DBRS Confirms All Classes of COMM 2014-PAT Mortgage Trust with Stable Trends

DBRS Limited (DBRS) confirmed the Commercial Mortgage Pass-Through Certificates, Series 2014-PAT issued by COMM 2014-PAT Mortgage Trust as follows:

-- Class A at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class D at BBB (sf)
-- Class E at BB (sf)
-- Class F at B (sf)

All trends are Stable.

The rating confirmations reflect the desirability of the collateral property, which recently benefited from a $21.5 million renovation, the strength of the property’s location and the experience and financial strength of the sponsor, an affiliate of Blackstone Real Estate Partners VII, L.P. (Blackstone), with $263.0 million in equity retained at acquisition in 2014. The transaction consists of a $425 million interest-only single-mortgage loan structured with an initial two-year term, followed by three one-year extension options with a fully extended maturity date in August 2019. The whole loan also consists of senior mezzanine ($35 million) and junior mezzanine ($100 million) loan components.

As anticipated at issuance, the property’s occupancy rate has fallen drastically in recent years following the exit of the largest and second-largest tenants in 2016. As of the March 2018 rent roll, the property had an occupancy rate of 53.7%, down from 90.0% at issuance, but up from 35.0% in December 2016. Historically, the property has maintained stable performance, with an average occupancy rate of 98.5% from 2000 through 2013. To mitigate the risks associated with the anticipated uptick in vacancy, the loan was initially structured with a full cash flow sweep reserve to address planned building improvements and anticipated leasing costs. In June 2016, the reserve had a balance of $16.9 million, but those funds have since been depleted. As the property’s cash flow is now less than the debt service obligation, there are no excess funds to trap and reserve. However, the loan was also structured with a $53.2 million payment guarantee from the sponsor, Blackstone, which decreases dollar for dollar as funds are applied for tenant improvement/leasing commission costs for applicable leases.

Since Q1 2018, there has been some leasing traction at the property. According to the servicer as of late June 2018, the property is currently 62.0% leased, with a gross rental rate of $104.76 per square feet (psf), compared with 90.0% and $96.47 psf gross in July 2014, respectively. According to the servicer, there are six tenants, representing 13.9% of the net rentable area, that have recently signed leases with an average rental rate of $106.34 psf. According to the servicer, there are currently two leases out for approval and five active proposals in negotiations. As of June 2018, CoStar shows an overall vacancy rate of 10.0% for Class A office properties in the subject’s submarket.

As of YE2017, the loan had a debt service coverage ratio (DSCR) of -0.30 times (x), compared with 1.31x at YE2016 and the DBRS Term DSCR of 1.84x. Although the YE2017 net cash flow (NCF) represents a 134.5% decline from the DBRS NCF, DBRS expects the property will stabilize in the near to medium term as the property benefits from a recent large-scale renovation and a desirable location in a liquid market with low vacancy. Furthermore, the asset benefits from an experienced, well-capitalized sponsor with significant cash equity in the property.

All ratings will be subject to ongoing surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed or discontinued by DBRS.

For more information on this transaction and supporting data, please log into www.viewpoint.dbrs.com. DBRS will continue to monitor this transaction with periodic updates provided in the DBRS Viewpoint platform.

As part of this review, DBRS has provided updated analysis and in-depth commentary in the DBRS Viewpoint platform for this transaction.

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

The principal methodology is CMBS North American Surveillance, which can be found on dbrs.com under Methodologies. For a list of the Structured Finance related methodologies that may be used during the rating process, please see the DBRS Global Structured Finance Related Methodologies document on www.dbrs.com. 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 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.com.

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

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

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