DBRS Finalizes Provisional Ratings on DBJPM 2016-C1 Mortgage Trust

DBRS, Inc. (DBRS) has today finalized provisional ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2016-C1 (the Certificates) issued by DBJPM 2016-C1 Mortgage Trust. All trends are Stable.

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

Classes A-3B, X-B, X-C, X-D, X-E, X-F, D, E, F, G and H have been privately placed.

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

The collateral consists of 33 fixed-rate loans secured by 45 commercial and multifamily properties, comprising a total transaction balance of $818,034,830. The pool exhibits a relatively strong DBRS weighted-average (WA) term debt service coverage ratio (DSCR) of 1.66 times (x) based on the whole-loan balances, indicating moderate term-default risk. Six loans, comprising 30.2% of the pool, are located in urban markets and, overall, 80.0% of the pool’s underlying markets was classified as urban or suburban by DBRS. The DBRS sample included 26 of the 33 loans, comprising 93.0% of the pool. Five of the largest 15 loans, representing 25.3% of the DBRS sample, were deemed to have favorable property quality. Higher-quality assets are more likely to retain and attract tenants/guests, resulting in a more stable performance.

Two of the largest five loans, 787 Seventh Avenue and 225 Liberty Street, exhibit credit characteristics consistent with investment-grade shadow ratings. 787 Seventh Avenue has credit characteristics consistent with an “A” shadow rating and 225 Liberty Street has credit characteristics consistent with an AA (low) shadow rating. Combined, these loans represent 14.7% of the pool.

The pool is concentrated based on loan size, property type and geography. The largest five and ten loans total 35.6% and 56.8% of the pool, respectively, and the pool has a concentration profile equivalent to that of 21 equal-sized loans. Furthermore, 54.6% of the properties are concentrated in just three states: New York, California and Texas. The pool is also highly concentrated by property type, as the retail concentration is 35.6% and the office concentration is 35.5%. DBRS applied a concentration penalty given the pool’s lack of diversity, which increases each loan’s probability of default (POD). Twenty properties across 18 loans, comprising 21.2% of the pool, are secured by hotels, including three of the top ten largest loans in the pool. Hotels have the highest cash flow volatility of all major property types as their income, which is derived from daily contracts rather than multi-year leases, and their expenses, which are often mostly fixed, are a high percentage of revenue. The loans in the pool secured by hotel properties have WA DBRS Going-In and Exit Debt Yields of 10.6% and 12.3%, respectively, which compare quite favorably with the WA DBRS Going-In and Exit Debt Yields of 8.6% and 9.5%, respectively, for the non-hotel properties in the pool, which partially mitigates concerns associated with the increased cash flow volatility risk for this property type. Additionally, 69.1% of the hotel concentration is considered to be of Excellent or Above Average property quality by DBRS. Lastly, seven loans, representing 15.0% of the pool, have unfavorable sponsorship. DBRS increased the POD penalty to mitigate risk associated with these sponsorship concerns, which included SLS South Beach and West Valley Corporate Center.

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.