CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed all classes of Deutsche Bank Securities, Inc.'s (COMM) commercial mortgage pass-through certificates series 2014-CCRE18. A detailed list of rating actions follows at the end of this press release.
KEY RATING DRIVERS
The affirmations are based on the overall stable performance of the pool. As of the April 2016 distribution date, the pool's aggregate principal balance has been reduced by 1.3% to $983.7 million from $996.3 million at issuance. There are two specially serviced loans (1%), both of which remain current, and five loans (7.9%) on the servicer watch list, two of which (3.8%) are considered Fitch loans of concern based on performance declines since issuance.
The largest contributor to expected losses is 22 Exchange (2%), which is secured by a 471-bed student housing property in Akron, OH, near the University of Akron. Year-end (YE) 2015 debt service coverage ratio (DSCR) was 1.05x on an interest only basis, down from 1.42x a year earlier. Net operating income (NOI) has declined 43.4% since issuance. The property faces increased competition with multiple new student housing properties in the immediate area having come online. Also, reported enrollment at the University of Akron has declined since the Fall 2011. The loan is on the watchlist, but remains current.
The second largest contributor to expected losses is GreatStay Hotel Portfolio (1.3%), which is collateralized by four hotels in the Pittsburg MSA, on the Marcellus Shale Formation. All of the hotels have reportedly suffered from reduced corporate account bookings related to oil industry declines. The combined 2015 DSCR was negative, down from 3.09x a year earlier. However, the two largest hotels (82% of loan balance), Holiday Inn Uniontown and Holiday Inn Indiana, have reported positive year-end 2015 DSCRs of 0.73x. The loan is on the watchlist but remains current.
The third largest contributor to expected losses is Southfield Town Center (6.3 %) which is secured by a 2.2 million square foot (sf) office property located in Southfield, MI. The YE 2015 DSCR was 2.12x, down from 3.56x a period earlier as a result of a 19.8% NOI decline since issuance due to increased expenses, primarily real estate taxes, and decreased revenues. The continued high DSCR is reflective of the loan's three-year interest only period, which expires in 2017. In addition, the property's largest tenant, 5/3 Bank (4.9% NRA), is moving its Michigan headquarters to downtown Detroit, and has been vacating the property in phases. It will vacate its space at its August 2016 lease expiration. According to Reis, Southfield Class A office vacancy was 29.6% in this submarket as of 4Q15. Given the upcoming tenant vacancy, potentially sustained higher expenses and continued challenges within the market, Fitch applied additional stressed the the reported NOI and will continue to monitor the performance of the loan.
Additionally, Fitch is monitoring the performance of two additional larger loans based on upcoming tenant departures. Mellon Independence Center (6.7%) has had its largest tenant, Bank of New York Mellon, reduce its footprint from 21.3% of NRA to 4.6% of NRA; however, a portion of the vacant space (6.8% NRA) has been leased to FiServ. The remaining space was only extended for 18 months, and it is probable Mellon Bank will vacate the entirety of its space at its June 2017 expiration.
399 Thornall Street (3.6%) will also lose its largest tenant, Daiichi Sankyo, which plans to consolidate its workforce into another office. Daiichi Sankyo will likely vacate its spaces in two phases based on its two leases for 36% and 7.2% of NRA, which expire October 2018 and May 2024, respectively.
The largest specially serviced loan is Summit Commons (0.7%), which is secured by an approximately 52,000 sf retail property in Columbia, South Carolina. The property recently transferred to special servicing as a result of condemnation filing from the South Carolina Department of Transportation. The servicer is reviewing the condemnation to assess any issues. The loan remains current.
The other specially serviced loan is Hocking Mall (0.3%), which is secured by an approximately 101,000 sf retail property in Logan, Ohio. The loan transferred to special servicing following the death of its guarantor. The special servicer indicated it would likely transfer back to the master servicer upon replacement of the guarantor. The loan remains current.
Fitch has revised the Ratings Outlook on classes D, E, and X-B to Negative as a result of concerns with asset-level underperformance across the above mentioned loans. Sustained underperformance may warrant downgrades; conversely, Outlooks may be revised to Stable should asset level performance revert to levels seen at issuance. Fitch's ratings reflect an additional deterministic test to assess the stability of the senior classes. Outlooks on A-1 through C remain Stable due to the relatively stable performance of the pool. Downgrades are possible with continued significant performance decline. Upgrades to senior classes, are possible with increased credit enhancement and overall improved pool performance.
DUE DILIGENCE USAGE
No third-party due diligence was provided or reviewed in relation to this rating action.
Fitch affirms the ratings and revises the Outlook on the following classes:
--$53.6 million class D at 'BBB-sf'; Outlook to Negative from Stable;
--$26.2 million class E at 'BB-sf'; Outlook to Negative from Stable;
--$158.2 million* class X-B at 'BBB-sf'; Outlook to Negative from Stable.
Fitch has affirmed the following classes:
--$34.5 million class A-1 at 'AAAsf'; Outlook Stable;
--$139.7 million class A-2 at 'AAAsf'; Outlook Stable;
--$53.6 million class A-SB at 'AAAsf'; Outlook Stable;
--$20.4 million class A-3 at 'AAAsf'; Outlook Stable;
--$195 million class A-4 at 'AAAsf'; Outlook Stable;
--$241.7 million class A-5 at 'AAAsf'; Outlook Stable;
--$753 million* class X-A at 'AAAsf'; Outlook Stable;
--$61 million class A-M at 'AAAsf'; Outlook Stable;
--$58.5 million class B at 'AA-sf'; Outlook Stable;
--$165.6 million class PEZ at 'A-sf'; Outlook Stable;
--$46.1 million class C at 'A-sf'; Outlook Stable;
*Notional and interest-only.
Fitch does not rate the class F, G and X-C certificates. Class A-M, B and C certificates may be exchanged for class PEZ certificates, and class PEZ certificates may be exchanged for class A-M, B and C certificates.
There were two variances from the surveillance criteria related to classes A-M and E. The surveillance criteria indicated that rating downgrades were possible for classes A-M and E. However, Fitch determined that downgrades are not warranted at this time as the overall pool continues to perform and performance of the larger loans may improve. Additionally, while some of these loans have experienced declines operating performance, all loans are current.
Additional information is available at 'www.fitchratings.com'.
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