KBRA Downgrades Five Ratings and Affirms One Rating for COMM 2014-UBS2
11 Jul 2024 | New York
KBRA downgrades the ratings of five classes of certificates and affirms one rating of COMM 2014-UBS2, a $182.7 million CMBS conduit transaction. The rating actions follow a surveillance review of the transaction, which has all six remaining loans in special servicing. The rating actions reflect an increase in both realized losses and KBRA’s estimated losses. In addition, the ratings consider the likelihood of interest shortfalls reaching higher in the capital structure as the servicer works through the resolution of the assets.
As of the June 2024 remittance period, there are six specially serviced assets (100% of the pool balance), of which two (29.0%) are REO and four (71.0%) are past maturity. The details of the assets are outlined below.
Excelsior Crossings (largest, 34.3%, Performing Matured Balloon)
- The loan is collateralized by two seven-story, Class A, LEED Gold certified office buildings (buildings 9350 & 9380) totaling 501,603 square feet and located in Hopkins, Minnesota, approximately 10 miles southwest of the Minneapolis CBD.
- KBRA maintains the loan's K-LOC designation and KPO of Underperform based on low DSC and its status with the special servicer due to a maturity default in January 2024. The low DSC is due to increases in operating expenses. The loan was assumed by Bridge Investment Group in February 2022. Based on the December 2023 rent roll, the properties were 98.4% occupied, compared to 93.4% at last review and 100.0% at closing. Additionally, there is no significant tenant rollover concern until 2030, when three of the top five tenants (77.1% of base rent) have scheduled lease expirations.
- An appraisal dated January 2024 valued the assets at $93.6 million, which represents a 33.6% decrease from the $141.0 million appraised value at securitization. The servicer-reported occupancies and DSCs are: 98.4% / 1.26x (FY 2023), 93.4% / 0.69x (FY 2022); at closing these were 100.0% / 1.58x. KBRA's analysis resulted in an estimated loss of $9.4 million (14.9% estimated loss severity) on a loan balance of $62.7 million.
One North State Street (2nd largest, 26.4%, Non-Performing Matured Balloon)
- The loan is collateralized by 129,715 sf of retail space and 40,792 sf of storage space of a 16-story, 713,423 sf landmark office building located in downtown Chicago, Illinois.
- KBRA maintains the loan’s K-LOC designation and KPO of Underperform based on its recent delinquency and specially serviced status. For the FY 2023, the servicer reported an NCF of $2.8 million, which represents a 43.5% decrease from securitization ($4.9 million). The decline in financial performance is largely due to decreases in base rent coupled with increases in operating expenses. The largest tenant, Burlington Coat Factory (35.2% of collateral sf) is currently operating under a month-to-month lease and the second largest tenant, TJ Maxx (41.1% of collateral sf) has a lease expiration at the end of July 2024. The status of a lease renewal is unknown as of this review.
- An appraisal dated August 2023 valued the asset at $25.0 million, which represents a 75.2% decrease from the $101.0 million appraised value at securitization. The servicer-reported occupancies and DSCs are: 93.9% / 0.75x (FY 2023), 93.0% / 1.03x (FY 2022); at closing these were 98.0% / 1.33x. KBRA's analysis resulted in an estimated loss of $29.5 million (61.2% estimated loss severity) on a loan balance of $48.2 million.
Canyon Crossing (3rd largest, 21.9%, REO)
- The asset is a 295,949 sf, anchored retail center located in Riverside, California, approximately 60 miles west of Los Angeles.
- KBRA maintains the asset’s K-LOC designation and KPO of Underperform based on its REO status. The loan became delinquent after Toys "R" Us (24.8% of collateral sf) vacated the property in 2018. The loan subsequently transferred to the special servicer in December 2018 and the property became REO in September 2019. According to the special servicer, the property has been rezoned by the city as mixed-use, allowing for a limited-service hotel and up to 45 multifamily units to be constructed on site. In addition, the special servicer reported that the property has been listed for sale with offers received and a partial sale will be pursued. Based on the February 2024 rent roll, the property is 60.0% leased, compared to 64.7% at last review and 92.5% at closing.
- An appraisal dated August 2023 valued the asset at $50.3 million, which is 20.2% below the property’s $62.9 million value at issuance. The servicer-reported occupancies and DSCs are: 75.0% / 0.64x (FY 2022), 70.0% / 0.57x (FY 2021); at closing these were 92.0% / 1.36x. KBRA’s analysis resulted in an estimated loss of $13.8 million (34.4% estimated loss severity) on a loan balance of $40.0 million.
The remaining three assets account for 17.4% of the pool balance.
- Avnet Building (4th largest, 7.1%, REO) is collateralized by a 132,070 sf Class A office building located in Tempe, Arizona, which is 100% vacant. An appraisal dated February 2024 valued the asset at $11.3 million, which is 50.0% below the property’s $22.6 million value at issuance. KBRA’s analysis resulted in an estimated loss of $5.0 million (38.3% estimated loss severity) on a loan balance of $13.0 million.
- 300 East 23rd Street (5th largest, 5.6%, Non-Performing Matured Balloon) is collateralized by a 11,145 sf single-tenant retail property located in New York City's borough of Manhattan. The property is 100% vacant following Duane Reade’s departure in May 2020. An appraisal dated August 2023 valued the asset at $3.0 million, which is 81.9% below the property’s $16.6 million value at issuance. KBRA’s analysis resulted in an estimated loss of $4.7 million (46.0% estimated loss severity) on a loan balance of $10.2 million.
- Turnpike Square (6th largest, 4.7%, Non-Performing Matured Balloon) is collateralized by a 105,461 sf, anchored retail property located in Milford, Connecticut, approximately 10 miles southwest of New Haven. An appraisal dated March 2024 valued the asset at $8.6 million, which is 44.2% below the property’s $15.4 million value at issuance. KBRA’s analysis resulted in an estimated loss of $2.1 million (24.6% estimated loss severity) on a loan balance of $8.6 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 CC (sf) from BB- (sf)
- Class E to C (sf ) from CCC (sf)
- Class F to D (sf) from CC (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