Morningstar DBRS Downgrades Credit Ratings on Three Classes and Confirms Credit Ratings on Two Classes of COMM 2014-CCRE20 Commercial Mortgage Trust

DBRS Limited (Morningstar DBRS) downgraded its credit ratings on three classes of Commercial Mortgage Pass-Through Certificates, Series 2014-CCRE20 issued by COMM 2014-CCRE20 Commercial Mortgage Trust as follows:

-- Class X-B to BBB (low) (sf) from A (sf)
-- Class PEZ to BB (high) (sf) from A (low) (sf)
-- Class C to BB (high) (sf) from A (low) (sf)

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

-- Class D at CCC (sf)
-- Class X-C at CCC (sf)

In addition, Morningstar DBRS changed the trends on Classes X-B, PEZ, and C to Stable from Negative. Classes D and X-C have credit ratings that do not typically carry a trend in commercial mortgage-backed securities (CMBS) credit ratings.

The credit rating confirmations reflect Morningstar DBRS' current outlook and loss expectations for the transaction, which remain relatively unchanged from the prior credit rating action in January 2024. As the pool continues to wind down, Morningstar DBRS looked to a recoverability analysis, the results of which suggest that even in a conservative scenario, losses would be contained to the Class D certificate. However, the transaction is more exposed to adverse selection and an increased propensity for interest shortfalls given only four loans remain in the pool, three of which (representing 85.5% of the current pool balance) are in special servicing.

As of the December 2024 remittance, cumulative unpaid interest totalled $5.8 million, up from $4.2 million at the last credit rating action. Interest payments on the Class D certificate have been shorted by approximately $700,000 to-date and are accruing by more than $130,000 per month. Morningstar DBRS' tolerance for unpaid interest is limited to one-to-two periods at the AA (sf) and A (sf) credit rating categories and six remittance periods at the BB (sf) and B (sf) credit rating categories. Although the Class C certificate continues to receive full interest due, the servicer could elect to withhold those payments if the workout periods for the specially serviced loans continue to extend, further supporting the credit rating downgrade of the Class C certificate.

The largest specially serviced loan, Harwood Center (Prospectus ID#4, 41.7% of the pool), is secured by an office building in downtown Dallas. The loan transferred to special servicing in 2020 after the former largest tenant, Omnicom Group Inc., significantly reduced its footprint by almost 50.0% at the property as part of a lease extension to 2030. The loan became real estate owned in November 2021. According to the servicer, the lender and property manager are working toward leasing up the property while completing a renovation plan. The property was most recently appraised in March 2024 at a value of $64.8 million, below the April 2023 and issuance appraised values of $69.8 million and $124.0 million, respectively. According to Reis, office properties in the Dallas central business district submarket reported a Q3 2024 vacancy rate of 34.3%, compared with the Q3 2023 vacancy rate of 34.1%. Morningstar DBRS liquidated the loan in its analysis based on a haircut to the most recent appraised value, resulting in a loss severity greater than 40.0%.

The second largest specially serviced loan, Beverly Connection (Prospectus ID#7, 34.5% of the pool) is secured by a 334,566-square foot power center in Los Angeles. Anchor tenants include Target, Nordstrom Rack, and Marshalls. The sponsor was unable to repay the loan at its maturity date in August 2024, and as of the most recent reporting, is delinquent having last paid in July of this year. Although the property was 91.8% occupied as of YE2023, net cash flow (NCF) was approximately 16.0% below the underwritten figure. A reinstatement agreement was executed in September 2023; however, during the process of returning the loan to the master servicer, the borrower requested to initiate discussions with the lender for a potential modification to extend the loan's maturity date.

Morningstar DBRS considered a conservative recoverability approach for these loans, in addition to the other remaining loans in the pool. Although the Class C certificate is well insulated from loss, Morningstar DBRS remains concerned, however, with the timing of disposition of the remaining assets, and the likelihood that unpaid interest continues to accrue, as well as the potential for further value decline.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS  
There were no Environmental, Social, or 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 Factors in Credit Ratings at (August 13, 2024 https://dbrs.morningstar.com/research/437781).
 
Classes X-B and X-C 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 info-DBRS@morningstar.com.

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.

Morningstar DBRS notes that a traditional model-based sensitivity was not performed; however, the credit ratings are sensitive to the recoverability assumptions of the five remaining loans in the transaction. Should the recoverability of the remaining loans be lower than that implied by the stressed values in the latest analysis, credit ratings would be negatively impacted.

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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

-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (September 19, 2024)
https://dbrs.morningstar.com/research/439702

-- Legal Criteria for U.S. Structured Finance (December 3, 2024)
https://dbrs.morningstar.com/research/444064

-- North American Commercial Mortgage Servicer Rankings (August 23, 2024)
https://dbrs.morningstar.com/research/438283

-- Rating North American CMBS Interest-Only Certificates (June 28, 2024)
https://dbrs.morningstar.com/research/435294)

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 https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.