DBRS Morningstar Downgrades Three Classes of JPMBB Commercial Mortgage Securities Trust 2014-C25

DBRS Limited (DBRS Morningstar) downgraded its ratings on three classes of the Commercial Mortgage Pass-Through Certificates, Series 2014-C25 issued by JPMBB Commercial Mortgage Securities Trust 2014-C25 as follows:

-- Class E to B (low) (sf) from B (sf)
-- Class F to CCC (sf) from B (low) (sf)
-- Class X-E to B (sf) from B (high) (sf)

In addition, DBRS Morningstar confirmed its ratings on the remaining classes as follows:

-- Class A-4A1 at AAA (sf)
-- Class A-4A2 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)
-- Class B at AA (high) (sf)
-- Class X-C at AA (low) (sf)
-- Class C at A (high) (sf)
-- Class EC at A (high) (sf)
-- Class X-D at BBB (sf)
-- Class D at BBB (low) (sf)

Classes D, E, X-D, and X-E have Negative trends. Class F has a rating that does not carry a trend. All other trends are Stable. In addition, DBRS Morningstar discontinued the rating on Class X-F as it references a class that is now rated CCC (sf). DBRS Morningstar also removed the Interest in Arrears designation for Classes E and F.

The rating downgrades reflect DBRS Morningstar’s loss projections for the largest specially serviced loan, Hilton Houston Post Oak (Prospectus ID#6, 4.4% of the current pool balance), and the Negative trends reflect DBRS Morningstar’s continued concerns surrounding other specially serviced loans and select loans on the servicer’s watchlist, including Mall at Barnes Crossing and Market Center Tupelo (Prospectus ID#4, 6.6% of the current pool balance). As of the January 2022 remittance, 54 of the original 65 loans remain in the pool, representing a collateral reduction of 22.1% since issuance, with a current trust balance of $922.6 million. The pool benefits from eight loans that are fully defeased, representing 11.9% of the current pool balance, including two of the top 10 loans. There are 10 loans on the servicer’s watchlist, representing 18.0% of the current pool balance, six of which have been flagged for low debt service coverage ratios (DSCRs). There are currently five loans in special servicing, two of which are delinquent on debt service payments.

The Hilton Houston Post Oak loan is secured by a full-service hotel in Houston. The loan transferred to special servicing in May 2020 and, as of the December 2021 remittance, was last paid in April 2020. According to the servicer, the borrower has filed Chapter 11 bankruptcy, and although a workout strategy is yet to be determined, the servicer expects the likely outcome to be a deed in lieu of a foreclosure. The most recent appraisal reported by the servicer, dated June 2021, valued the property at $65.3 million. This figure is down 48% from the appraised value of $126.2 million at issuance but a modest increase from the September 2020 valuation of $57.5 million. Although the loan’s transfer to special servicing came with the onset of the Coronavirus Disease (COVID-19) pandemic, the loan was significantly underperforming issuance expectations for several years prior to the 2020 default. Based on the sharp value decline from issuance, continued delinquencies, and lackluster performance since issuance, DBRS Morningstar assumed a loss severity in excess of 50.0% with this review.

The most noteworthy of the watchlisted loans is a Brookfield sponsored loan, Mall at Barnes Crossing and Market Center Tupelo. The loan is secured by a regional mall and an adjacent retail centre in Tupelo, Mississippi. The loan was added to the servicer’s watchlist in August 2021 because of a low DSCR. The loan had previously transferred to special servicing in January 2021 because of delinquent debt service payments but was brought current in May 2021 and transferred back to the master servicer in August 2021 with no loan modifications. As per the most recent financials, the loan reported a trailing nine months ended September 30, 2021, DSCR of 1.26 times, with occupancy reported at 82.0%. The property’s remote location and occupancy declines from issuance, partially driven by the closure of a collateral Sears anchor at the mall property, are noteworthy risks. However, DBRS Morningstar also notes the sponsor appears committed to the loan and property as the previous delinquency was cured, and no pandemic-related relief was granted. Given the increased vacancy and challenges of re-leasing in a lower-tier secondary market, the loan remains on the DBRS Morningstar Hotlist.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

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 rating mirrors the lowest-rated applicable reference obligation tranche adjusted upward by one notch if senior in the waterfall.

All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:
-- Prospectus ID#4–Mall at Barnes Crossing and Market Center Tupelo (6.6% of the pool)
-- Prospectus ID#6–Hilton Houston Post Oak (4.4% of the pool)
-- Prospectus ID#10–9525 West Bryn Mawr Avenue (2.8% of the pool)
-- Prospectus ID#13–Southport Plaza (2.7% of the pool)

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes issuer and servicer data for most outstanding CMBS transactions (including non-DBRS Morningstar rated), as well as loan-level and transaction-level commentary for most DBRS Morningstar-rated and -monitored transactions.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology (March 26, 2021), which can be found on dbrsmorningstar.com under Methodologies & Criteria. For a list of the structured-finance-related methodologies that may be used during the rating process, please see the DBRS Morningstar Global Structured Finance Related Methodologies document, which can be found on dbrsmorningstar.com in the Commentary tab under Regulatory Affairs. Please note that not every related methodology listed under a principal structured finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482.

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@dbrsmorningstar.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS Morningstar long-term rating scale definition indicates that ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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