Morningstar DBRS Confirms Credit Ratings on All Classes of TMSQ 2014-1500 Mortgage Trust

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2014-1500 issued by TMSQ 2014-1500 Mortgage Trust as follows: 
 
-- Class X-A at BBB (high) (sf) 
-- Class A at BBB (sf) 
-- Class B at B (sf) 
-- Class C at CCC (sf) 
-- Class D at CCC (sf) 
 
The trends on all classes are Negative, with the exception of Classes C and D, which have credit ratings that do not typically carry a trend in commercial mortgage-backed securities (CMBS) transactions.

The transaction is secured by the borrower's fee-simple interest in a 506,000 square foot (sf), 33-story Class A mixed-use building in the Times Square Bowtie in New York City. The majority of the building is designated as office space while approximately 106,000 sf is designated as retail and storage space.

The credit rating confirmations reflect Morningstar DBRS' overall outlook for the transaction, which remains relatively unchanged since the prior review in July 2024. At that time, Morningstar DBRS downgraded its credit ratings on all classes based on a liquidation scenario, the results of which suggested that losses could fully erode the Class D and C certificates and partially erode the Class B certificate upon the eventual disposition of the loan. Given the lack of positive leasing momentum at the property and Morningstar DBRS' expectation that occupancy will continue to decline as a result of additional tenant departures, it is unlikely that the subject's operating performance will rebound in the near to moderate term, placing further downward pressure on cash flows. These factors support maintaining the Negative trends with this review.

The whole loan of $505.0 million consists of $335.0 million of senior debt (structured with a 10-year interest-only (IO) term) held within the trust and $170.0 million of mezzanine debt held outside of the trust. The loan transferred to special servicing in July 2024 because the borrower was unable to repay the loan prior to the October 6, 2024, maturity date. The borrower requested a forbearance that would give it the ability to inject new capital and stabilize the property. An agreement was executed in March 2025, the terms of which included a 24-month initial forbearance period from October 2024 to October 2026 with two additional 12-month options ending in October 2028, the implementation of cash management provisions, and an equity contribution from the borrower. The equity contribution consists of $14.1 million to cover all shortfalls on an ongoing basis with an additional $20.2 million to be placed into an all-purpose reserve account for the future leasing and capital expenditure costs required to stabilize the property.

The most recent appraisal, dated December 2024, valued the collateral at $335.0 million on an as-is basis, representing a 58.6% decline from the issuance value of $810.0 million. The updated valuation reflects a trust debt loan-to-value ratio (LTV) of 100.0% compared with the issuance appraised LTV of 41.4%. When including the mezzanine debt held outside of the trust, the LTV increases to 150.7%.

According to the December 2024 rent roll, the occupancy rate at the property declined to 61.3% from approximately 90.0% at issuance. The retail segment continues to perform well, reporting an occupancy rate of 100.0%. The former second-largest tenant, Nasdaq, which previously occupied 53,000 sf (approximately 11.0% of the net rentable area (NRA)) vacated the property upon lease expiration in August 2024. The largest tenant at the property, Times Square Studio (TSS), currently occupies approximately 13.0% of the NRA. The bulk of the TSS space is configured for studio use and it is currently the filming location for the Walt Disney Co. (Disney)-owned ABC's Good Morning America (GMA) program. TSS has provided notice that it will vacate the property in July 2025 as part of Disney's larger move to consolidate its physical footprint at its new headquarters in Hudson Square.

The borrower is actively marketing the space ahead of GMA's departure; however, given the unique build-out and distinctive requirements of studio/production space, Morningstar DBRS expects re-leasing efforts to progress at a slow pace. Should the borrower fail to backfill the TSS space prior to July 2025, the occupancy rate at the property will decline further to approximately 45.0%. Although the remainder of the tenant roster is relatively granular, with no other tenant accounting for more than 4.0% of NRA, leases representing approximately 10.0% of the NRA are scheduled to roll within the next 12 months, potentially placing further upward pressure on the property's vacancy rate.

According to Reis, the Q1 2025 office vacancy rate for the Midtown West submarket was 13.3%, relatively in line with the prior year's figure. The vacancy rate is forecast to remain elevated, above 13.0%, through 2028. The servicer reported a net cash flow (NCF) of $23.5 million for YE2024 (reflecting a debt service coverage ratio of 1.64 times), 34.7% below the issuer's underwritten NCF of $36.0 million. Given that TSS and Nasdaq account for approximately 33.0% and 11.0% of in-place base rent at the property, respectively, Morningstar DBRS estimates property cash flows will fall below breakeven by the end of the year.

The Morningstar DBRS value derived at the last review was maintained for this credit rating action. The analysis considered the property's three distinct segments, including the office and ground-floor retail components, as well as the TSS space. Given the expected departure of the two largest office tenants, Morningstar DBRS derived individual dark values for the office component and the TSS space, estimating for each a stabilized cash flow and utilizing a capitalization (cap) rate of 8.75% (including a 100-basis-point dark-value adjustment to account for the time and risk to re-tenant vacant space) with lease-up costs deducted in each case. In addition, credit was given to the income generated by the exterior signage. Because of the stable performance of the ground-floor retail space, Morningstar DBRS re-analyzed the existing cash flow stream based on the in-place tenancy and recent market data to determine an as-is value. A cap rate of 7.0% was utilized for the ground-floor retail component, resulting in a value of $82.0 million. The aggregate Morningstar DBRS value of $257.8 million ($509 per square foot) for all three segments represents declines of 50.8% and 23.1%, respectively, from the Morningstar DBRS value derived in 2020 and the most recent appraised value. The Morningstar DBRS value implies an LTV of 130.0% on the senior debt, based on the current loan balance of $335.0 million.

Given the deterioration in performance, soft submarket demand, and declining cash flows, a liquidation scenario was derived based on the Morningstar DBRS value of $257.8 million and an estimated exposure of $351.4 million when accounting for projected servicer advances and liquidation fees, which resulted in an implied loss of nearly $94.0 million, representing a loss severity of 28.0%. As previously noted, should those losses be incurred, there would be principal loss for Classes D through B with approximately $5.3 million (18.0%) of cushion remaining in the B (sf) rated Class B certificate. Mitigating factors include the execution of the aforementioned forbearance agreement that will provide the sponsor with additional time to work toward property stabilization in addition to the conservative assumptions made as part of the derivation of the Morningstar DBRS value for the underlying collateral. The property also benefits from a well-performing retail segment, and a significant signage component, given its prime location in Times Square. In addition, the loan's sponsor, TREHI, a subsidiary of Tamares Group, a private investment company headquartered in London, appears to be committed to the asset, as evidenced by the recent equity infusion.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.
 
A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings at https://dbrs.morningstar.com/research/454196 (May 16, 2025).

Class X-A is an interest-only (IO) certificate that references a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation tranche adjusted upward by one notch if senior in the waterfall.

All credit ratings are subject to surveillance, which could result in credit ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by Morningstar DBRS.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology (February 28, 2025), https://dbrs.morningstar.com/research/448963.

Other methodologies referenced in this transaction are listed at the end of this press release.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info-DBRS@morningstar.com.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The Morningstar DBRS Long-Term Obligation Rating Scale definition indicates that credit ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS' outlooks and credit ratings are monitored.

DBRS Limited
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Tel. +1 416 593-5577

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

-- North American Single-Asset/Single-Borrower Ratings Methodology (February 28, 2025), https://dbrs.morningstar.com/research/448962

-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (September 19, 2024), https://dbrs.morningstar.com/research/439702

-- Legal Criteria for U.S. Structured Finance (December 3, 2024): https://dbrs.morningstar.com/research/444064

-- North American Commercial Mortgage Servicer Rankings (August 23, 2024), https://dbrs.morningstar.com/research/438283

A description of how Morningstar DBRS analyzes structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/417279 (July 17, 2023)

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.