DBRS Morningstar Confirms All Classes of Wells Fargo Commercial Mortgage Trust 2014-LC18
CMBSDBRS Limited (DBRS Morningstar) confirmed the ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2014-LC18 issued by Wells Fargo Commercial Mortgage Trust 2014-LC18 as follows:
-- Class A-3 at AAA (sf)
-- Class A-4 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 B at AA (low) (sf)
-- Class C at A (sf)
-- Class PEX at A (sf)
-- Class X-B at BBB (sf)
-- Class D at BBB (low) (sf)
-- Class X-E at BB (sf)
-- Class E at BB (low) (sf)
-- Class X-F at B (sf)
-- Class F at B (low) (sf)
All trends are Stable, with the exception of Classes F and X-F, which continue to carry Negative trends.
The rating confirmations reflect the overall stable performance of the transaction since issuance As of the January 2022 remittance, 87 of the original 99 loans remain in the pool, representing a collateral reduction of 18.2% since issuance with a current trust balance of $931.2 million. Twelve loans, representing 9.3% of the current pool balance, are fully defeased.
The negative trends on classes F and X-F reflect DBRS Morningstar’s ongoing concerns with two of the larger loans in special servicing, specifically Marriot Kansas City Country Club Plaza (Prospectus ID#5; 4.0% of the current pool balance) and New Town Shops on Main (Prospectus ID#9; 2.6% of the current pool balance). In total, eight loans are in special servicing, representing 16.5% of the current pool balance, inclusive of three loans in the top 10. Six loans, representing 12.0% of the current pool balance, are delinquent on debt service payments, while one loan, Sand Creek Estates (Prospectus ID#27,;0.9% of the current pool) is real estate owned.
The largest loan in special servicing, Marriott Kansas City Country Club Plaza, is secured by the borrower's fee simple interest in a 295-room full-service hotel property in Kansas City, Missouri. The loan transferred to special servicing in October 2021 at the borrower’s request and ultimately defaulted due to its failure to repay ahead of the scheduled December 2021 maturity. As of the January 2022 remittance, the reported workout strategy is a loan modification. The borrower has executed a pre-negotiation letter and discussions with the special servicer remain ongoing.
DBRS Morningstar recognizes an increased risk profile for this loan following its recent transfer and maturity default. Although the debt service coverage ratio remains depressed at 0.02 times as of the June 2021 financials, the property’s key performance metrics show movement in the right direction over the past year. The property is well located in the market near a variety of demand drivers and it experienced healthy demand prior to the pandemic. A modification or resolution of the loan is likely to hinge on continued restabilization of property operations.
The third-largest loan in special servicing, New Town Shops on Main, is secured by the borrower’s fee-simple interest in a 48,176-squarefoot anchored retail property in Williamsburg, Virginia. The loan transferred to special servicing after failing to repay at its December 2021 maturity date. According to the servicer, the property was severely affected by the pandemic, resulting in store closures and declines in rental income; however, the borrower did not submit any relief request during 2020 or in 2021 prior to the loan’s transfer. The special servicer is currently reviewing the borrower’s relief proposal.
Although occupancy has remained stable at 82%, net operating income declined over the past year because of disruptions in rental revenue. This decline, combined with the upcoming lease expiration of the second-largest tenant (10.6% of net rentable area), will pose challenges to ongoing refinance efforts. The loan resolution is likely to hinge on the borrower’s ability to renew expiring leases and improve rental revenues. DBRS Morningstar will continue to monitor the loan for updates to the special servicer’s workout strategy.
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-E, and X-F 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#5 – Marriott Kansas City Country Club Plaza (4.0% of the pool)
-- Prospectus ID#6 – Colorado Mills (3.6% of the pool)
-- Prospectus ID#8 – Hilton Garden Inn Cupertino (3.4% of the pool)
-- Prospectus ID#9 – New Town Shops on Main (2.6% 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 the North American CMBS Surveillance Methodology, 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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