Morningstar DBRS Downgrades All Classes of Citigroup Commercial Mortgage Trust 2014-GC25, Changes Trends on Two Classes to Negative from Stable

DBRS Limited (Morningstar DBRS) downgraded all classes of Commercial Mortgage Pass-Through Certificates, Series 2014-GC25 issued by Citigroup Commercial Mortgage Trust 2014-GC25 as follows:

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

Morningstar DBRS changed the trends on Classes B and X-B to Negative from Stable. The remaining classes have credit ratings that do not typically carry trends in commercial mortgage-backed securities (CMBS) credit ratings.

The credit rating downgrades and Negative trends reflect the increased loss expectations for the six remaining loans in the pool, primarily driven by the Bank of America Plaza loan (Prospectus ID#1, 56.1% of the current pool balance), which received an updated appraisal following the loan's transfer to special servicing in July 2024 for maturity default. The loan is discussed in more detail below. At the last credit rating action in May 2024, Morningstar DBRS downgraded its credit ratings on six classes and changed trends on four classes to Negative from Stable, reflecting concerns with select loans that were exhibiting value deficiency and were facing elevated refinance risk. Since the previous credit rating action, 50 loans, previously representing 71.4% of the pool, were repaid in full, leaving just six loans remaining as of the December 2024 remittance. Morningstar DBRS considered liquidation scenarios for all remaining loans to determine recoverability for the remaining classes, the results of which suggest that losses could be incurred from Classes D to F, supporting the credit rating downgrades and Negative trends with this review.

The largest loan in the pool, Bank of America Plaza, secured by a 1.4 million-square-foot Class A office complex in the central business district of Los Angeles, transferred to special servicing in July 2024 for imminent maturity default and was reappraised at a value of $188.9 million, representing a current loan-to-value ratio of 211.7% and a 68.8% decline from its issuance value of $605.0 million. The loan most recently reported an annualized net cash flow (NCF) of $34.1 million and a debt service coverage ratio of 2.07 times during the trailing six-month period ended June 30, 2024, with an occupancy rate of 78.9%. Morningstar DBRS expects occupancy to decline to approximately 66.8% as the property's third-largest tenant, Sheppard Mullin Richter, has indicated it will vacate upon lease expiry in December 2024. Following the tenant's departure and in absence of any additional leasing activity, NCF could decline to $29.6 million, implying a 15.7% capitalization rate on the most recent appraised value. The Bank of America Plaza loan is pari passu with two additional loans in deals rated by Morningstar DBRS: WFRBS 2014-C23 and GSMS 2014-GC26.

With this review, given the precipitous value decline to the Bank of America Plaza as well as the pool's increased level of adverse selection with all six loans in special servicing, Morningstar DBRS based its analysis on the recoverability of the remaining assets. The liquidation scenario considered for the Bank of America Plaza resulted in implied losses exceeding $76.0 million (loss severity approaching 70.0%), which would erode into Class D. While the implied proceeds from the recoverability analysis suggest that Class B would remain insulated from loss, credit risk has increased significantly because of the expected credit erosion in the event that the loan is liquidated, supporting the credit rating downgrades and Negative trends.

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/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 Factors in Credit Ratings (August 13, 2024), https://dbrs.morningstar.com/research/437781.

Classes X-B, X-D, X-E, and X-F 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 (December 13, 2024), https://dbrs.morningstar.com/research/444617.

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 on the six remaining loans that are detailed in this press release. Should recoverability of the remaining loans be lower than that implied by the stressed values in the latest analysis, credit ratings lower in the capital stack would be those most negatively affected.

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 (December 13, 2024), https://dbrs.morningstar.com/research/444616
-- 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

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