commercial Mortgage Securities Trust 2014-C21, Changes Trends on Five Classes to Negative

DBRS Limited (Morningstar DBRS) downgraded its credit ratings on five classes of Commercial Mortgage Pass-Through Certificates, Series 2014-C21 issued by JPMBB Commercial Mortgage Securities Trust 2014-C21 as follows:

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

Morningstar DBRS also confirmed its credit ratings on the following classes:

-- Class A-5 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class EC at A (low) (sf)

In addition, Morningstar DBRS changed the trends on Classes B, C, D, X-B, and EC to Negative from Stable. All other classes have Stable trends, with the exception of Classes E, F, X-C, and X-D, which have credit ratings that typically do not carry a trend in commercial mortgage-backed securities (CMBS) transactions.

The credit rating downgrades reflect the increased loss expectations for the loans in special servicing, all of which transferred recently and collectively represent 22.1% of the pool. The Negative trends are reflective of the increased default risk for loans not yet in special servicing as all loans in the pool are either scheduled to mature or have an anticipated repayment date in Q3 2024. As of the April 2024 remittance, 33 of the original 73 loans remain in the pool, representing a collateral reduction of 52.2% from issuance. To date, the trust has incurred $30.0 million of realized losses contained to the nonrated Class NR, eroding more than 45.0% of the class balance. With this review, Morningstar DBRS considered liquidation scenarios for two of the four specially serviced loans, resulting in a total implied loss of $28.1 million. Those losses would wipe out the remaining balance on Class NR and approximately 5.0% of Class F. The remaining two specially serviced loans were analysed with stressed loan-to-value ratios (LTVs) and probability of default (POD) penalties to reflect the increased credit risk and low performance. Additional details on the specially serviced loans are highlighted below. Morningstar DBRS also stressed the LTVs of several other loans (representing 34.2% of the pool) exhibiting increased credit risk, resulting in a weighted-average (WA) expected loss that was approximately 40.0% higher than the pool average.

The credit rating confirmations and Stable trends reflect the generally stable performance of the pool, which reported a WA debt service coverage ratio (DSCR) of 1.53 times (x) based on the most recent year-end financials. The pool consists primarily of loans backed by retail and lodging properties, representing 37.7% and 18.5% of the pool balance, respectively. As previously mentioned, four loans are in special servicing, representing 22.1% of the pool, and 23 loans are on the servicer’s watchlist, representing 73.2% of the pool balance. The watchlisted loans are primarily being monitored for upcoming loan maturities.

The largest loan in special servicing, Miami International Mall (Prospectus ID#3, 9.8% of the pool), is secured by an approximate 307,000-square-foot (sf) portion of a 1.1 million sf super-regional mall, located 14 miles from the Miami central business district. The loan transferred to special servicing as it failed to repay at its February 2024 maturity. The lender and borrower agreed to a 12-month forbearance period where the interest rate is reduced to 2.5%, with a one-time, 12-month extension option to extend to February 6, 2026, at an interest rate of 3.5%. The borrower was required to make an initial $2.0 million equity injection to execute the forbearance, with an additional $3.0 million contribution in the event the extension option is exercised. Lastly, the loan will be cash managed throughout the forbearance period where half the funds will be used to pay down the loan and the remaining amount held in a reserve. Based on the servicer’s commentary, the loan is pending its return to the master servicer.

Noncollateral anchors at the mall include Macy’s and JCPenney, all of which have lease expirations in February 2028. The former noncollateral Sears and Kohl’s vacated the subject in 2018 and early 2024, respectively. According to recent news articles, the former Kohl’s space is expected to be leased to Elev8 Fun, a recreational tenant with features including go-karts, laser tag, mini golf, and a full food and beverage service. Based on the YE2023 reporting, occupancy dropped significantly to 53.8% from 78.6% at YE2022. Despite the drop in occupancy, the DSCR remains healthy reporting a YE2023 figure of 2.34x , compared with the YE2022 DSCR of 2.29x.

The property has historically struggled because of nearby competition, Dolphin Mall and Dadeland Mall, with the latter also owned by the same sponsor of the loan, Simon Property Group. The competitors generally have a more extensive roster of national tenants when compared with the subject property. Although the news of Elev8 Fun moving into the property is a positive development, the Sears box has been dark for a prolonged period of time and occupancy continues to precipitously decline, suggesting the value of the property has declined since issuance. In the analysis for this review, Morningstar DBRS applied a stressed LTV and POD, which resulted in an expected loss that was double the pool average.

The second largest loan in special servicing, Westminster Mall (Prospectus ID#6, 7.4% of the pool), is secured by a 772,000-sf portion of a 1.4 million-sf regional mall in Orange County, California. The loan transferred to special servicing in February 2024 for imminent monetary default and failed to repay at its April 1, 2024, maturity. A six-month maturity extension with the option to extend another six months was requested in order to facilitate the sale of the property. The subject’s occupancy rate and net cash flow has been trending downward for the last several years since the loss of the noncollateral anchor, Sears, with the September 2023 collateral occupancy rate at 75.2% and a negative YE2023 NCF figure. The remaining anchors at the property include a noncollateral Macy’s, and collateral Target and JCPenney. Shopoff Realty Investments (Shopoff) purchased two parcels, totaling 26 acres of the Westminster Mall in 2022. The Macy’s parcel, totaling 11.9 acres, included the Macy’s department store (subsequently leased back to Macy’s) and adjacent parking lot. The Sears parcel, totaling 14.1 acres, included a vacant former Sears building and adjacent parking lot. Shopoff announced plans to bookend the mall by repositioning the two parcels into a mixed-use community of multifamily homes that are adjacent to walkable community spaces, restaurants, retail, and a nearby hotel. The Westminster City Council approved a new framework for the redevelopment of those two sites in December 2022 but no further updates are available. At issuance, the property was valued at $171.0 million but given the depressed performance, the value has likely decreased significantly. As such, Morningstar DBRS analyzed the loan with a liquidation scenario for this review, resulting in a loss severity of approaching 30.0%.

The third largest special serviced loan, 200 West Monroe (Prospectus ID#18, 3.8% of the pool), is secured by a 23-storey Class B office tower in Chicago. The loan recently transferred to special servicing in February 2024 for imminent monetary default and the last debt service payment received was in December 2023. Performance has been deteriorating in the last several years, largely related to declines in occupancy with the September 2023 rent roll reporting an occupancy rate of 66.8% with an average rental rate of $17.50 per sf (psf). As a result, DSCR has been well-below breakeven. According to Reis, office properties in the Central Loop submarket reported a Q4 2023 vacancy rate and asking rents of 14.1% and $37.47 psf, respectively, which has remained relatively unchanged from prior years. A resolution has yet to be determined but considering the depressed performance and weak office submarket in the Central Loop, the value has likely declined significantly from the issuance value of $101.0 million. For this review, this loan was liquidated from the pool with a stressed haircut to the issuance value , resulting in a loss severity approaching 70.0%.

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 (January 23, 2024; https://dbrs.morningstar.com/research/427030).

Classes X-A, X-B, X-C, and X-D 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 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 ratings were initiated at the request of the rated entity.

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

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with these credit rating actions.

These are solicited credit ratings.

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 (March 1, 2024), 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 (April 15, 2024), https:/dbrs.morningstar.com/research/431205

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 http://dbrs.morningstar.com or contact us at [email protected].