DBRS Morningstar Downgrades Two Classes of COMM 2014-UBS2 Mortgage Trust

DBRS Limited (DBRS Morningstar) downgraded the ratings on two classes of the Commercial Mortgage Pass-Through Certificates, Series 2014-UBS2 issued by COMM 2014-UBS2 Mortgage Trust as follows:

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

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

-- Class A-M at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (low) (sf)
-- Class PEZ at A (low) (sf)
-- Class X-B at BBB (sf)
-- Class D at BBB (low) (sf)

With this review, DBRS Morningstar maintained the Negative trends on Classes D, X-B, and E. Class F does not carry a trend but continues to carry the Interest in Arrears designation. All other trends are Stable.

According to the January 2021 remittance, 49 of the original 59 loans remain in the pool, with an aggregate principal balance of $894.9 million, representing a collateral reduction of 27.6% since issuance as a result of loan repayments, scheduled amortization, and the liquidation of one loan. In addition, 13 loans (12.6% of the pool) have been fully defeased. There are 12 loans (32.5% of the pool) on the servicer’s watchlist.

The downgrades and Negative trends primarily reflect the increased credit risk and the likely negative outcome upon the resolution of two assets in special servicing, Canyon Crossings (Prospectus ID#8, 4.7% of the pool) and Beltway 8 Corporate Center I (Prospectus ID#19, 1.2% of the pool). Both assets are real estate owned and have been reappraised since Q1 2021, reflecting value declines from issuance of 27.0% and 64.9%, respectively, leaving both properties significantly overleveraged. The trust had previously taken a significant loss in June 2020 when the $25.3 million Creekside Mixed Use Development loan was liquidated from the trust with a $23.3 million loss, which resulted in the nonrated Class G being written down by more than 60%. DBRS Morningstar expects both assets to incur losses upon resolution, further eroding the transaction’s credit support, with projected losses reaching the first rated Class F.

The largest loan in special servicing, Excelsior Crossings (Prospectus ID#3, 8.9% of the pool), is secured by two Class A office properties in Hopkins, Minnesota, approximately 10 miles from the Minneapolis central business district. The loan was originally added to servicer’s watchlist in July 2017 when Cargill, formerly occupying 100% of the collateral’s net rentable area, terminated its lease ahead of its September 2020 expiration date and vacated both buildings in March 2018. Although the borrower was able to collect funds from a cash flow sweep and termination fees amounting to $9.5 million to help re-lease the property, the loan transferred to special servicing in December 2020 for imminent monetary default. A foreclosure complaint was filed in April 2021, with a receiver appointed in June 2021. The borrower recently entered into a purchase and sale agreement with Bridge Investment Group, LLC, which includes a large equity infusion of roughly $19.0 million to bring the loan current and to fund an all-purpose reserve and a debt service reserve. Upon the closing of the proposed transaction (which was expected in January 2022), the loan should be returned to the master servicer. An updated appraisal dated March 2021 reported an as-is value of $90.4 million, reflecting a 39.8% decline from the issuance value of $141.0 million and a resulting loan-to-value ratio of 87.8%; however, with $4.8 million in tenant reserves and the potential of new equity being injected via the assumption, the property should be able to stabilize with occupancy already at 76.9% as of September 2021 with a high concentration of long-term tenancy.

Clemson Student Housing (Prospectus ID#12, 3.3% of the pool), which is secured by two student housing developments in Senecas, South Carolina, was transferred to the special servicer in March 2020 for payment default following the borrower’s loss of its housing contract with Clemson University combined with the downturn resulting from the Coronavirus Disease (COVID-19) pandemic. However, after a change in property management and improved occupancy levels with the return of campus activity in early 2021, the loan was returned to the master servicer in August 2021 as corrected. Although the most recent net cash flow remained depressed for the first nine months of 2021 at $1.3 million (a debt service coverage ratio (DSCR) of 0.55 times (x)), well below the issuer’s figure of $2.4 million (a DSCR of 1.27x), occupancy improved to 97% as of September 2021, well above the mid-80% range from before the pandemic. Given the asset type and historical cash flow volatility, DBRS Morningstar continues to monitor this loan.

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 and X-B 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#3 – Excelsior Crossings (8.9% of the pool)
-- Prospectus ID#8 – Canyon Crossing (4.7% of the pool)
-- Prospectus ID#19 – Beltway 8 Corporate Center I (1.2% 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/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577