DBRS Finalizes Provisional Ratings on DBJPM 2017-C6 Mortgage Trust

DBRS, Inc. (DBRS) has today finalized its provisional ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2017-C6 (the Certificates) issued by DBJPM 2017-C6 Mortgage Trust:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-M at AAA (sf)
-- Class X-A 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 BBB (sf)
-- Class X-D at BBB (high) (sf)
-- Class E-RR at BB (high) (sf)
-- Class F-RR at BB (low) (sf)

All trends are Stable.

Classes X-B, X-D, D, E-RR and F-RR have been privately placed.

The Class X-A, X-B and X-D 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 41 fixed-rate loans secured by 196 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. Trust assets contributed from two loans, representing 14.6% of the pool, are shadow-rated investment grade by DBRS. Proceeds for the shadow-rated loans are floored at their respective rating within the pool. When the combined 14.6% of the pool has no proceeds assigned below the rating floor, the resulting pool subordination is diluted or reduced below that rated floor. When the cut-off loan balances were measured against the DBRS Stabilized net cash flow (NCF) and their respective actual constants, four loans, representing 6.7% 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 23 loans, representing 67.7% of the pool, having refinance DSCRs below 1.00x, and 16 loans, representing 52.7% of the pool, with refinance DSCRs below 0.90x. These credit metrics are based on whole loan balances.

Eight loans, representing 32.2% of the pool, are located in either urban or super dense urban markets, both of which benefit from consistent investor demand and increased liquidity even in times of stress. Five loans (245 Park Avenue, Olympic Tower, 211 Main Street, 740 Madison and The Tides Building), representing 26.8% of the pool, are located in super dense urban markets, including Manhattan and Santa Monica. Three loans (Wilmont, Union Hotel-Brooklyn and 436 Bryant), representing 5.4% of the pool, are located in urban markets, including Los Angeles, Brooklyn and San Francisco. Additionally, only six loans, representing 9.3% of the pool, are located in tertiary/rural markets. Term default risk is low as indicated by the strong WA DBRS Term DSCR of 1.84x. In addition, 21 loans, representing 66.4% of the pool, have a DBRS Term DSCR in excess of 1.50x, and only four loans, comprising 6.7% of the pool, have a DBRS Term DSCR below 1.15x. Even when excluding the two investment-grade shadow-rated loans (Gateway Net Lease Portfolio and Olympic Tower), the deal exhibits a favorable DBRS Term DSCR of 1.79x. Two of the top five loans (Gateway Net Lease Portfolio and Olympic Tower), representing a combined 14.6% of the pool, exhibit credit characteristics consistent with investment-grade shadow ratings. The Gateway Net Lease Portfolio loan exhibits credit characteristics consistent with a BBB (high) shadow rating, and the Olympic Tower loan exhibits credit characteristics consistent with an A (low) shadow rating. For additional information on these two assets, please refer to pages 22 and 28 of this report, respectively.

The pool is concentrated based on loan size, with a concentration profile equivalent to that of 23 equal-sized loans. The largest five and ten loans total 35.9% and 57.4% of the pool, respectively. A concentration penalty was applied given the pool’s lack of diversity, which increases each loan’s POD. While the transaction is concentrated in the largest ten loans, two of the top five loans (Gateway Net Lease Portfolio and Olympic Tower), comprising 22.9% of the transaction balance, are shadow-rated investment grade by DBRS. Additionally, five of the top ten loans, or 29.3% of the pool, are located in urban or super dense urban markets. Properties located in urban markets benefit from consistent investor demand, even in times of stress. Fourteen loans, representing 59.4% of the pool, including ten of the largest 15 loans, are structured with full-term IO payments. An additional 14 loans, comprising 22.7% of the pool, have partial IO periods ranging from 24 months to 60 months. As a result, the transaction’s scheduled amortization by maturity is only 6.0%, which is generally below other recent conduit securitizations. The DBRS Term DSCR is calculated 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 refinance DSCR; therefore, loans that lack amortization are treated more punitively. Seven of the full-term IO loans, representing 53.2% of the full-IO concentration in the transaction, are located in either urban or super dense urban markets. Additionally, two of these loans (Gateway Net Lease Portfolio and Olympic Tower) are shadow-rated investment grade by DBRS.

The DBRS sample included 24 of the 41 loans in the pool. Site inspections were performed on 74 of the 196 properties in the portfolio (72.4% of the pool by allocated loan balance). The DBRS sample had an average NCF variance of -8.4% from the Issuer’s NCF and ranged from -18.6% (245 Park Avenue) to +1.7% (211 Main Street).

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, that 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 methodology is North American CMBS Multi-borrower Rating Methodology, 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.