Morningstar DBRS Confirms Credit Ratings on Starwood Retail Property Trust 2014-STAR

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

-- Class A at C (sf)
-- Class B at C (sf)
-- Class C at C (sf)
-- Class D at C (sf)
-- Class E at C (sf)

All classes have ratings that do not typically carry trends in commercial mortgage-backed securities (CMBS) ratings.

The credit rating confirmations reflect the expectation of sizable losses upon the resolution of the underlying loan, which is collateralized by a retail portfolio and has been in special servicing since a maturity default in 2019. Since the last review, one of the properties, MacArthur Center, was liquidated from the trust, reflected in the August 2023 reporting, at a loss of approximately $5.7 million. The loss was contained to the first loss piece, Class F, which has a remaining balance of $23.2 million as of the April 2024 reporting. Morningstar DBRS subsequently downgraded the credit rating on that certificate and simultaneously discontinued and withdrew the credit rating.

The credit ratings on all classes mirror those assigned by Morningstar DBRS in 2020, except for Class A, which was initially rated B (sf) before a downgrade in 2021 to the current credit rating of C (sf). The downgrade was reflective of an updated appraisal amount of $210.6 million for the portfolio as of December 2020, down from the most recent appraised value available when ratings were assigned of $366.7 million, which was dated March 2020. The most recent value provided since that time, dated December 2022, showed some improvement to $268.8 million. Based on haircuts to the appraiser's value estimates for the remaining collateral, Morningstar DBRS expects liquidated losses through the Class A certificate. There are interest shortfalls on all classes, with the cumulative amount outstanding at $75.3 million as of the April 2024 remittance.

The underlying loan is a $646.6 million floating-rate loan secured by two regional malls and one lifestyle center. The Mall at Wellington Green is a 1.3 million-square-foot (sf) indoor regional mall in Palm Beach County, Florida. The subject is anchored by City Furniture and noncollateral anchors Macy's, Dillard's, and JCPenney. At issuance, Nordstrom was in place on a ground lease but closed in 2019. Northlake Mall is a 1.1 million-sf regional mall in Charlotte, North Carolina. The collateral includes 540,000 sf of retail space, with Dick's Sporting Goods and AMC Theatres as the original collateral anchor tenants, while other noncollateral anchors include Dillard's, Macy's, and Belk. Dick's Sporting Goods vacated the property in February 2021. The Mall at Partridge Creek is a 626,000-sf lifestyle center in Clinton Township, Michigan, about 30 miles north of downtown Detroit. The property's only remaining anchor is MJR Digital Cinemas, as Nordstrom vacated in September 2019 and Carson's vacated in 2018 following its bankruptcy filing.

The loan initially matured in 2017, with extension options available that were subject to debt yield hurdle requirements; however, those could not be met, and as a result the sponsor was required to make a principal paydown of $25.0 million and monthly principal payments of $0.8 million to satisfy a loan modification to extend the maturity to 2019. With the paydown amounts, the loan balance was ultimately reduced by approximately $44.0 million. Despite the deleveraging, the borrower was still unable to repay at the extended maturity given the sustained occupancy and cash flow declines for the portfolio, and the loan was transferred to special servicing. The initial resolution strategy considered another loan modification, but ultimately the borrower agreed to an orderly transition of the properties to a receiver that will work toward stabilizing the assets prior to disposition. While the timing of the sale of the remaining properties has yet to be determined, the receiver is working on stabilizing the assets to increase the disposition value.

As of the April 2024 remittance, the principal balance of the loan totaled $646.6 million, with outstanding servicer advances and other amounts bringing the total trust exposure to $729.1 million. According to the servicer, there is $8.8 million held in the cash management reserves that can be used for capital expenditures, operating expenses, repaying advances, and other property expenses and serves as additional cash collateral.

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 Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at (January 23, 2024), at https://dbrs.morningstar.com/research/427030.

All credit ratings are subject to surveillance, which could result in credit ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by Morningstar DBRS.

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

The principal methodology is North American CMBS Surveillance Methodology (March 1, 2024), https://dbrs.morningstar.com/research/428798.

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

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-DBRS@morningstar.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.

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

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

-- North American Single-Asset/Single-Borrower Ratings Methodology (March 1, 2024), https://dbrs.morningstar.com/research/428799
-- Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024), https://dbrs.morningstar.com/research/428623
-- DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 22, 2023), https://dbrs.morningstar.com/research/420982
-- North American Commercial Mortgage Servicer Rankings (August 23, 2023), https://dbrs.morningstar.com/research/419592
-- Legal Criteria for U.S. Structured Finance (April 15, 2024), https://dbrs.morningstar.com/research/431205/legal-criteria-for-us-structured-finance
-- A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/417279. (July 17, 2023)

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.