KBRA Downgrades Two Ratings and Affirms All Other Ratings for WFRBS 2014-C20
9 Aug 2024 | New York
KBRA downgrades the ratings of two classes of certificates and affirms all other outstanding ratings for WFRBS 2014-C20, a $225.0 million CMBS conduit transaction, which has nine assets remaining in the underlying mortgage pool. The rating actions follow a surveillance review of the transaction, which reflected an increase in KBRA’s estimated losses compared to KBRA’s last review as well as the likelihood of interest shortfalls reaching higher in the capital structure as the servicer works through the resolution of distressed assets.
As of the July 2024 remittance period, there are seven specially serviced assets (79.1% of the pool balance), including one asset, Sugar Creek I & II (25.5%), that is REO and has been deemed non-recoverable by the servicer. KBRA identified eight K-LOCs (80.3%), including the specially serviced assets. Of the eight K-LOCs, four (62.3%) have estimated losses. The details of the remaining assets in the pool are outlined below.
Sugar Creek I & II (largest, 25.5%, K-LOC, Underperform, REO)
- The asset comprises two, adjacent, Class-A, suburban office properties totaling 409,168 sf that are located in Sugar Land, Texas, approximately 20 miles southwest of the Houston CBD.
- KBRA maintains the asset’s K-LOC designation and KPO of Underperform based on its REO status. The asset transferred to the special servicer in October 2020 due to pandemic-related distress and the trust acquired title to the property in February 2023. According to the March 2024 rent roll, the property was 37.5% leased and servicer commentary from May 2024 indicated the asset was expected to be sold in Q4 2024. The asset was determined to be non-recoverable by the servicer during the July 2024 remittance period.
- An appraisal dated March 2024 valued the property at $30.3 million ($74 per sf), which is 63.7% below the $83.5 million ($204 per sf) appraisal value at issuance. The asset carries an ARA of $36.0 million, resulting in a cumulative ASER of $2.9 million. The servicer-reported occupancies and DSCs are: 55.0% / 0.70x (FY 2023), 55.0% / 0.65x (FY 2022); at issuance these were 95.0% / 1.52x. KBRA’s analysis resulted in an estimated loss of $40.3 million (70.3% estimated loss severity) on the $57.4 million loan balance.
Worldgate Centre (2nd largest, 23.4%, K-LOC, Underperform, Matured Performing)
- The loan is collateralized by a 229,326 sf anchored retail center located in Herndon, Virginia, approximately 24 miles northwest of Washington, DC.
- KBRA maintains the loan’s K-LOC designation and KPO of Underperform based on its maturity default and its status with the special servicer. The loan transferred to the special servicer in January 2024, concurrent with an extension request by the borrower prior to loan maturity in May 2024. According to the December 2023 rent roll and servicer updates, the property is 98.9% leased; however, the largest tenant, Worldgate Athletic Club & Spa (29.3% of total base rent), is sponsor-affiliated and has a lease expiration date in December 2024. According to the servicer, the borrower is working towards a lease extension with the tenant, which operates as an athletic gym and has historically had membership and operational issues.
- An appraisal dated March 2024 valued the property at $37.1 million ($162 per sf), which is 58.1% below the $88.5 million ($386 per sf) appraisal value at issuance. The servicer-reported occupancies and DSCs are: 100% / 0.64x (FY 2023), 97.0% / 0.54x (FY 2022); at issuance these were 95.0% / 1.30x. KBRA’s analysis resulted in an estimated loss of $29.1 million (55.1% estimated loss severity) on the $52.7 million loan balance.
Rockwell – ARINC HQ (3rd largest, 19.7%, Perform)
- The $44.2 million loan is collateralized by a 271,303 sf, Class-A office complex located in Annapolis, Maryland, approximately 30 miles southeast of Baltimore. The development comprises two four-story buildings and a two-story building ranging in size from 38,130 sf to 170,533 sf that feature office space, data center labs, a cafeteria and a conference center.
- KBRA maintains a KPO of Perform for the loan based on 100% collateral occupancy. ARINC Incorporated occupies 100% of the collateral property pursuant to a triple-net lease that expires in March 2029 with three five-year extension options remaining. The loan passed its Anticipated Repayment Date (ARD) in April 2024 and has a final maturity date in April 2044.
- Servicer-reported occupancies and DSCs are: 100% / 2.22x (FY 2023), 100% / 2.16x (FY 2022); at issuance these were 100% / 2.07x.
Savoy Retail & 60th Street Residential (4th largest, 13.5%, K-LOC, Underperform, Matured Non-Performing)
- The loan is collateralized by a retail condominium totaling 47,896 sf, which is located within the Savoy Residential Condominium Tower, and four adjacent four-story multifamily buildings with a total of 24 units (14,744 sf) and 8,625 sf of commercial space.
- 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 June 2023 due to imminent default relating to the borrower’s request for a loan modification ahead of the loan’s March 2024 maturity date. According to the December 2023 and additional servicer updates, the retail portion of the collateral was 65.2% leased and the multifamily units were 95.7% leased. As of the July 2024 remittance period, the loan workout was being dual-tracked between potential forbearance negotiations and foreclosure.
- An appraisal dated March 2024 valued the property at $66.0 million ($925 per sf), which was 29.0% below the $93.0 million ($1,303 per sf) appraisal value at issuance. Servicer-reported occupancies and DSCs are: 66.0% / -0.11x (YTD June 2023), 58.0% / 0.36x (FY 2022); at issuance these were 98.2% / 1.74x. At this time, KBRA does not estimate a loss on the $30.3 million loan balance.
Woodmont Plaza (5th largest, 8.9%, K-LOC, Underperform, Matured Non-Performing)
- The loan is collateralized by a 135,389 sf suburban office building located in Bethesda, Maryland, approximately 10 miles north of Washington, DC.
- KBRA identifies the loan as a K-LOC and maintains the loan’s KPO of Underperform based on the loan’s transfer to the special servicer in April 2024 due to maturity default. The property’s former largest tenant, Airfacts, Inc. (formerly 12.2% of total base rent), vacated at lease expiration in December 2023. According to the March 2024 rent roll, the property was 63.4% leased and leases representing 31.2% of total base rent are scheduled to expire through YE 2026. The loan is in early stages of workout with the special servicer.
- An updated May 2024 appraisal valued the property at $12.5 million ($92 per sf), which is 68.8% below the $40.0 million ($295 per sf) appraisal value at issuance. An ARA of $8.5 million was effectuated for the loan in June 2024. Servicer-reported occupancies and DSCs are: 57.0% / 1.31x (FY 2023), 71.0% / 1.58x (FY 2022); at issuance these were 88.1% / 2.33x. KBRA’s analysis resulted in an estimated loss of $11.9 million (59.3% estimated loss severity) on the $20.0 million loan balance.
The remaining four assets account for 9.0% of the pool balance.
- Town Park Office (6th largest, 4.4%, K-LOC, Matured Non-Performing) is collateralized by a four-story, 145,998 sf suburban office property located in Kennesaw, Georgia, approximately 25 miles north of Atlanta. KBRA maintains the loan’s K-LOC designation based on its transfer to the special servicer in June 2023 for imminent monetary default ahead of the loan’s January 2024 maturity. KBRA’s analysis resulted in an estimated loss of $1.5 million (15.5% estimated loss severity) on the $10.0 million loan balance.
- Diamond Mine Mini Storage Crossed Loan Portfolio (7th- and 8th-largest, 3.4%, K-LOC, Matured Non-Performing) consists of two cross-collateralized and cross-defaulted loans secured by two self-storage properties totaling 178,657 sf, which are both located within the San Francisco-Oakland, California MSA. Both loans transferred to the special servicer after maturity default in May 2024. At this time, KBRA does not estimate a loss on the aggregate loan balance of $7.6 million.
- Winn Dixie Baton Rouge (9th largest, 1.2%, K-LOC, Matured Non-Performing) is collateralized by 50,388 sf grocery anchor box for a retail shopping center in Baton Rouge, Louisiana. The property’s single tenant is Shopper’s Value, which has a lease expiration date in December 2025. At this time, KBRA does not estimate a loss on the $2.7 million loan balance.
Details concerning the classes with rating changes are as follows:
- Class B to BB- (sf) from A- (sf)
- Class C 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
- CMBS: Methodology for Rating Interest-Only Certificates in CMBS Transactions
- Structured Finance: Global Structured Finance Counterparty Methodology
- ESG Global Rating Methodology