DBRS Confirms Ratings of JPMBB Commercial Mortgage Securities Trust 2015-C32

DBRS Limited (DBRS) has today confirmed the ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2015-C32 issued by JPMBB Commercial Mortgage Securities Trust 2015-C32:

-- 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 A-S 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 B at AA (low) (sf)
-- Class EC at A (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)

All trends are Stable. DBRS does not rate the first loss piece, Class NR. The Class A-S, Class B and Class C certificates may be exchanged for the Class EC certificates (and vice versa).

The rating confirmations reflect the overall performance of the transaction that has remained in line with DBRS’s expectations since issuance in October 2015. The collateral consists of 89 loans secured by 273 properties. As of the September 2016 remittance, the pool has experienced a collateral reduction of 1.1% since issuance as a result of loan amortization with all of the original 89 loans remaining in the pool. The transaction reported a weighted-average (WA) debt service coverage ratio (DSCR) and a WA debt yield of 1.38 times (x) and 9.1%, respectively, with 96.3% of the current pool reporting partial-year 2016 financials. At issuance, the pool reported a WA DSCR and debt yield of 1.31x and 8.3%, respectively. At issuance, DBRS shadow-rated the U-Haul Portfolio loan (Prospectus ID#5, 4.1% of the current pool balance) as investment grade. DBRS has today confirmed that the performance of the loan remains consistent with investment-grade loan characteristics.

As of the September 2016 remittance, there are no loans in special servicing and two loans on the servicer’s watchlist, representing 2.2% of the current pool balance. One loan, Prospectus ID#19 – Residence Inn – Clifton Park, was flagged for a low Q2 2016 DSCR, as a result of volatile cash flows driven by seasonality spikes. The second loan, Prospectus ID#40 – Hawthorne Townhomes – was flagged for deferred maintenance. Two loans in the top 15 are discussed below.

The Palmer House Retail Shops loan (Prospectus ID#3, 5.5% of the current pool balance) is secured by a 135,000 square foot (sf) mixed-use retail and office property in downtown Chicago. The collateral comprises the retail, parking lot and a portion of office space within the Palmer House Hotel. The sponsor, Thor Equities LLC, is also the owner and operator of the hotel and spent $170 million renovating the hotel, of which $35.7 million was allocated to the collateral since acquiring the property in 2005. Occupancy at the property has been consistent with issuance, reported at 94.3% as of the June 2016 rent roll. The second largest tenant, A’Gaci, occupies 13.9% of the net rentable area (NRA) and exercised its early termination option in 2016; however, the tenant rescinded and amended its lease to a month-to-month term, paying only percentage rent of 9.0% of its gross revenue. The tenant originally paid a rental rate of $63.51 per square foot (psf) prior to its lease amendment. Overall, the property reported an average rental rate of $36.43 psf and vacancy rate of 5.7%, which is in-line with retail properties located within a 0.2-mile radius from the subject. According to CoStar, the five-year average rental rate was $31.04 triple net, with the current vacancy rate and availability rate at 10.6% and 13.8%, respectively. The servicer advised that a cash flow sweep was triggered when A’Gaci failed to renew its lease 18 months prior to its lease expiration and the current balance of the reserve is approximately $467,000 as of the September 2016 reserve report. In addition, at closing, $430,000 was funded into a tenant improvement/leasing commission reserve, of which $280,000 or $15 psf, is available for A’Gaci’s space. According to Q1 2016 financials, the DSCR was 1.33x, which is above the DBRS underwritten DSCR of 1.16x. DBRS does not anticipate the borrower will have difficulties leasing up A’Gaci’s space and with the additional benefit of the cash management account and A’Gaci’s reserve, DBRS expects the subject’s performance to remain stable.

The Gateway Business Park loan (Prospectus ID#4, 4.9% of the current pool balance) is secured by two Class B office complexes with a combined 514,000 sf of space, located in Mount Laurel, New Jersey. As of the June 2016 rent roll, the property was 81.7% occupied, similar to the in-place occupancy at issuance. The second largest tenant, Jacob’s Engineer Group Inc. (Jacob’s), formerly occupied 40,115 sf of space (7.8% of NRA) but reduced its footprint to 25,629 sf (5.0% of NRA) at a reduced rental rate of $12.50 psf until 2021, compared to its original rental rate of $13.78 psf. According to CoStar, Class B office properties in the North Burlington County submarket reported an average rental rate of $16.27 psf, vacancy rate of 10.7% and availability rate of 16.4%. In comparison, the subject’s average rental rate as of the June 2016 rent roll was $12.25 psf and the expected vacancy rate will rise to 21.1% with the downsizing of Jacob’s space. Although the Q1 2016 DSCR of 1.65x is above the DBRS underwritten DSCR of 1.20x, performance is expected to decline given the increase in vacancy and the reduced rental rate paid by Jacob’s. As such, this loan was modeled with a stressed cash flow.

The ratings assigned to Classes E, F and G differ from the higher rating implied by the quantitative model. DBRS considers these differences to be a material deviation, and, in this case, the sustainability of loan performance trends were not demonstrated and as such, was reflected in the ratings.

For more information on this transaction and supporting data, please login to DBRS CMBS IReports, www.ireports.dbrs.com. DBRS continues to monitor this transaction monthly, with periodic updates provided in the DBRS CMBS IReports platform.

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 methodologies are North American CMBS Rating Methodology (March 2016) and CMBS North American Surveillance (October 2016), which can be found on our website under Methodologies.