Press Release|CMBS
KBRA Downgrades Four Ratings, Affirms Four Ratings, and Withdraws Three Ratings for COMM 2014-CCRE16
23 May 2024 | New York
KBRA recently completed a surveillance review of COMM 2014-CCRE16, a $293.1 million CMBS conduit transaction. The review resulted in the downgrade of the ratings for Classes B, C, PEZ and D. (See below for details.) The downgrades are driven by an increase in KBRA’s estimated losses on four of the eight remaining assets and also reflect the unfavorable refinance prospects of several of the remaining loans, which could lead to higher losses, and the likelihood of interest shortfalls reaching higher in the capital structure. KBRA also affirms its ratings for Classes A-4, A-M, E and F. Simultaneously, KBRA removes the Watch Developing status from Classes A-4, A-M, B, C and PEZ where they were placed in February 2024. KBRA also withdraws its AAA (sf) rating on the X-A and X-B IO Classes and its CC (sf) rating on the X-C Class in accordance with KBRA’s Methodology for Rating Interest-Only Certificates in CMBS Transactions.
Details concerning the classes with ratings changes are as follows:
- Class B to A (sf) from AA- (sf) DEV
- Class C to BB (sf) from BBB (sf) DEV
- Class PEZ to BB (sf) from BBB (sf) DEV
- Class D to CCC (sf) from B (sf)
- Class X-A to WR from AAA (sf) DEV
- Class X-B to WR from AAA (sf) DEV
- Class X-C to WR from CC (sf)
The details of the K-LOCs are outlined below.
25 Broadway (largest, 40.9%, Specially Serviced, K-LOC, Underperform)
- The loan is collateralized by a 22-story, Class-B, landmark office building located in downtown New York City.
- KBRA identified the loan as a K-LOC and maintains its KPO of Underperform based on its specially serviced status due to maturity default. The lender denied the borrower's request for an extension in January 2024 and the loan subsequently transferred to special servicing in March. According to the servicer, the borrower and lender are discussing a potential maturity forbearance. The servicer-reported NCF for FY 2023 was $19.5 million, representing a 15.9% decrease from $22.6 million underwritten by the issuer at closing. According to the September 2023 rent roll, the property was 91.5% leased, compared to 84.6% at last review and 95.8% at closing. The largest tenants include Léman Manhattan Preparatory School (26.1% of base rent), Teach for America (17.5%), and the City University of New York (CUNY, 11.5%), which account for 55.2% of the total base rent. As of April 2024, 249,772 sf (26% of total sf) is listed for lease or sublease, including all of Teach for America's space (18.2%). The tenant's lease expires in January 2032.
- The servicer reported occupancies and DSCs are: 92.0% / 1.64x (FY 2023), 92.0% / 1.70x (FY 2022); at closing these were 95.8% / 1.90x. KBRA’s analysis resulted in an estimated loss of $33.7 million, on the whole loan balance of $250.0 million (13.5% estimated loss severity).
iPark Norwalk (2nd largest, 28.4%, K-LOC, Underperform)
- The loan is collateralized by a mixed-use office, retail, and industrial complex located in Norwalk, Connecticut, approximately 12 miles northwest of downtown Stamford. The property contains 290,845 sf of office space (78.8%), 61,050 sf of retail space (16.5%), and 17,100 sf of warehouse/showroom space (4.6%).
- KBRA identified the loan as a K-LOC and revised its KPO to Underperform from Perform due to the borrower failing to pay off the loan at its March 2024 maturity. According to the September 2023 rent roll, the collateral was 100.0% leased, unchanged from last review and up from 91.6% at closing. The largest tenant is Norwalk Hospital (38.3% of base rent), which leases 102,343 sf through December 2042. The fifth largest contributor to base rent, IRC (5.8%), is subleasing all of its space ahead of its November 2029 lease expiration.
- The servicer-reported occupancies and DSCs are: 93.0% / 1.63x (YTD September 2023), 100% / 1.60x (FY 2022); at closing these were 91.6% / 1.33x. KBRA’s analysis resulted in an estimated loss of $4.4 million (5.3% estimated loss severity).
252 West 37th Street (3rd largest, 11.7%, Specially Serviced, K-LOC, Underperform)
- The loan is collateralized by a 161,613 sf, Class-B office property located in the Garment District of New York City’s borough of Manhattan. The 17-story building was developed in 1928 and includes 152,913 sf of office space and 8,700 sf of ground floor retail space.
- KBRA identified the loan as a K-LOC and revised its KPO to Underperform from Perform based on its specially serviced status after the borrower failed to pay off the loan at its January 2024 maturity. According to the servicer, the lender filed foreclosure in April 2024 but also conditionally approved a proposed maturity extension through January 2026. The maturity extension and foreclosure are being dual tracked as workout options. According to the July 2023 rent roll, the property was 66.7% leased to 16 tenants, compared to 66.3% at last review and 100% at issuance. In addition, the third largest tenant, MediaRadar, Inc., extended its lease through August 2026 at $52 per sf. There is no significant near-term lease rollover at the property.
- The servicer-reported occupancies and DSCs are: 64.0% / 0.88x (YTD June 2023), 60.0% / 0.94x (FY 2022); at closing these were 100% / 1.21x. An appraisal dated December 2023 valued the property at $53.5 million ($331 per sf), compared to the $75.0 million ($464 per sf) value at issuance. At this time, KBRA does not estimate a loss on this loan.
CVS Las Vegas Strip (4th largest, 6.4%, Specially Serviced, K-LOC, Underperform)
- The loan is collateralized by a 14,378 sf retail property in Las Vegas, Nevada. The property is located on the Las Vegas Strip near the Hilton Grand Vacation, Sahara Hotel and Casino and Circus Circus.
- KBRA identified the loan as a K-LOC and assigned a KPO of Underperform based on its transfer to the special servicer after the borrower failed to pay off the loan at its April 2024 maturity. The property's sole tenant, CVS, vacated in November 2019 prior to its April 2029 lease expiration, which triggered a cash sweep. However, CVS continues to honor its lease obligations. The special servicer is reviewing the borrower's request for a two-year maturity extension.
- The servicer-reported occupancies and DSCs are: 100% / 1.45x (FY 2023), 100% / 1.44x (FY 2022); at closing these were 100% / 1.35x. At this time, KBRA does not estimate a loss on this loan.
555 West 59th Street (5th largest, 5.9%, REO, K-LOC, Underperform)
- The asset consists of three commercial condominiums totaling 40,568 sf at the Element, a residential condominium building located on West 59th Street, between Tenth and Eleventh Avenues in New York City’s borough of Manhattan.
- KBRA maintains the asset’s K-LOC designation based on its REO status. Judicial foreclosure was filed in August 2022 and the asset became REO in May 2024. KBRA initially identified this specially serviced loan as a K-LOC based on the collateral's significant exposure to Hertz (69% of GLA) when the car rental company filed for bankruptcy. Hertz rejected the lease in court and paid 100% of the claim amount, which was applied to the loan. Based on the June 2023 rent roll, inclusive of leasing updates, there are only two remaining tenants, Book Nook WEA LLC, which occupies 4.6% of total sf, and Centerpark Management LLC which operates the parking garage.
- An appraisal dated August 2023 valued the property at $9.0 million ($222 per sf), compared to the $27.3 million value at issuance ($673 per sf). The servicer- reported occupancies and DSCs are: 93.0% / 0.21x (YTD June 2023); 93.0% / 1.03x (FY 2020); at issuance these were 100% / 1.31x. KBRA’s analysis resulted in an estimated loss of $12.4 million (71.4% estimated loss severity).
1807 Old Post East Road (8th largest, 1.1%, Specially Serviced, K-LOC, Underperform)
- The loan is collateralized by a 17,335-sf, unanchored retail center in Westport, Connecticut, approximately 15 miles northeast of Stamford.
- KBRA identified the loan as a K-LOC and assigned a KPO of Underperform based on its transfer to the special servicer after the borrower failed to pay off the loan at its March 2024 maturity. The borrower requested a loan modification that would include a six-month maturity extension, a 5% paydown of the principal balance, and a 1% modification fee. The request is currently under review. The property is 100% leased to three tenants, the largest of which is Mattress Firm (49.9% of base rent) on a lease that expires in January 2027.
- The servicer-reported occupancies and DSCs are: 100% / 1.11x (FY 2023); 87.0% / 0.85x (FY 2022); at issuance these were 100% / 1.46x. KBRA’s analysis resulted in an estimated loss of $484,542 (15.6% estimated loss severity).
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