Fitch Affirms 3 Classes of NLY Commercial Mortgage Trust 2014-FL1

NEW YORK--()--Fitch Ratings has affirmed three classes of NLY Commercial Mortgage Trust 2014-FL1 commercial mortgage pass-through certificates. A detailed list of rating actions follows at the end of this press release.

Fitch expects to publish a U.S. CMBS Focus Performance Report on the transaction within the week.

KEY RATING DRIVERS

The affirmations reflect the continuing stabilization of the underlying collateral pool, which now includes only eight loans secured by 20 properties. Since the last rating action, and as of the November 2015 distribution date, two loans, Alameda and Invesco, totaling $84.2 million, have paid off in full. While the majority of the loans have either stabilized or appear on track with their business plans, approximately one-third of the pool is secured by properties that have not completely stabilized. Fitch anticipated that borrowers would need time to actualize their respective business plans in its original analysis. Fitch has designated four loans (25.8%), which have significant upcoming lease roll or are behind on their scheduled business plans, as Fitch Loans of Concern. There are no specially serviced loans.

The largest loan in the pool (35.8%) is secured by the Optima Chicago, a 2013 constructed 325-unit high end rental apartment project located in the Streeterville neighborhood of downtown Chicago, IL. The collateral also includes 178 parking spaces and 20,440 square feet (sf) of commercial space. Leasing commenced on the apartment units in July 2013.

As of the August 2015 rent roll, the apartment component had reached a stabilized occupancy rate of 89.8%, compared with 83.4% in December 2014 and 28.0% in December 2013. Vacancy at the subject spiked in first-quarter 2015 after the eviction of a corporate tenant, which leased 24 units. However, as of the most recent update, the servicer reported that at least 19 of the 24 units had been re-leased to new tenants. The year-to-date June 2015 servicer- reported debt service coverage ratio (DSCR) was 1.33x.

Principal repayment for Optima Chicago will pay the certificates on a pro rata basis, subject to performance triggers, including 50% of the pool based on the cut-off date pool balance being outstanding at the time of repayment. In connection with the recent exercise of the loan's first extension option, and in order to satisfy a required debt yield test, the borrower made a re-balancing pre-payment of $3.6 million, which was applied to the transactions liabilities on a pro rata basis.

The largest Fitch Loan of Concern (12.3%) is secured by Atrium One, an 18-story CBD office building located in Cincinnati, OH. The sponsors purchased the building in a sale leaseback from Convergys, which is the second largest tenant occupying 30% of the space at below market rents through 2028. The third largest tenant, NetCracker (10%), a former subsidiary of Convergys, has a significantly above-market rent, and a lease expiration in 2017 with rights to early termination.

The business plan at securitization was to lease up existing vacant space and transition through upcoming lease rollover by renewing or replacing maturing tenants at market rental levels. As of the March 2015 rent roll, occupancy was 79% with less than 1% roll scheduled prior to 2017. Further, the borrower recently signed three new leases, which are expected to increase occupancy to approximately 85%.

In August 2015, the property's largest tenant, Omnicare, was acquired by CVS Health Corp. As part of the company integration, layoffs in Cincinnati are expected; however, the servicer has not reported receiving any communication from Omnicare/CVS about reducing their space in the building. The lease term runs through March 2024.

The most recent servicer reported cash flow continues to support this loan; the year-end (YE) 2014 servicer-reported DSCR was 2.10x. Fitch, however, will continue to closely monitor the property and any impact from CVS Health Corp.'s recent acquisition of Omnicare.

The other Fitch Loans of Concern are Tech Ridge Office Park (5.6%), which has significant upcoming lease roll; and two New Orleans boutique hotels, the Ambassador Hotel (5%) and the Hotel Modern (3%), which, while showing some improving performance metrics, are still both behind on their stabilization plans.

RATING SENSITIVITIES

The Rating Outlook for all classes remains Stable. While the majority of the assets have met their business plans and credit enhancement to the classes has improved, the pool is increasingly concentrated. Further, one-third of the pool remains secured by properties that have not completely stabilized. Fitch does not foresee near term positive or negative ratings migration to the rated classes. Fitch will continue to monitor performance of the individual assets, and in particular the four Fitch Loans of Concern.

DUE DILIGENCE USAGE

No third-party due diligence was provided or reviewed in relation to this rating action.

Fitch has affirmed the following ratings:

NLY Commercial Mortgage Trust 2014-FL1

--$93.3 million class A at 'AAAsf', Outlook Stable;

--$25.2 million class B at 'AA-sf', Outlook Stable;

--$17.3 million class C at 'A-sf', Outlook Stable.

Fitch does not rate the class D, E, F, G or X certificates.

Additional information is available at www.fitchratings.com.

Applicable Criteria

Criteria for Analyzing Large Loans in U.S. Commercial Mortgage Transactions (pub. 27 Aug 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=870009

Global Structured Finance Rating Criteria (pub. 06 Jul 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952

Related Research

NLY Commercial Mortgage Trust 2014-FL1 -- Appendix

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=745215

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=996944

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=996944

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst
Stacey McGovern
Director
+1-212-908-0722
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Karen Trebach
Senior Director
+1-212-908-0215
or
Media Relations:
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Stacey McGovern
Director
+1-212-908-0722
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Karen Trebach
Senior Director
+1-212-908-0215
or
Media Relations:
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com