KBRA Downgrades Five Ratings and Affirms One Rating for CGCMT 2014-GC23
19 Jul 2024 | New York
KBRA downgrades the ratings of five classes of certificates and affirms one rating of CGCMT 2014-GC23, a $249.2 million CMBS conduit transaction, which has seven loans remaining in the underlying mortgage pool that have all failed to pay off at scheduled maturity dates. The rating actions reflect an increase in KBRA’s estimated losses compared to KBRA’s last rating adjustments in July 2023 as well as the likelihood of interest shortfalls reaching higher in the capital structure as the servicer works through the resolution of assets.
As of the July 2024 remittance period, all remaining loans are past maturity and have K-LOC designations. As of the most recent remittance period, only two loans (43.3% of the pool) have transferred to the special servicer. It is expected most, if not all, remaining loans will eventually transfer to the special servicer. The details of the assets are outlined below.
Selig Portfolio (largest, 38.9%, Non-Performing Matured Balloon)
- The loan is collateralized by seven office properties totaling 1.1 million sf, located in downtown Seattle, Washington. The properties were developed by an affiliate of the sponsor, Martin Selig Real Estate (MSRE), from 1970 to 2009. MSRE is headquartered in Seattle, and owns more than 4.0 million sf of office space in the Seattle MSA.
- KBRA maintains the loan’s K-LOC designation and KPO of Underperform based on its status with the special servicer. The loan transferred to the special servicer in March 2024 due to imminent maturity default ahead of the loan’s May 2024 scheduled maturity date. Occupancy across the portfolio has declined to approximately 60.0% as of March 2024, which is significantly lower than 85.4% at closing in 2014. According to servicer commentary, the special servicer and borrower are in discussions regarding a loan modification following a potential capital raise by the borrower.
- The servicer-reported occupancies and DSCs are: 60.0% / 1.24x (YTD March 2024, 63.0% / 1.62x (FY 2023); at closing, these were 85.4% / 2.06x. KBRA’s analysis resulted in an estimated loss of $57.5 million (24.1% estimated loss severity) on the whole loan balance of $238.9 million, of which a $97.0 million pari-passu note is securitized in this transaction.
Chula Vista Center (2nd largest, 24.4%, Non-Performing Matured Balloon)
- The loan is collateralized by a 485,841 sf portion of an 878,341 sf, open-air super regional mall located in Chula Vista, California. The Chula Vista Center is anchored by Macy’s (non-collateral), JCPenney (11.7% of total base rent), and Burlington (11.3%) and also features a 250,000 sf non-collateral vacant anchor box that was formerly occupied by Sears. The loan sponsor is Brookfield Asset Management.
- KBRA maintains the loan’s K-LOC designation and KPO of Underperform based on the loan failing to pay off at maturity in July 2024. Prior to the loan’s maturity default, the collateral property exhibited a severe decline in NCF. Servicer-reported NCF for FY 2023 was $5.2 million, which was 25.3% lower than NCF of $7.0 million underwritten by the issuer at securitization. According to the March 2024 rent roll, the property was 90.4% leased and lease rollover through YE 2025, inclusive of MTM leases, represented 25.6% of base rent.
- The servicer-reported occupancies and DSCs are: 65.0% / 1.28x (FY 2023), 68.0% / 1.15x (FY 2022); at closing, these were 93.3% / 1.71x. The low occupancy reported by the servicer may include the vacant non-collateral anchor box. KBRA’s analysis resulted in an estimated loss of $9.9 million (16.2% estimated loss severity) on the loan balance of $60.8 million.
NorthCross Shopping Center (3rd largest, 11.7%, K-LOC)
- The loan is collateralized by a 382,829 sf portion of a 491,265 sf power center located in Huntersville, North Carolina, approximately 15 miles north of Charlotte.
- KBRA identifies the loan as a K-LOC and revises the loan’s KPO to Underperform from Perform based on the loan’s failure to pay off on its scheduled maturity date in July 2024. The property is anchored by Lowe’s Home Improvement (22.5% of total base rent) with a lease expiration in March 2027 and Harris Teeter (10.3%) with a lease expiration in April 2027. Updated information regarding the workout of the loan’s maturity default was not available at the time of review.
- The servicer-reported occupancies and DSCs are: 100% / 1.51 (FY 2023), N/A / 1.31x (FY 2022); at closing, these were 97.7% / 1.37x. At this time, KBRA does not estimate a loss on this asset.
Centre Properties Portfolio (4th largest, 11.5%, K-LOC)
- The loan is collateralized by a portfolio of four retail properties in Indiana totaling 185,489 sf. Three of the properties (45.0% of ALA) are located in Indianapolis, while the largest property (55.0%) is located in Greenwood.
- KBRA maintains the loan’s K-LOC designation and KPO of Underperform due to its failure to pay off at scheduled maturity in July 2024. According to the February 2024 rent rolls, the portfolio was 74.3% leased and lease rollover through YE 2026, inclusive of MTM leases, represented 49.4% of total base rent. According to servicer commentary, a payoff quote has been issued to the borrower.
- The servicer-reported occupancies and DSCs are: N/A / 1.00x (FY 2023), 84.0% / 1.11 (FY 2022); at closing, these were 92.9% / 1.45x. KBRA’s analysis resulted in an estimated loss of $9.7 million (34.0% estimated loss severity) on the loan balance of $28.6 million.
The remaining three assets account for 13.5% of the pool balance.
- 401 South La Brea (5th largest, 4.8%, Non-Performing Matured Balloon) is collateralized by a 42,157 sf single-tenant retail building with frontage along La Brea Avenue in Los Angeles, California. The property is leased to Target through February 2029. The loan failed to pay off at maturity in June 2024 and servicer commentary indicated negotiations for a potential forbearance agreement were underway while the borrower works to secure refinancing. At this time, KBRA does not estimate a loss on this asset.
- Lake Shore Plaza (6th largest, 4.4%, Non-Performing Matured Balloon) is collateralized by a 96,260 sf retail center located on Long Island in Ronkonkoma, New York. The loan transferred to the special servicer in February 2024 due to expected maturity default ahead of the loan’s June 2024 maturity date. According to servicer commentary, a pre-negotiation letter was executed and the borrower requested a maturity extension. At this time, KBRA does not estimate a loss on this asset.
- 5185 MacArthur Boulevard (7th largest, 4.3%, Non-Performing Matured Balloon) is collateralized by 43,617 sf mixed-use retail and office building located in Washington, DC, approximately five miles northwest of the city’s CBD. The loan failed to pay off at maturity in July 2024 and the borrower requested an extension. KBRA’s analysis resulted in an estimated loss of $4.9 million (46.0% estimated loss severity) on a loan balance of $10.7 million.
Details concerning the classes with rating changes are as follows:
- Class C to BBB- (sf) from A- (sf)
- Class PEZ to BBB- (sf) from A- (sf)
- Class D to B- (sf) from BBB- (sf)
- Class E to CCC (sf) from BB- (sf)
- Class F to CC (sf) from B (sf)
Rating Sensitivities
Future rating actions will be dependent upon the ongoing assessment of the timing and likelihood of ultimate payment of principal and accrued interest on the rated certificates. The assessment will consider the expected and actual losses on the remaining assets in the transaction, as well as the magnitude and extent of interest shortfalls, if any, on the certificates.
To access rating and relevant documents, click here.
Related Publication
Methodologies
- CMBS: North American CMBS Property Evaluation Methodology
- CMBS: North American CMBS Single Borrower & Large Loan Rating Methodology
- Structured Finance: Global Structured Finance Counterparty Methodology
- CMBS: Methodology for Rating Interest-Only Certificates in CMBS Transactions
- ESG Global Rating Methodology