DBRS Morningstar Confirms Ratings on WFRBS Commercial Mortgage Trust 2014-C20

DBRS Limited (DBRS Morningstar) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2014-C20 issued by WFRBS Commercial Mortgage Trust 2014-C20 as follows:

-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class A-SFL at AAA (sf)
-- Class A-SFX at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at BBB (high) (sf)
-- Class C at CCC (sf)
-- Class D at C (sf)
-- Class E at C (sf)
-- Class F at C (sf)

Classes C, D, E, and F have ratings that do not typically carry trends. All other trends are Stable. The rating confirmations reflect the overall stable performance of the transaction since DBRS Morningstar’s last review. The CCC (sf) and C (sf) ratings for Classes C, D, E, and F are reflective of DBRS Morningstar’s loss expectations for the largest loans in special servicing, as further described below. The transaction benefits from substantial paydown since issuance, as well as a moderate amount of defeasance. Challenges include the pool’s exposure to a high concentration of loans in special servicing, including two large defaulted mall loans and a large loan secured by an office property in the Houston area that is also in default.

As of the January 2023 remittance, 75 of the of the original 98 loans remain in the pool with a trust balance of $821.9 million, representing a collateral reduction of 34.3% since issuance as a result of loan amortization and repayments. Of the remaining loans, 16 are fully defeased, representing 11.6% of the pool. Three of the five largest loans, Woodbridge Center (Prospectus ID#1; 14.3% of the pool), Sugar Creek I & II (Prospectus ID#4; 7.2% of the pool), and Brunswick Square (Prospectus ID#6; 4.8% of the pool), totalling 26.3% of the trust balance, are in special servicing as of this review. In addition, 13 loans, totaling 16.4% of the trust balance, are on the servicer’s watchlist, 10 of which have been flagged for performance-related concerns related to occupancy issues or a low debt service coverage ratio (DSCR).

The largest loan in special servicing, Woodbridge Center, is secured by the fee-simple interest in a 1.1 million square-foot (sf) portion of a 1.7 million sf super-regional mall in Woodbridge, New Jersey. The loan transferred to special servicing in June 2020 for payment default. Initially, the special servicer discussed a potential loan modification with the sponsor but those discussions ultimately fell through and a receiver was installed in October 2021. As of the January 2023 remittance, the servicer reported foreclosure proceedings were underway. The collateral was appraised in May 2022 with an as-is value of $89.0 million, within $15.0 million of the previous values obtained by the special servicer but well below the issuance value of $366.0 million.

The loan’s performance has followed the path of the mall’s occupancy over the last several years, with the loss of the collateral Sears anchor, which represented approximately 25.0% of the collateral net rentable area (NRA) and closed in April 2020. According to the June 2022 rent roll, the collateral was 62.4% occupied, compared with the December 2021 occupancy rate of 67.5% and issuance occupancy rate of 96.8%. The mall is anchored by a non-collateral Macy’s and JCPenney while the remaining largest collateral tenants include Boscov’s (16.7% of the NRA, expiry in January 2029) and Dick’s Sporting Goods (9.1% of the NRA, expiry in January 2024). Near-term rollover risk is noteworthy, with tenants representing 15.1% of the NRA approaching their lease expiry within the next 12 months. As per the reporting for the trailing nine months ended September 30, 2022, the servicer reported a DSCR of 0.42 times (x), down from the YE 2021 DSCR of 0.95 times (x) and YE2020 DSCR of 1.77x. Based on a haircut to the May 2022 valuation, DBRS Morningstar liquidated the loan from the pool in the analysis for this review with a loss severity in excess of 80%.

The second largest loan in special servicing, Sugar Creek I & II, is secured by two adjacent Class A office buildings in Sugar Land, Texas. The loan transferred to special servicing for imminent payment default in October 2020. According to the January 2023 servicer commentary, the servicer continues to move forward with the foreclosure process and expects the title to transfer in February 2023. According to the June 2022 rent roll, the property was 57.2% occupied, compared with the YE2020 occupancy rate of 67.0%. The largest tenants are Teams Inc (19.5% of the NRA, lease expiry in March 2028), Noble Drilling Services (Noble; 17.8% of the NRA, lease expiry in December 2024), and Merrill Lynch (3.4% of the NRA, lease expiry in May 2023). Noble previously reduced their footprint by approximately 61,000 sf as part of a 10-year renewal of their lease in 2019. Upcoming lease rollover is minimal, with only 3.6% of the NRA scheduled to roll within the next 12 months. Per the Q4 2022 Reis report, the southwest Houston submarket reported an vacancy rate of 25.6%; the submarket has been soft for several years given the challenges for the energy industry and the significant supply in the overall Houston market. The most recent appraisal obtained by the special servicer, dated December 2022, valued the property at $42.3 million, compared with $54.8 million in April 2022, and sharply below the issuance appraised value of $83.5 million. Based on a haircut to the December 2022 value, DBRS Morningstar liquidated this loan from the pool with a loss severity in excess of 40%.

The third-largest specially serviced loan, Brunswick Square, is secured by a 292,685 sf portion of a 760,311 sf regional mall in East Brunswick, New Jersey. The loan was transferred to special servicing in July 2021 for imminent monetary default at the borrower’s request. The special servicer has begun legal proceedings and a receiver has been appointed. The borrower, an affiliate of Washington Prime Group, previously expressed interest in a consensual foreclosure sale. According to the June 2022 rent roll, the collateral’s occupancy rate was reported at 91.9%, relatively in line with the occupancy rates of 90.5% at YE2021 and 88.0% at YE2020. The mall is anchored by non-collateral tenants Macy’s and JCPenney, while the largest collateral tenants include American Multi-Cinema (17.3% of the NRA, lease expiry in May 2027) and Barnes & Nobles (8.5% of the NRA, lease expiry in January 2025). In addition, tenants accounting for 17.1% of the NRA have lease expirations within the next 12 months. The most recent appraisal, dated April 2022, reported an as-is value of $36 million, compared with the May 2021 value of $33.5 million, which ultimately is 68.1% down from the appraised value of $113.0 million at issuance. Based on a haircut to that value, DBRS Morningstar liquidated this loan from the pool with a loss severity in excess of 65%.

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 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 (May 17, 2022).

Class X-A is an interest-only (IO) certificate that references 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.

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

The principal methodology is the North American CMBS Surveillance Methodology (October 3, 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. 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.

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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