Morningstar DBRS Downgrades Credit Ratings on Four Classes of COMM 2014-UBS5 Mortgage Trust

DBRS Limited (Morningstar DBRS) downgraded its credit ratings on four classes of Commercial Mortgage Pass-Through Certificates, Series 2014-UBS5 issued by COMM 2014-UBS5 Mortgage Trust as follows:

-- Class C to BBB (sf) from A (low) (sf)
-- Class PEZ to BBB (sf) from A (low) (sf)
-- Class D to C (sf) from CCC (sf)
-- Class X-B2 to C (sf) from CCC (sf)

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

-- Class A-M at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B1 at AA (high) (sf)
-- Class B at AA (sf)
-- Class E at C (sf)

In addition, Morningstar DBRS changed the trends on Classes X-B1, B, C, and PEZ to Stable from Negative. The trends on Classes A-M and X-A are Stable, whereas Classes D, E, and X-B2 have credit ratings that do not typically carry a trend in commercial mortgage-backed securities (CMBS) credit ratings.

The credit rating downgrade on the Class D certificate reflects Morningstar DBRS' loss projections for the remaining loans in the pool. 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, realized 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 that only 11 loans remain in the pool, eight of which (representing 73.6% of the current pool balance) are in special servicing. During the prior credit rating action in March 2024, Morningstar DBRS flagged the majority of those loans (most of which are secured by office collateral) for increased refinance risk. Morningstar DBRS' analysis suggested that performance declines from issuance and lower end-user demand would likely complicate borrowers' efforts to secure replacement financing. To date, the trust has incurred losses of approximately $60.0 million, depleting the entirety of the nonrated Class G certificate in addition to reducing the Class F balance by more than 60.0%.

In addition, as of the January 2025 remittance, cumulative unpaid interest totaled $7.8 million, up from $5.9 million at the last credit rating action. Interest payments on the Class D certificate (which has not received full interest since the July 2024 remittance) have been shorted by approximately $650,000 to date and are accruing by more than $160,000 per month. Morningstar DBRS' tolerance for unpaid interest is limited to one to two remittance periods at the AA (sf) and A (sf) credit rating categories and three to four remittance periods at the BBB (sf) credit rating category. 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 on the Class C certificate.

The largest contributors to Morningstar DBRS' loss expectations are the Town Park Ravine I, II, III (Prospectus ID#10; 11.6% of the pool) and Harwood Center (Prospectus ID#15; 8.2% of the pool) loans. The Town Park Ravine I, II, III loan is secured by a three-property, 367,090-square-foot (sf) suburban office park in Kennesaw, Georgia. The loan transferred to the special servicer in September 2024 for maturity default, after the borrower failed to pay off the loan. The borrower has indicated its intent to relinquish control of the property and is in discussions with the lender to facilitate a transition. According to the September 2024 appraisal, the property's value has declined to $32.4 million from the issuance appraised value of $57.5 million, reflecting a loan-to-value (LTV) ratio of 115.0%. The Harwood Center loan is secured by an office building in downtown Dallas. The loan became real estate owned in November 2021. The property was most recently appraised in March 2024 at a value of $64.8 million (reflecting a total exposure LTV ratio in excess of 120.0%), below the April 2023 and issuance appraised values of $69.8 million and $124.0 million, respectively. Morningstar DBRS considered a liquidation scenario for both loans by applying a haircut to the most recent appraised values for the underlying collateral, resulting in projected losses of nearly $15.0 million and $12.0 million, respectively.

The largest loan in the pool, Summit Rancho Bernardo (Prospectus ID#4; 17.4% of the pool), is secured by a 203,613-sf Class A office property in San Diego. Although the property is primarily leased to Apple Inc. (Apple) (96.6% of the net rentable area (NRA); lease expiration in January 2028) and Google LLC (3.4% of the NRA; lease expiration in August 2026), the borrower was unable to repay the loan upon maturity in September 2024. The borrower stated that efforts to refinance the loan were unsuccessful, largely because of the inclusion of a termination option in Apple's lease. The loan was recently modified, extending the maturity date to September 2025. According to an appraisal dated September 2024, the property was valued at $62.4 million, well below the issuance appraised value of $94.0 million. Although operating performance remains strong, the property is exposed to considerable tenant concentration risk. Should Apple choose to exercise its early termination option, or not renew its lease, backfilling vacant space at the property may prove to be challenging, especially when considering the relatively soft submarket fundamentals (per Reis, the Interstate 15 Corridor submarket had an average vacancy rate of 20.3% as of Q3 2024) and general challenges for office properties in today's environment. Given these factors and the significant value decline from issuance, Morningstar DBRS liquidated the loan based on a haircut to the most recent appraised value, resulting in a projected loss slightly above $8.0 million.

The State Farm Portfolio loan (Prospectus ID#7; 15.0% of the pool) is pari passu with notes held in the COMM 2014-UBS3 and COMM 2014-UBS4 transactions, both of which are rated by Morningstar DBRS, and the non-Morningstar DBRS-rated MSBAM 2014-C16 transaction. The loan is secured by a portfolio of 14 cross-collateralized and cross-defaulted office properties in 11 different states. The loan recently returned to the master servicer in January 2025; however, credit risk remains increased as all of the underlying assets are leased but not occupied by the dark single tenant State Farm Mutual Automobile Insurance Company, with all but two of the leases running through 2028. The loan had an anticipated repayment date in April 2024 and is now hyper-amortizing until April 2029 with annual resets of the interest rate. The servicer approved a partial release for one property in Tulsa, Oklahoma. Although the continued rent payments are expected to continue to amortize the outstanding debt, Morningstar DBRS believes the current value deficiency is significant given the dark status of the properties and the tertiary locations that will likely mean low investor demand. As such, Morningstar DBRS considered a liquidation scenario based on a conservative haircut to the issuance appraised value, which resulted in a projected loss of almost $12.0 million.

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 cautious given the unknowns regarding the remaining assets' disposition timing and the likelihood that unpaid interest continues to accrue, as well as the potential for further value declines for the collateral properties through the remainder of the deal term.

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 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 (August 13, 2024) at https://dbrs.morningstar.com/research/437781.
 
Classes X-A, X-B1, and X-B2 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 of the 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 affected.

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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/North American CMBS Insight Model v 1.2.0.0 (December 13, 2024), https://dbrs.morningstar.com/research/444616
-- North American Commercial Mortgage Servicer Rankings (August 23, 2024), https://dbrs.morningstar.com/research/438283
-- 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

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.