Morningstar DBRS Downgrades Credit Ratings on Six Classes of COMM 2014-UBS4 Mortgage Trust

DBRS Limited (Morningstar DBRS) downgraded its credit ratings on six classes of Commercial Mortgage Pass-Through Certificates, Series 2014-UBS4 issued by COMM 2014-UBS4 Mortgage Trust as follows:

-- Class A-M to AA (sf) from AAA (sf)
-- Class X-A to AA (sf) from AAA (sf)
-- Class B to BB (sf) from BBB (sf)
-- Class X-B to CCC (sf) from B (sf)
-- Class C to CCC (sf) from B (low) (sf)
-- Class PEZ to CCC (sf) from B (low) (sf)

In addition, Morningstar DBRS confirmed the following credit ratings:

-- Class A-5 at AAA (sf)
-- Class D at C (sf)
-- Class E at C (sf)
-- Class F at C (sf)
-- Class X-C at C (sf)
-- Class X-D at C (sf)

The trend on Class A-5 is Stable. The trends on Classes A-M, X-A, and B remain Negative. All remaining classes have credit ratings that do not typically carry a trend in commercial mortgage-backed securities (CMBS) credit ratings.

The Class C certificate has been accruing interest shortfalls since August 2024 and has reached Morningstar DBRS' maximum tolerance of six remittance periods of consecutive shortfalls for the BB (sf) and B (sf) credit rating categories, supporting the credit rating downgrade to CCC (sf) from B (low) (sf) on that class. In addition, interest payments on the Class B certificate were partially shorted with the January 2025 remittance and continue to be shorted with the February 2025 remittance, which showed cumulative shortfalls of $63,203 for that class. Although the shortfalls for the Class B certificate have yet to exceed Morningstar DBRS' tolerance of three to four consecutive remittance periods for the BBB (sf) credit rating category, Morningstar DBRS expects the tolerance will be exceeded in the near term, supporting the credit rating downgrade to BB (sf) from BBB (sf) and the Negative trend on that class.

Morningstar DBRS expects that shortfalls will continue to accrue given that there are only 11 loans remaining in the pool, seven of which (representing 62.4% of the current pool balance) are in special servicing. Three of the loans in special servicing (representing 44.7% of the current pool balance) have been deemed nonrecoverable. Should the workout periods for those loans persist, the servicer may continue to withhold payments, as has been seen for transactions in a similar level of wind-down and defaulted loan concentration.

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 based on significant haircuts to the most recent appraised values, realized losses would be contained to the Class C certificate. However, should the as-is values for the underlying collateral backing the defaulted loans deteriorate further, the Class A-M certificate may be more susceptible to interest shortfalls as a result of accumulating appraisal subordination entitlement reduction amounts, outstanding advances, and other expenses/fees, which was a consideration for the credit rating downgrade to AA (sf) from AAA (sf) and the Negative trend on that class. Morningstar DBRS maintains a cautious long-term outlook for the largest loan in the pool, State Farm Portfolio (Prospectus ID#1; 29.4% of the pool), given that the underlying assets are leased but not occupied by State Farm Mutual Automobile Insurance Company (State Farm); however, Morningstar DBRS expects the continued rent payments to sufficiently cover the loan's principal and interest obligations in the near to medium term, mitigating some of the interest shortfall risk tied to the defaulted assets. In addition to concerns about accruing interest shortfalls (which totaled $12.1 million as of the February 2025 remittance), Morningstar DBRS' projected loss expectations tied to the loans in special servicing have increased since the prior credit rating action, primarily driven by the two largest loans in special servicing, 597 Fifth Avenue (Prospectus ID#2; 28.3% of the pool) and 30 Knightsbridge (Prospectus ID#4; 13.5% of the pool). Additional details are outlined below. To date, the trust has incurred losses of approximately $26.3 million, depleting more than 50.0% of the nonrated Class G certificate.

The 597 Fifth Avenue loan is secured by two adjacent mixed-use properties in Manhattan's Midtown neighborhood. The property consists of 80,032 square feet (sf) of Class B office and ground-floor retail space. The loan transferred to the special servicer in October 2020, and a foreclosure sale has been scheduled to take place in April 2025. Lululemon vacated the ground-floor retail space in 2019 (originally leased to Sephora); however, Club Monaco took over the space, with a lease that ultimately ran through January 2024. Various online sources indicate that Club Monaco has agreed to extend its lease through 2031 at a rental rate slightly higher than $200 per sf (psf)¿a significant decline from Sephora's rental rate of $600 psf at issuance. While Club Monaco's lease extension is a positive development, the property's receiver noted that the landlord, Thor Equities, has effectively abandoned the building, along with an adjacent building on 48th Street. The property reportedly requires major repairs to the facade, fire sprinkler system, and water tanks. According to the most recent servicer commentary, the property was approximately 26.0% occupied as of July 2024. The property was most recently appraised in July 2024 at a value of $53.0 million (reflecting a total exposure loan-to-value ratio in excess of 220.0%), below the November 2023 and issuance appraised values of $84.3 million and $180.0 million, respectively. Morningstar DBRS liquidated the loan from the pool based on a conservative 40.0% haircut to the most recent appraised value, resulting in a Morningstar DBRS value of $31.8 million ($397 psf) and an implied loss approaching $87.0 million.

The State Farm Portfolio loan is pari passu with notes held in the COMM 2014-UBS3 and COMM 2014-UBS5 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, as noted above, credit risk remains elevated as all of the underlying assets are leased but not occupied by State Farm, with all but two of the leases running through 2028. While State Farm continues to make rent payments, it has physically vacated every property. The loan had an anticipated repayment date in April 2024 and is now hyper-amortizing until April 2029, with annual interest rate resets. The servicer approved a partial release for one property in Tulsa, Oklahoma. Although Morningstar DBRS expects the continued rent payments 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 an implied loss of approximately $25.0 million.

The 30 Knightsbridge loan is secured by four interconnected three-story office buildings, totaling 686,316 sf, in Piscataway, New Jersey. The loan transferred to special servicing in December 2023 for imminent default after tenant departures pushed occupancy down to 50.0%. The servicer previously indicated that a property sale was pending, but that appears to have fallen through. Backfilling vacant space at the property may prove to be challenging, especially when considering the relatively soft submarket fundamentals (per Reis, the Piscataway/South Plainfield submarket had an average vacancy rate of 21.2% as of Q4 2024) and general challenges for office properties in today's environment. Morningstar DBRS liquidated the loan based on a 75.0% haircut to the issuance appraised value of $82.0 million, resulting in a projected liquidated loss amount of approximately $33.0 million.

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-B, X-C, and X-D 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 (February 28, 2025): https://dbrs.morningstar.com/research/448963.

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.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

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/North American CMBS Insight Model Version 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

-- 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.