DBRS Morningstar Confirms Ratings on All Classes of COMM 2014-UBS3 Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed its ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2014-UBS3 issued by COMM 2014-UBS3 Mortgage Trust as follows:

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

All classes have Stable trends, with the exception of Classes F and G as the ratings assigned to those classes do not typically carry trends in commercial mortgage-backed securities (CMBS) ratings.

The rating confirmations reflect the overall stable performance of the transaction since the last rating action in November 2022. As of the February 2023 remittance, 41 of the original 49 loans remain in the trust, with an aggregate balance of approximately $834.7 million, representing a collateral reduction of 21.0% since issuance. Thirteen loans, representing 17.5% of the pool balance, have fully defeased. Three loans are in special servicing and six loans are on the servicer's watchlist, representing 6.4% and 28.5% of the pool balance, respectively.

The largest loan in special servicing, 1100 Superior Avenue (Prospectus ID#6; 5.6% of the pool balance), is secured by a Class B office building in Cleveland, Ohio, and was transferred to special servicing in June 2021 as a result of imminent monetary default. The loan became real estate owned in January 2023. The property is not currently being marketed for sale as the receiver is continuing stabilization efforts. Based on the December 2022 appraisal, the property was valued at $26.0 million, below the April 2022 value of $29.7 million and down 62.6% from the issuance value of $70.0 million. Based on the updated appraisal value, DBRS Morningstar liquidated this asset from the pool in the analysis for this review with a loss severity in excess of 70.0%. The losses would eradicate the balance in the unrated Class H and a substantial amount of the balance in Class G, thereby eroding the credit support to the lower tranches and supporting the rating confirmations.

The largest loan on the servicer's watchlist is Equitable Plaza (Prospectus ID#3; 10.7% of the loan balance), which is secured by a Class A office property in Los Angeles. The loan was added to the watchlist in October 2021 for occupancy-related issues. As per the September 2022 rent roll, the building was 63.4% occupied with 11.7% of the net rentable area (NRA) scheduled to rollover in the next 12 months. The tenant roster is quite granular, with the largest tenant, Commonwealth Business Bank (lease expires in November 2024) occupying 4.8% of the NRA. According to the most recent financial statement, the loan reported debt service coverage ratio (DSCR) of 1.55 times (x) a trailing nine months (T-9) ended September 30, 2022, compared with the DSCRs of 1.68x and 1.53x for YE2021 and YE2020, respectively. The loan is structured with a cash management provision to be triggered if the DSCR drops below 1.20x.

Despite the declining occupancy rate, the DSCR remains above the cash management threshold because the sponsor has managed to increase the average rental rate by 16.3%, raising it to $28.80 per square foot (psf) in September 2022 from $24.73 psf in October 2018. According to YE2022 Reis data, office properties in the Mid-Wilshire submarket reported an average vacancy rate of 17.5%, compared with the YE2021, YE2020, and YE2019 vacancy rates of 18.7%, 18.9%, and 17.1%, respectively. Loopnet currently lists 286,242 sf of space, representing 39.5% of the NRA, as available for lease. These listings have asking rental rates ranging between $31.20 psf and $42.00 psf, in line with the submarket’s average asking rate of $39.78 psf. Given the soft submarket, low in-place occupancy rate, and that leasing efforts were disrupted during the pandemic, the loan was analyzed with an elevated probability of default to increase the expected loss.

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).

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.

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

The principal methodology 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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