DBRS Finalizes Provisional Ratings on JPMCC Commercial Mortgage Securities Trust 2017-JP6

DBRS, Inc. (DBRS) has today finalized the provisional ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2017-JP6 (the Certificates) issued by the JPMCC Commercial Mortgage Securities Trust 2017-JP6:

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

All trends are Stable.

Classes D, E-RR, F-RR, G-RR and NR-RR have been privately placed. The Class X-A and X-B balances are notional.

The collateral consists of 42 fixed-rate loans secured by 72 commercial and multifamily properties. The transaction is a sequential-pay, pass-through structure. The conduit pool was analyzed to determine the ratings, reflecting the long-term probability of loan default within the 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, two loans, representing 6.8% of the total pool, had 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 15 loans, representing 50.8% of the pool, having refinance DSCRs below 1.00x.

Term default risk is low, as indicated by a relatively strong DBRS Term DSCR of 1.63x. In addition, 20 loans, representing 57.0% of the pool, have DBRS Term DSCRs in excess of 1.50x, including eight of the top 15 loans. Even with the exclusion of 211 Main Street, which represents 8.3% of the pool with a DBRS Term DSCR of 2.21x, the deal continues to exhibit a moderate DBRS Term DSCR of 1.58x. The two largest loans, 245 Park Avenue and 211 Main Street, which comprise 25.4% of the DBRS sample, have Strong sponsorship. Furthermore, DBRS only identified two loans, which combined represent just 2.5% of the DBRS sample, that have sponsorship and/or loan collateral associated with a voluntary bankruptcy filing, a prior DPO, a loan default, limited net worth and/or liquidity, a historical negative credit event and/or inadequate commercial real estate experience. Four loans, representing 28.4% of the pool, are located in urban markets with increased liquidity that benefit from consistent investor demand, even in times of stress. Of these, three loans, totaling 25.8% of the transaction balance, are considered to be located in Super Dense Urban markets, which DBRS defines as gateway locations with extremely high liquidity and low cap rates. Urban markets represented in the deal include New York, San Francisco and Sunnyvale, California. Only four loans, comprising 5.7% of the pool, are secured by collateral located in tertiary markets, and no properties are located in rural markets.

The transaction’s weighted-average DBRS Refi DSCR is 1.01x, indicating higher refinance risk on an overall pool level, and the transaction has a high concentration of loans suffering from elevated refinance risk. Fifteen loans, representing 50.8% of the pool, have DBRS Refi DSCRs less than 1.00x. Eight loans, representing 35.9% of the pool, have a DBRS Refi DSCR less than 0.90x. The pool has a high concentration of properties that are secured by office assets, with office assets representing 52.7% of the pool. Furthermore, the transaction has a moderate concentration of loans (23.4% of the pool) that are secured by assets either fully or primarily used as retail. The retail sector has generally underperformed since the Great Recession because of declining consumer spending power, store closures, chain bankruptcies and the rapidly growing popularity of e-commerce. According to the U.S. Census Bureau, e-commerce sales represented 7.0% of total retail sales in 2015 compared with 3.9% in 2009. As the e-commerce share of sales is expected to continue to grow significantly in the coming years, the retail real estate sector may continue to be relatively weak. Six loans, representing 23.2% of the pool, are secured by properties that are either fully or primarily leased to a single tenant, and four of these loans are in the top 15. 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 assumed a higher loss profile for the loans secured by single-tenant assets than it did for the loans secured by multi-tenant assets.

The DBRS sample included 27 of the 42 loans in the pool. Site inspections were performed on 38 of the 72 properties in the portfolio (75.5% of the pool by allocated loan balance). The DBRS sample had an average NCF variance of -10.2% from the Issuer’s NCF and ranged from -26.1% (Diamond Hill Apartments) to +1.7% (211 Main Street).

The rating assigned to Class G-RR differs from the higher rating implied by the Large Pool Multi-borrower Parameters. DBRS considers this difference to be a material deviation from the methodology and, in this case, the ratings reflect the dispersion of loan-level cash flows expected to occur post-issuance.

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.

The principal methodologies are North American CMBS Multi-borrower Rating Methodology, Rating North American CMBS Interest-Only Certificates and DBRS Commercial Real Estate Property Analysis Criteria, which can be found on dbrs.com under Methodologies.

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

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.