Morningstar DBRS Downgrades Two Credit Ratings of COMM 2014-UBS2 Mortgage Trust

DBRS Limited (Morningstar DBRS) downgraded its credit ratings on two classes of Commercial Mortgage Pass-Through Certificates, Series 2014-UBS2 issued by COMM 2014-UBS2 Mortgage Trust as follows:

-- Class X-B to C (sf) from CCC (sf)
-- Class D to C (sf) from CCC (sf)

In addition, Morningstar DBRS confirmed its credit rating on the remaining class as follows:

-- Class E at C (sf)

Classes X-B, E, and D have credit ratings that do not typically carry a trend in commercial mortgage-backed securities (CMBS) credit ratings.

The credit rating downgrades reflect Morningstar DBRS' increased loss expectations across the four remaining loans in the pool, all of which are in special servicing. Since the February 2024 credit rating action, 16 loans have been repaid in full while one loan was liquidated from the trust. Given the high concentration of loans in special servicing, Morningstar DBRS' analysis was based on a recoverability analysis. The credit ratings of C (sf) reflect Morningstar DBRS' continued expectation that the certificates will incur losses based on the recoverability analysis. In addition, cumulative outstanding interest shortfalls totaling $5.7 million as of December 2024 reporting have also negatively affected the transaction. The interest shortfalls have risen to Class D, and in its analysis, Morningstar DBRS concluded that the outstanding shortfalls will also be realized as a loss to bondholders upon loan resolution.

The loss expectations are primarily attributed to the One North State Street (59.9% of the pool), which is secured by a 170,507-square-foot (sf) retail vertical subdivision of a 713,423-sf mixed-use building in Chicago. The two largest tenants, Burlington Coat Factory (35.2% of net rentable area (NRA)) and TJ Maxx (41.1% of NRA) recently signed lease extensions through March 2029 and January 2027, respectively, resulting in a healthy occupancy rate of 92.5%; however, both leases were restructured at significant reductions in rent equal to 8.0% and 10.0% of the tenants' gross sales, respectively, which has resulted in a less-than-breakeven cash flow.

The last monthly payment was made in August 2023 and the loan was purchased by the trust in October 2024. According to the April 2024 appraisal, the property was valued at $19.9 million, less than the August 2023 value of $25.0 million and a steep decline from the issuance appraised value of $101.0 million, reflecting a total exposure loan-to-value (LTV) ratio of more than 200%. Morningstar DBRS liquidated the loan based on a haircut to that value, resulting in an implied loss approaching $39.0 million, or a severity in excess of 80.0%. Based on this loss projection alone, the remaining certificate balances of Classes E and F, would be fully eroded, while the certificate balance of Class D would be eroded by nearly 20.0%.

Of the remaining three loans, Avnet Building (16.4% of the pool) and 300 East 23rd Street (12.9% of the pool) are real estate owned, while the servicer is actively pursuing foreclosure for Turnpike Square (10.8% of the pool). All loans have received updated 2024 appraisals, indicating value declines over issuance appraised values ranging between approximately 45.0% and 80.0%, reflecting total exposure LTV ratios ranging between roughly 105.0% and 350.0%. Based on the loss cumulative loss projections for these loans of nearly $18.0 million, the certificate balance of Class D would be further eroded in excess of 50.0%.

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.

Class X-B is an interest-only (IO) certificate 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 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 solicited credit ratings.

Morningstar DBRS notes that a traditional model-based sensitivity was not performed; however, Morningstar DBRS notes that the credit ratings are sensitive to the recoverability assumptions on the four remaining loans that are detailed in the accompanying 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.

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.

-- 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
-- North American CMBS Multi-Borrower Rating Methodology (December 13, 2024),
https://dbrs.morningstar.com/research/444616

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.