DBRS Confirms Ratings of COMM 2014-CCRE20 Commercial Mortgage Trust, Stable Trends

DBRS, Inc. (DBRS) has today confirmed the Commercial Mortgage Pass-Through Certificates, Series 2014-CCRE20 (the Certificates), issued by COMM 2014-CCRE20 Commercial Mortgage Trust as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)
-- Class X-C at AAA (sf)
-- Class X-D at AAA (sf)
-- Class X-E at AAA (sf)
-- Class X-F at AAA (sf)
-- Class X-G at AAA (sf)
-- Class A-M at AAA (sf)
-- Class B at AA (sf)
-- Class PEZ at A (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class F at B (high) (sf)
-- Class G at B (low) (sf)

All trends are Stable. The Class PEZ certificates are exchangeable with the Class A-M, Class B and Class C Certificates (and vice versa).

The rating confirmations reflect the transaction’s current performance, which remains in line with DBRS’s expectations at issuance. The collateral consists of 64 fixed-rate loans secured by 101 commercial properties. As of the September 2016 remittance, the pool had an aggregate outstanding balance of approximately $1,165.1 million, representing a collateral reduction of 1.5% since issuance because of scheduled loan amortization. The pool benefits from a high concentration of loans secured by properties in urban (51.6% of the current pool) and suburban (33.7% of the current pool) markets. The pool also has a concentration of hospitality properties with ten loans, representing 27.8% of the current pool balance, secured by full-service and limited-service hotels. Overall, the hotel properties in the pool are performing well, with weighted-average (WA) net cash flow (NCF) growth of 23.8% over the DBRS underwritten (UW) figures as of the YE2015 reporting. As of the September 2016 remittance, there are five loans comprising 5.7% of the current pool on the servicer’s watchlist, with no loans in special servicing. Only one of the watchlisted loans (Prospectus ID#12, DoubleTree Beachwood) is being monitored for exhibited performance declines, with the other four loans monitored for upcoming rollover or recent storm damage.

The two largest loans in the pool, Gateway Center II (Prospectus ID#1, 10.3% of the current pool) and InterContinental Miami (Prospectus ID#2, 9.9% of the current trust) are performing well, with WA NCF growth over the DBRS UW figures of 32.1% and 56.7%, respectively. According to the March 2016 rent roll provided by the servicer, Gateway Center II was 100% occupied with no scheduled rollover until 2019. The property’s Sports Authority space did go dark in 2015, but a replacement tenant in electronics and appliances retailer, P.C. Richards, has assumed the lease. InterContinental Miami, according to the June 2016 Smith Travel Accommodations Report (STAR), is reporting a June 2016 trailing 12-month (T-12) occupancy rate of 88.6%, significantly higher than its listed competitive set that reported a combined occupancy of 78.6%. DBRS has requested information on any impact from the spread of the Zika virus in the area with regard to the subject’s visitor traffic and the servicer’s response is pending as of the date of this press release.

The Double Tree Beachwood loan (Prospectus ID#12, 2.35% of the pool) is secured by a 404-key full-service hotel located in Beachwood, Ohio, a Cleveland suburb situated approximately 13 miles east of the downtown area. The property is situated in the Chagrin Corridor office submarket, providing opportunity for the property to benefit from commercial contracts with companies situated nearby. In comparison with its competitive set, the property offers the most amenities and the largest amount of meeting space. In 2013, the property was converted from a Hilton Hotel to a DoubleTree by Hilton, with renovations to the lobby, business center and restaurant completed in order to meet the new flag’s brand standards. Over the next year, room renovations were also completed, with all rooms on line by late 2014. At issuance, DBRS noted the ongoing renovations and the opening of two new hotels in the area, the Hotel Indigo Cleveland Beachwood and the Aloft Beachwood, appeared to have had a negative impact on the subject’s performance. It was expected that performance would improve over the near term given the overall stability of the market and local demand drivers.

Since issuance, however, performance has declined substantially. The loan is reporting a YE2015 debt service coverage ratio (DSCR) of 0.67 times (x), with estimated gross income down by 9.9% since issuance. Income declines are the result of a decrease in both room revenue (down 7.2% since issuance) and food and beverage revenue (down 17.9% since issuance). The Q2 2016 DSCR showed some improvement, with coverage at 0.77x. The July 2016 STAR report showed a T-12 occupancy of 54.0%, with an average daily rate of $105.85 and revenue per available room of $57.14. These figures compare with the figures for the competitive set of 70.0%, $116.27 and $81.34, respectively, however, demonstrating the property continues to lag the market for all metrics. According to updates provided by the servicer, a new director of sales with local market knowledge has been retained at the property to increase occupancy and room revenue. It is also noteworthy that the loan benefits from additional collateral in the form of a $1.5 million letter of credit, to be held until the property reaches sustained performance metrics as outlined in the loan documents. Given the sustained performance decline since issuance, DBRS modeled this loan with a significantly increased probability of default and will continue to monitor closely for developments.

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

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodologies are North American CMBS Rating Methodology (March 2016) and CMBS North American Surveillance Methodology (December 2015), which can be found on our website under Methodologies.