DBRS Morningstar Upgrades Ratings on Three Classes of COMM 2014-CCRE15 Mortgage Trust

DBRS Limited (DBRS Morningstar) upgraded its ratings on the following three classes of Commercial Mortgage Pass-Through Certificates, Series 2014-CCRE15 issued by COMM 2014-CCRE15 Mortgage Trust:

-- Class B to AA (high) (sf) from AA (sf)
-- Class C to AA (sf) from A (sf)
-- Class PEZ to AA (sf) from A (sf)

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

-- Class A-SB at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-M at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at A (low) (sf)
-- Class D at BBB (high) (sf)
-- Class E at BB (high) (sf)
-- Class F at B (sf)

DBRS Morningstar also changed the trends on Classes E and F to Stable from Negative. All trends are now Stable.

The rating upgrades are reflective of increased defeasance and additional principal repayment since DBRS Morningstar’s last rating action. In addition, DBRS Morningstar’s analysis suggests the overall outlook for the transaction’s underlying collateral remains generally stable, supporting the trend changes on Classes E and F to Stable from Negative.

At issuance, the transaction consisted of 49 fixed-rate loans secured by 64 commercial and multifamily properties with an aggregate trust balance of $1.0 billion. As of the June 2022 remittance report, 31 loans remain in the pool, including 10 loans, representing 21.0% of the current pool balance, which have defeased. There has been collateral reduction of 42.2% since issuance, bringing the current trust balance to $582.9 million. To date, three loans have been liquidated from the pool, resulting in realized losses to the trust of $18.9 million, which have been contained to the nonrated Class G certificate.

The transaction is concentrated by property type, with office and multifamily assets representing 47.9% and 12.5% of the current pool balance, respectively. As of the June 2022 remittance report, two loans are in special servicing, and five loans are on the servicer’s watchlist, representing 4.6% and 18.8% of the current pool balance, respectively. Loans on the watchlist are generally being monitored for stressed occupancy rates and/or declining debt service coverage ratios (DSCRs).

The largest loan in special servicing, River Falls Mall, a shopping centre (Prospectus ID #15, 2.7% of the pool), is secured by a 287,717-square foot (sf) portion of a larger 872,969-sf anchored retail centre in Clarksville, Indiana. The loan transferred to special servicing in May 2020 when the borrower requested financial relief and was recently modified through a forbearance agreement that allowed for a 12-month period of interest-only (IO) payments, with the deferred principal amount to be repaid between January 2022 and December 2022. According to the most recent servicer reporting, the loan remains current. Occupancy, as of the January 2022 rent roll, was 83.0% compared with 100.0% at issuance. The decline in occupancy can be attributed to the departure of Gordmans and HHGregg, who began to shutter its brick and mortar locations after filing for bankruptcy in 2017.

The property remains anchored by a noncollateral Bass Pro Shops, with existing collateral tenants that include Old Time Pottery (30.6% of net rentable area (NRA); expiring October 2026), Dick’s Sporting Goods (Dick’s) (17.7% of NRA; expiring January 2025), and Gabriel Brothers (12.0% of NRA; expiring January 2028). The Dick’s lease was extended beyond the loan’s maturity, through January 2026. Two other collateral tenants, JOANN Fabrics and Crafts and Value City Furniture, which represent 15% of the NRA, have lease expirations that are coterminous with the loan maturity date in January 2024. The rent roll noted an average rental rate of $4.40 per square foot (psf), down from the average rental rate of $5.70 psf at issuance. According to the servicer-reported YE2021 financials, the property reported net cash flow of $1.2 million, with a DSCR of 1.05 times (x), compared with $1.1 million and 0.93x and $1.7 million and 1.52x at YE2020 and at issuance, respectively. The most recent appraisal dated November 2021 valued the property at $20.7 million, approximately 15% lower than the appraised value at issuance. Based on the November 2021 appraisal, the current loan-to-value ratio (LTV) is 74.7%. DBRS Morningstar applied a probability of default penalty in its analysis to reflect the current risk profile of the loan.

The largest loan on the servicer’s watchlist, 625 Madison Avenue (Prospectus ID #3, 14.5% of the pool), is collateralized by the borrower’s leased fee interest in a 0.81-acre (35,146-sf) parcel of land at 625 Madison Avenue in Midtown Manhattan. The ground-lease tenant, SL Green, owns the improvements, a 17-story, Class A, mixed-use building with approximately 37,969 sf of ground- and second-floor retail space and 525,031 sf of office space that sits on top of the land. The majority of tenants who occupy the office portion of the building are fashion and retail companies, with the two largest tenants being Polo Ralph Lauren and Firmenich. The ground-lease tenant’s interest in the improvements is not collateral for the 625 Madison Avenue loan.

According to the master servicer, SL Green had a ground-lease expiration date in June 2022. A renewal was exercised; however, an appraisal is in progress to determine the new rental rate after a dispute between the landlord, Ben Ashkenazy, and SL Green. According to two “The Real Deal” articles dated February 2021 and July 2022, Ashkenazy attempted to implement a substantial rent hike on SL Green’s ground lease, reportedly to $80.0 million per annum from $4.6 million. The servicer has followed up with the borrower, but the terms of the lease renewal have yet to be disclosed. The servicer also noted that the borrower is continuing to make its debt service payments beyond its anticipated repayment date of December 6, 2018. According to the YE2020 financials, the property is 100% occupied, with a DSCR of 1.03x, in line with historical metrics.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

DBRS Morningstar materially deviated from its North American CMBS Insight Model when determining the rating assigned to Class F as the quantitative results suggested a higher rating. The material deviation is warranted given the uncertain loan level event risks for select loans of concern, including those in special servicing and on the servicer’s watchlist.

Classes X-A, X-B, and X-D are 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 this transaction.

The DBRS Viewpoint platform provides additional information on this transaction and underlying loan including DBRS Morningstar metrics, commentary, servicer-reported cash flows, and other performance-related data. For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com.

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

The principal methodology is North American CMBS Surveillance Methodology (March 4, 2022), 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.

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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