Morningstar DBRS Downgrades Credit Ratings on Five Classes of JPMBB Commercial Mortgage Securities Trust 2014-C26, Changes Trends on Three Classes to Stable

DBRS Limited (Morningstar DBRS) downgraded its credit ratings on five classes of Commercial Mortgage Pass-Through Certificates, Series 2014-C26 issued by JPMBB Commercial Mortgage Securities Trust 2014-C26 as follows:

-- Class C to BBB (low) (sf) from A (high) (sf)
-- Class X-C to BBB (sf) from AA (low) (sf)
-- Class EC to BBB (low) (sf) from A (high) (sf)
-- Class D to CCC (sf) from BB (sf)
-- Class X-D to CCC (sf) from BB (low) (sf)

In addition, Morningstar DBRS confirmed its credit ratings on the following classes:

-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AA (high) (sf)
-- Class B at AA (sf)
-- Class E at C (sf)
-- Class F at C (sf)
-- Class X-E at C (sf)

Morningstar DBRS changed the trends on Classes C, X-C, and EC to Stable from Negative. All other trends are Stable with the exception of Classes D, E, F, X-D, and X-E, which have credit ratings that typically do not carry trends in commercial mortgage-backed securities transactions.

The credit rating downgrades reflect Morningstar DBRS' increased liquidated loss projections for the pool. The analysis for this review was based on a recoverability analysis as the transaction is in wind-down, with nine remaining loans as of the February 2025 remittance. The increased liquidated loss expectations since last review are primarily attributed to the International Corporate Center loan (Prospectus ID#21, 7.2% of the pool), which recently transferred to special servicing after precipitous declines in the collateral office property's cash flow and occupancy. Morningstar DBRS' liquidation scenario for that loan reflected a haircut to the most recent appraised value, which represented a decline of more than 60.0% from the issuance appraised value. Morningstar DBRS also has concerns regarding the accumulation of interest shortfalls, which have increased by $2.7 million from the previous credit rating action and are accumulating at a rate of approximately $250,000 per month. Classes F and NR have not received interest since October 2023, while Class E has received only partial interest since July 2024. Although shortfalls are currently contained to those three classes, Morningstar DBRS has concerns regarding the concentration of distressed office loans remaining in the pool that could ultimately expose bonds higher in the capital stack to shorted interest as workout periods could extend for the longer term.

Since the previous credit rating action, 42 loans have repaid from the trust, including 18 defeased loans, reflecting $630.1 million in principal repayments. Realized losses have totaled $14.1 million, eroding the Class NR balance, which had a balance of just above $34.0 million as of the February 2025 remittance. Of the nine remaining loans, four are backed by office collateral (64.7% of the pool), three by retail properties (20.8% of the pool), and two by lodging properties (14.4% of the pool). Six loans, representing 82.9% of the pool, are in special servicing, while the three remaining loans are on the servicer's watchlist for low debt service coverage ratios (DSCRs) or upcoming rollover with forbearance agreements either in place or pending.

Morningstar DBRS' analysis considered liquidation scenarios for all six specially serviced loans, based on conservative stresses to the most recent appraised values to determine the recoverability of the remaining bonds. Morningstar DBRS' estimated liquidated losses are likely to erode up through a small portion of the Class D certificate, a primary consideration in the credit rating downgrades for Classes C and D. While Class C would be insulated from losses based on the current liquidated loss projections, Morningstar DBRS' downgrade to this class reflects the erosion of credit support implied by the liquidation analysis. The downgrade also reflects the overall increased risks for the remaining collateral given the concentration of underperforming office loans, which will likely require extended workout periods and could see significant volatility in collateral values.

The largest loan in the pool is 500 Fifth Avenue (Prospectus ID#1, 28.0% of the current pool balance), secured by a 59-story historic office property in the Grand Central submarket of Manhattan. The loan transferred to special servicing in June 2024 for imminent monetary default, and a forbearance agreement was finalized on November 6, 2024, giving the borrower until June 6, 2025, to seek replacement financing, subject to equity infusion thresholds and the implementation of cash management. Cash flow remains healthy with a DSCR of 2.7 times (x) for the trailing 12-month period ended June 30, 2024. The property was 80.5% occupied as of November 2024, compared with 92.3% at issuance. This compares with the Q4 2024 submarket vacancy rate of 12.3%, according to Reis. The subject was appraised in August 2024 for $273.8 million, a 54.5% decline from the issuance appraised value of $600.0 million but above the $200.0 million whole loan balance. Given the August 2024 value can sustain up to a 25% decline before the trust realizes a loss in Morningstar DBRS' analyzed liquidation scenario, this loan is not a primary contributor to the realized loss projections considered with this review. However, Morningstar DBRS notes the significant value decline since issuance presents increased risks that contributed to the rationale for the credit rating downgrades.

The pool's second-largest loan, 1515 Market (Prospectus ID#2, 16.3% of the current pool balance), is secured by a Class A office tower in Philadelphia's central business district. The loan has been reporting DSCRs at or below breakeven since 2021, and the loan transferred to special servicing in September 2023 for imminent maturity default. A loan modification closed in September 2024, which extended the maturity date to July 2025 and included an equity injection from the borrower to pay down the loan and fund reserves. The loan modification was facilitated in part to determine renewal plans for the largest tenant, Temple University of the Commonwealth (26.0% of the net rentable area (NRA), lease expiring June 2027). According to recent servicer commentary, the tenant extended an offer to purchase another office property in downtown Philadelphia; however, the status of that offer or plans for the subject have not been confirmed to date. The September 2024 reporting noted an occupancy rate of 73.3%, compared with the issuance occupancy rate of 88.7% and the Q4 2024 vacancy for the greater Center City submarket of 13.6%, according to Reis. The property was appraised in February 2024 for $60.5 million, a 30.4% decline from the issuance appraised value of $87.0 million. However, given the sustained low cash flows and the general uncertainty surrounding the status of the largest tenant, Morningstar DBRS expects the property to trade at a much lower figure. As such, Morningstar DBRS considered a 50% haircut to the February 2024 appraisal, resulting in a $32.8 million loss and a loss severity approaching 60.0%.

The largest contributor to Morningstar DBRS' liquidated loss projections is the Heron Lakes loan (Prospectus ID#4, 12.9% of the current pool balance), originally secured by seven low-rise office buildings totaling 314,504 square feet in the West Bel submarket of Houston. The loan originally transferred to special servicing in December 2018 when the borrower filed for bankruptcy protection. The asset has been real estate owned since February 2020. Performance has lagged issuance expectations since 2018, and the most recent figures reported show a net cash flow (NCF) figure at less than half of the Morningstar DBRS NCF derived at issuance. According to the December 2024 rent rolls, portfolio occupancy was 44.6%. Two of the seven buildings (7850 and 7900 North Sam Houston Parkway West) were sold in October 2024 and January 2025, respectively, and the remaining collateral was collectively appraised at $18.5 million in December 2024. Given the tepid demand for office properties in Houston, Morningstar DBRS applied a 35% haircut to the December 2024 appraised values, resulting in a total loss of $42.2 million, with a loss severity of 91%.

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 credit 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 at https://dbrs.morningstar.com/research/437781 (August 13, 2024).

Classes X-A, X-B, X-C, X-D, and X-E are interest-only (IO) certificates that reference a single rated tranche or multiple rated tranches. The IO credit 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, Morningstar DBRS notes that the credit ratings are sensitive to the recoverability assumptions on the nine 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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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/North American CMBS Insight Model v 1.2.0.0 (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

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

-- 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.