DBRS Finalizes Provisional Ratings on JPMCC Commercial Mortgage Securities Trust 2015-JP1

DBRS, Inc. (DBRS) has today finalized its provisional ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2015-JP1 (the Certificates) issued by JPMCC Commercial Mortgage Securities Trust 2015-JP1. The trends are Stable.

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)
-- Class X-C at AAA (sf)
-- Class X-D at AAA (sf)
-- Class X-E at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class D at BBB (high) (sf)
-- Class E at BBB (sf)
-- Class F at BB (high) (sf)
-- Class G at BB (low) (sf)

Classes X-E, E, F, G and NR have been privately placed.

The X-A, X-B, X-C, X-D and X-E balances are notional. DBRS ratings on interest-only (IO) certificates address the likelihood of receiving interest based on the notional amount outstanding. DBRS considers the IO certificates’ position within the transaction payment waterfall when determining the appropriate rating.

The collateral consists of 51 fixed-rate loans secured by 58 commercial and multifamily properties, comprising a total transaction balance of $799,219,441. The conduit pool was analyzed to determine the provisional ratings, reflecting the long-term probability of loan default within the loan term and its liquidity at maturity. When the cut-off loan balances were measured against the DBRS Stabilized net cash flow (NCF) and their respective actual constants, there were five loans, representing 5.7% of the pool, with a DBRS Term debt service coverage ratio (DSCR) below 1.15 times (x), a threshold indicative of a higher likelihood of mid-term default. Additionally, to assess refinance risk given the current low interest rate environment, DBRS applied its refinance constants to the balloon amounts. This resulted in 30 loans, representing 70.9% of the pool, having DBRS Refinance (Refi) DSCRs below 1.00x; however, the DBRS Refi DSCR for these loans are based on a weighted-average (WA) stress refinance constant of 9.73%, which implies an interest rate of 9.17%, amortizing on a 30-year schedule. This represents a significant stress of 4.2% over the WA contractual interest rate of loans in the pool. Of these loans with DBRS Refi DSCRs below 1.00x, 94.8% are located in urban or suburban markets.

Fourteen loans, comprising 38.9% of the pool, are located in urban markets, which generally benefit from consistent investor demand even in times of stress. Additionally, only seven loans, representing 7.7% of the transaction balance, are located in tertiary and/or rural markets. This transaction also has a minimal single-tenant concentration with only five loans and two individual properties secured by two distinct multi-property portfolios, representing 8.0% of the pool balance, secured by properties that are either fully or primarily leased to a single tenant. Loans secured by properties occupied by single tenants have been found to suffer from higher loss severities in the event of default. As such, DBRS modeled single-tenant properties with a higher probability of default (POD) and cash flow volatility compared with multi-tenant properties.

Ten loans, representing 20.5% of the pool are secured by limited- and full-service hotels, including The 9 as one of the three collateral components securing the loan consists of a 156-key full-service hotel. Hotels generally have the highest cash flow volatility for all major property types as their income is derived from daily contracts rather than multi-year leases and their expenses, which are mostly fixed, are quite high as a percentage of revenue. These two factors cause revenue to fall swiftly during a downturn and cash flow to fall even faster because of the high operating leverage. Six loans, representing 30.9% of the pool, are structured with full IO payments for the full loan term, including three of the top loans and the largest loan in the pool, 32 Avenue of the Americas (12.5% of the pool). An additional 21 loans, representing 36.3% of the pool, have partial IO periods ranging from 12 months to 60 months. One loan, representing 1.0% of the pool, provides for monthly payments of IO for the first five years of the loan term, followed by a 30-year amortization schedule with an ARD in the tenth year. The DBRS Term DSCR is calculated by using the amortizing debt service obligation and the DBRS Refi DSCR is calculated considering the balloon balance and lack of amortization when determining refinance risk. DBRS determines POD based on the lower of Term or Refi DSCR, so loans that lack amortization will be treated more punitively.

The DBRS sample included 29 of the 51 loans in the pool. For modeling purposes, DBRS treated the three Franklin Ridge office properties as one portfolio as the three mortgage loans secured by those properties are cross-collateralized and cross-defaulted. Site inspections were performed on 33 of the 58 properties in the pool (75.7% of the pool by allocated loan balance). DBRS conducted meetings with the on-site property manager, leasing agent or a representative of the borrowing entity for 67.1% of the pool. The DBRS sample had an average NCF variance of -12.0% and ranged from -31.9% to -3.3%. DBRS identified six loans, representing 8.2% of the pool, with unfavorable sponsor strength, including three of the top 15 loans. DBRS increased the POD for the loans with identified sponsorship concerns.

The ratings assigned to the Certificates by DBRS are based exclusively on the credit provided by the transaction structure and underlying trust assets. All classes will be subject to ongoing surveillance, which could result in upgrades or downgrades by DBRS after the date of issuance.

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

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

The applicable methodology is North American CMBS Rating Methodology, which can be found on our website under Methodologies.

With regard to due diligence services, DBRS was provided with the Form ABS Due Diligence-15E (Form 15-E) which contains the description of the information that the third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While DBRS did not rely on the due diligence services outlined in Form 15-E, DBRS did use the Data File outlined in the Independent Accountant’s Report in its analysis to determine the ratings.

The full report providing additional analytical detail is available by clicking on the link below or by contacting us at info@dbrs.com.