DBRS Morningstar Confirms Ratings on COMM 2014-LC17 Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed the ratings on the following classes of the Commercial Mortgage Pass-Through Certificates, Series 2014-LC17 issued by COMM 2014-LC17 Mortgage Trust as follows:

-- Class A-4 at AAA (sf)
-- Class A-5 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 AA (low) (sf)
-- Class C at A (high) (sf)
-- Class PEZ at A (high) (sf)
-- Class X-C at BB (high) (sf)
-- Class D at BB (sf)
-- Class E at B (low) (sf)
-- Class F at CCC (sf)
-- Class G at C (sf)

All trends are Stable with the exception of Classes F and G, which have ratings that do not typically carry a trend in commercial mortgage backed securities (CMBS) ratings. The rating confirmations and Stable trends reflect the overall performance of the transaction, which remains in line with DBRS Morningstar’s expectations since the last rating action.

As of the June 2023 remittance, 49 of the original 71 loans remain in the pool, with an aggregate principal balance of $737.1 million, reflecting a collateral reduction of 40.4% since issuance as a result of loan repayments, scheduled amortization, and proceeds from loan liquidations. Since the last rating action in November 2022, five loans have been fully defeased, bringing the total defeased collateral to 13.4% of the pool. Five loans (8.8% of the pool) are on the servicer’s watchlist; four (7.7% of the pool) of which are being monitored for performance related concerns. There are an additional three loans (2.7% of the pool) in special servicing, which were also in special servicing at the time of the last rating action.

To date, seven loans have been liquidated from the trust with a cumulative realized loss of approximately $31.5 million. In its analysis for this review, DBRS Morningstar maintained its liquidation of the three loans in special servicing. The implied losses total nearly $10 million, which would partially erode the balance of Class G, which currently carries a rating of C (sf). Interest shortfalls continue to accumulate on Class G.

The largest specially serviced loan, Paradise Valley (Prospectus ID#26, 1.8% of the pool), is secured by an 87,000-square-foot retail center located in Phoenix. The loan initially transferred to the special servicer in August 2020 for imminent payment default and more recently became real estate owned in December 2021. Following a significant increase in vacancy, the borrower attempted to reinstate and modify the loan, but ultimately decided to return the loan to the trust through a nonjudicial foreclosure. The property is currently going through renovations to the anchor space, which was formerly occupied by The RoomStore (35.3% of the net rentable area (NRA)), and parking lot, which should help facilitate some leasing traction for an eventual sale. Per the trailing three months (T-3) financials dated March 31, 2023, the loan reported a debt service coverage ratio (DSCR) of 0.62 times (x) and an occupancy rate of 45%. Based on the December 2022 appraisal, the property was valued at $12.6 million (reflecting a loan-to-value (LTV) ratio of 110.6% based on total loan exposure), a decline from $12.9 million as of February 2022 and $21.8 million at issuance. In its analysis for this review, DBRS Morningstar liquidated this loan from the trust with an implied loss of nearly $5.0 million, or a loss severity in excess of 35.0%.

Excluding collateral that has been defeased, the pool is most concentrated by loans that are secured by lodging and retail properties, representing 26.8% and 23.9% of the pool balance, respectively, while office properties account for 18.6%. Most of the loans secured by office properties in this transaction continue to perform as expected, based on the most recent financials available. However, DBRS Morningstar has a cautious outlook on this asset type as sustained upward pressure on vacancy rates in the broader office market may challenge landlords’ efforts to backfill vacant space, and, in certain instances, contribute to value declines, particularly for assets in noncore markets and/or with disadvantages in location, building quality, or amenities offered. Where applicable, DBRS Morningstar increased the probability of default (POD) penalties, and, in certain cases, applied stressed LTV ratios for loans that are secured by office properties. The weighted-average expected loss for those loans was less than double the weighted-average pool expected loss.

The largest loan on the servicer’s watchlist, Aloft Cupertino (Prospectus ID#6, 4.2% of the pool) is secured by a 123-key, limited-service hotel in Cupertino, California. The subject is located approximately a half mile from Apple’s 1 Infinite Loop office, which acts as one of the properties’ primary demand drivers. The loan was placed on the servicer’s watchlist in July 2022 for a low DSCR following a period in special servicing. The loan previously received a modification with terms that primarily included retroactively defering principal and interest payments for six months; converting the loan to interest-only (IO) thereafter for 12 months; and deferring of furniture, fixtures, and equipment reserve deposits through June 2022, with all deferred amounts to be repaid prior to maturity in June 2024. Per the servicer, the borrower has remained up to date on its repayments of the previously deferred amounts.

Per the December 2022 operating statement, the subject reported a T-12 occupancy, average daily rate, and revenue per available room (RevPAR) figures of 73.8%, $173, and $127, respectively. This shows a marked improvement over the T-12 ended August 31, 2021, STR report, which noted figures of 41.7%, $89, and $37, respectively, with a RevPAR penetration of 113%. According to the YE2022 financials, the loan reported a DSCR of 0.95x, as compared with the YE2021, YE2020, and YE2019 figures of -0.13x, -0.18x, and 1.90x, respectively. Although the loan had previously received a loan modification and financial performance has increased from the lows of the Coronavirus Disease (COVID-19) pandemic, it still remains challenged and performance remains below expectations, which will complicate take out financing efforts as the loan approaches maturity in August 2024. As a result, DBRS Morningstar analyzed this loan with an elevated POD for this review, increasing the loans expected loss to more than double the weighted-average pool expected loss.

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/416784 (July 4, 2023)

Classes X-A, X-B, and X-C 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 credit ratings are subject to surveillance, which could result in credit 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 North American CMBS Surveillance Methodology (March 16, 2023; https://www.dbrsmorningstar.com/research/410912).

Other methodologies referenced in this transaction are listed at the end of this press release.

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 credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS Morningstar Long-Term Obligation Rating Scale definition indicates that credit 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.

DBRS Limited
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The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

North American CMBS Multi-Borrower Rating Methodology (March 16, 2023)/North American CMBS Insight Model v 1.1.0.0 (https://www.dbrsmorningstar.com/research/410913)

Rating North American CMBS Interest-Only Certificates (December 19, 2022; https://www.dbrsmorningstar.com/research/407577)

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 12, 2022; https://www.dbrsmorningstar.com/research/402646)

North American Commercial Mortgage Servicer Rankings (September 8, 2022; https://www.dbrsmorningstar.com/research/402499)

Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023; https://www.dbrsmorningstar.com/research/415687)

Legal Criteria for U.S. Structured Finance (December 7, 2022;
https://www.dbrsmorningstar.com/research/407008)

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.