DBRS Confirms Ratings of J.P. Morgan Chase Commercial Mortgage Securities Trust 2012-HSBC

DBRS Limited (DBRS) has today confirmed the ratings of J.P. Morgan Chase Commercial Mortgage Securities Trust 2012-HSBC, as follows:

-- Class A at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (high) (sf)

All trends are Stable.

The rating confirmations reflect the transaction’s continued stable performance. The collateral consists of a $300 million first mortgage loan secured by a 30-story, 864,000 sf Class A office tower in Midtown Manhattan known as HSBC Tower. The property spans an entire block of Fifth Avenue between 39th and 40th Streets and serves as HSBC’s North American headquarters. HSBC’s rating of AA (low) by DBRS was confirmed in January 2015.

As of YE2014 reporting, the loan reported a debt service coverage ratio (DSCR) of 1.49 times (x), an improvement over the YE2013 figure of 1.24x. The improvement is a result of all rent abatements expiring throughout Q1 2013. Future performance is expected to continue to improve, as a new tenant has signed a lease, bringing the occupancy rate of the property to 98.7%. The new tenant is paying $98.60 per square foot (psf) as it is occupying the upper two floors at the subject.

According to the December 2014 rent roll, HSBC occupies 56.6% of the net rentable area (NRA) and pays a rental rate of $44.88 psf. Following a January 2015 contractual rent bump, its rental rate increased to $50.30 psf. The remaining tenants at the property pay an average of $59.28 psf, which is similar to the submarket rental rate, according to the Q4 2014 REIS report.

The largest tenant, HSBC’s lease expires in April 2020, approximately two years before loan maturity, representing significant refinance risk if the tenant vacates the property. HSBC has two ten-year renewal options at 95% of fair market rent and DBRS expects that HSBC will have a high likelihood of renewal at the property because the space serves as its North American headquarters and the tenant spent $25.4 million in renovations on its space in the three years leading up to the transaction’s issuance.

Along with HSBC, there are three other investment grade-rated tenants in occupancy at the subject. These include Man Group, VTB Capital and Staples. Combined, the four investment-grade-rated tenants account for 72.9% of the NRA and 66.5% of the NRI.

DBRS continues to monitor this transaction in its Monthly CMBS Surveillance Report, with additional information on its viewpoint for this transaction. The April 2015 Monthly CMBS Surveillance Report for this transaction will be published shortly. For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.

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

The applicable methodologies are CMBS North American Surveillance and North American CMBS Rating Methodology, both of which can be found on our website under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.