Morningstar DBRS Confirms Credit Ratings on Real Estate Asset Liquidity Trust, Series 2014-1

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2014 1 issued by Real Estate Asset Liquidity Trust, Series 2014-1 as follows:

-- Class A at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AAA (sf)
-- Class X at AAA (sf)
-- Class D at AA (low) (sf)
-- Class E at A (low) (sf)
-- Class F at BBB (sf)
-- Class G to B (high) (sf)

All trends are Stable.

The credit rating confirmations and Stable trends reflect the overall stable performance of the transaction since Morningstar DBRS' last review in June 2023 and Morningstar DBRS' view that the remaining seven loans are generally well positioned to be successfully repaid at their respective maturity dates, all of which are scheduled by October 2024. The transaction benefits from a significant concentration of self-storage collateral, which has historically exhibited strong fundamentals with favourable refinancing prospects as well as a healthy weighted-average debt service coverage ratio (DSCR) of 1.94 times (x) for the pool.

As of the May 2024 remittance, seven of the original 34 loans remain in the pool with an aggregate principal balance of $54.4 million, representing an 80.6% collateral reduction since issuance as a result of scheduled loan amortization and payoffs. The transaction is concentrated by property type with three loans, representing 50.1% of the pool, secured by retail properties, and three loans, representing 43.8% of the pool, secured by self-storage properties. The remaining loan, representing 6.2% of the pool, is secured by an office property. All seven loans benefit from some level of material recourse to the loans' sponsor.

As of the May 2024 remittance, no loans are delinquent or in special servicing. Two loans, representing 19.6% of the pool, are currently being monitored on the servicer's watchlist for upcoming maturities in less than 90 days. The larger of the two loans, Newmarket Plaza (Prospectus ID#12; 13.4% of the pool), is secured by a 70,000 square foot (sf) anchored retail property in Newmarket, Ontario. The loan was scheduled to mature in May 2024 and, according to servicer commentary, the borrower has requested a three-month maturity extension to allow for additional time to close on take-out financing. Loan performance has surpassed issuance levels after rebounding from the lows reported during the peak of the coronavirus pandemic, with YE2023 net cash flow (NCF) and DSCR of $1.3 million and 1.87x, respectively, in line with the YE2022 figures of $1.3 million and 1.90x, respectively. Occupancy as of YE2023 was reported at 100.0%, an increase from the YE2022 occupancy of 91.8%. Notably, two tenants, representing 15.6% of net rentable area, are scheduled to roll in H1 2025, however, given the loan's healthy occupancy and DSCR, Morningstar DBRS believes refinance prospects remain favourable.

The second loan on the servicer's watchlist, Homer Office Vancouver (Prospectus ID#24; 6.2% of the pool), is a 19,000 sf office property in Vancouver. Although Morningstar DBRS remains cautious regarding the refinancing prospects of loans secured by office collateral, the subject loan appears reasonably positioned ahead of its August 2024 maturity date as the property is 100.0% occupied, according to a property inspection completed in December 2023, with the majority of tenant rollover occurring in 2027. According to the financials for the trailing 12-months ended October 31, 2022 (the most recent on file), the loan reported a DSCR of 1.54x and NCF of $458,000, in line with 2021 levels and surpassing issuance expectations.

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

Classes X 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 Canadian 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 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.

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)/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 Canadian Structured Finance (June 20, 2023), https://dbrs.morningstar.com/research/416101

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/410863. (July 17, 2023)

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