DBRS Finalizes Provisional Ratings on JPMDB Commercial Mortgage Securities Trust 2017-C7

DBRS, Inc. (DBRS) finalized its provisional ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2017-C7 (the Certificates) issued by JPMDB Commercial Mortgage Securities Trust 2017-C7:

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

All trends are Stable.

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

The collateral consists of 41 fixed-rate loans secured by 201 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 three loans, representing 15.0% 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 15.0% 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 and their respective actual constants, two loans, representing 3.6% 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 17 loans, representing 47.4% of the pool, having refinance DSCRs below 1.00x and 14 loans, representing 44.3% of the pool, with refinance DSCRs below 0.90x. These credit metrics are based on whole loan balances.

Three of the top ten loans (Moffett Place Building 4, Gateway Net Lease Portfolio and General Motors Building), representing a combined 15.0% of the pool, exhibit credit characteristics consistent with investment-grade shadow ratings. Moffett Place Building 4 exhibits credit characteristics consistent with a A (low) shadow rating, Gateway Net Lease Portfolio loan exhibits credit characteristics consistent with a BBB (high) shadow rating and the General Motors Building loan exhibits credit characteristics consistent with a AAA shadow rating. Nine loans, representing 27.8% of the pool, are located in either urban or super dense urban markets (Chicago, Oakland, Philadelphia, Washington, D.C., Manhattan, San Fransisco and Sunnyvale), all of which benefit from consistent investor demand and increased liquidity even in times of stress. Additionally, only seven loans, representing 6.1% of the pool, are located in tertiary/rural markets. Term default risk is low as indicated by the strong weighted-average (WA) DBRS Term DSCR of 1.86x. In addition, 27 loans, representing 76.9% of the pool, have a DBRS Term DSCR in excess of 1.50x and only two loans, comprising 3.6% of the pool, have a DBRS Term DSCR below 1.15x. Even when excluding the three investment-grade shadow-rated loans (Moffett Place Building 4, Gateway Net Lease Portfolio and General Motors Building), the deal exhibits a favorable DBRS Term DSCR of 1.81x.

The pool is concentrated based on loan size, with a concentration profile equivalent to that of 26 equal-sized loans. The largest five and ten loans total 28.8% and 51.1% of the pool, respectively. A concentration penalty was applied given the pool’s lack of diversity, which increases each loan’s probability of default (POD). While the transaction is concentrated in the largest ten loans, three of the top ten loans (Moffett Place Building 4, Gateway Net Lease Portfolio and General Motors Building), representing a combined 15.0% of the pool, are shadow-rated investment grade by DBRS. Additionally, three of the top ten loans, or 16.7% of the pool, are located in urban or super dense urban markets. Sixteen loans, representing 49.6% of the pool, including nine of the largest 15 loans, are structured with full-term interest-only (IO) payments. An additional ten loans, comprising 26.1% of the pool, have partial IO periods ranging from 24 months to 72 months. As a result, the transaction’s scheduled amortization by maturity is only 7.5%, 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 42.4% 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 General Motors Building) are shadow-rated investment grade by DBRS.

The DBRS sample included 26 of the 41 loans in the pool (85.4% by allocated loan balance). Site inspections were performed on 68 of the 201 properties in the portfolio (60.0% of the pool by allocated loan balance). DBRS conducted meetings with the on-site property manager, leasing agent or a representative of the borrowing entity for 55.4% of the pool.

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

Notes:
All figures are in U.S. dollars unless otherwise noted.

With regard to due diligence services, DBRS was provided with the Form ABS Due Diligence-15E (Form-15E), 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 require due diligence services outlined in Form-15E, DBRS did use the Data File outlined in the Independent Accountant’s Report in its analysis to determine the ratings.

The principal methodology is the North American Multi-borrower CMBS 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.