DBRS Assigns Provisional Ratings to JPMCC Commercial Mortgage Securities Trust 2017-JP7

DBRS, Inc. (DBRS) assigned provisional ratings to the following classes of Commercial Mortgage Pass-Through Certificates, Series 2017-JP7 (the Certificates) to be issued by JPMCC Commercial Mortgage Securities Trust 2017-JP7:

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

All trends are Stable.

Classes D, E-RR, F-RR and G-RR will be privately placed. The X-A and X-B balances are notional.

The collateral consists of 37 fixed-rate loans secured by 168 commercial and multifamily properties. The transaction is a sequential-pay pass-through structure. The conduit pool was analyzed to determine the provisional 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 (4.6% of the pool balance) 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 17 loans, representing 54.0% of the pool, having refinance DSCRs below 1.00x and seven loans, representing 38.2% of the pool, having refinance DSCRs below 0.90x.

Four of the top ten loans, representing 27.1% of the pool, have Strong sponsorship. Furthermore, DBRS identified only five loans, which combined represent just 8.1% of the pool, that have sponsorship and/or loan collateral associated with a voluntary bankruptcy filing, a prior discounted payoff, a loan default, limited net worth and/or liquidity, a historical negative credit event and/or an inadequate commercial real estate experience. Two of the top ten loans, Gateway Net Lease Portfolio and West Town Mall, representing 12.3% of the pool, exhibit credit characteristics consistent with investment-grade shadow ratings. The Gateway Net Lease Portfolio received a BBB (high) shadow rating, while West Town Mall was shadow rated A (low). Term default risk is low, as indicated by a strong weighted-average (WA) DBRS Term DSCR of 1.77x. In addition, 16 loans, representing 62.6% of the pool, have a DBRS Term DSCR in excess of 1.50x, including nine of the top 15 loans. Only three loans, totaling 10.6% of the transaction balance, are secured by properties that are fully leased to a single tenant. The vast majority of this concentration, or 81.4%, is attributed to two loans in the top ten, 211 Main Street and Torre Plaza, which are fully occupied by investment-grade-rated tenants that have substantial capital invested into the buildings. The 211 Main Street property is fully leased to Charles Schwab & Co., while Torre Plaza is occupied by Amazon.

The pool is concentrated based on loan size, with a concentration profile equivalent to that of a pool of 21 equal-sized loans. The largest five and ten loans total 40.7% and 59.5% of the pool, respectively. As a result, a concentration penalty was applied given the pool’s lack of diversity, which increases each loan’s POD. The transaction’s WA DBRS Refinance (Refi) DSCR is 0.98x, indicating higher refinance risk on an overall pool level. Seventeen loans, representing 54.0% of the pool, have DBRS Refi DSCRs below 1.00x, including seven of the top 15 loans. Additionally, seven of these loans, comprising 38.2% of the pool, have DBRS Refi DSCRs less than 0.90x, including six of the top ten loans. The DBRS Refi DSCRs for these loans are based on a WA stressed refinance constant of 9.81%, which implies an interest rate of 9.18% amortizing on a 30-year schedule. This represents a significant stress of 4.76% over the WA contractual interest rate of the loans in the pool. The pool’s interest-only (IO) concentration is elevated at 81.2%. Eight loans, representing 50.2% of the pool, including seven top ten loans, are structured with full-term IO payments. An additional 19 loans, comprising 31.0% of the pool, have partial IO periods ranging from 12 months to 60 months. As a result, the transaction’s scheduled amortization by maturity is only 7.4%, which is generally below other recent conduit securitizations.

The DBRS sample included 25 of the 37 loans in the pool. Site inspections were performed on 58 of the 168 properties in the portfolio (61.6% of the pool by allocated loan balance). The DBRS sample had an average NCF variance of -10.3% and ranged from -20.4% (Courtyard San Antonio Lackland) 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, which could result in upgrades or downgrades by DBRS after the date of issuance.

The rating assigned to Class G-RR materially deviates from the higher rating implied by the quantitative results. DBRS considers a material deviation to be a rating differential of three or more notches between the assigned rating and the rating implied by the quantitative results that is a substantial component of a rating methodology. The deviations are warranted given the expected dispersion of loan level cash flows post issuance.

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

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.

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.

With regard to due diligence services, DBRS was provided with the Form ABS Due Diligence-15E (Form 15-E), which contains a 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.