DBRS Finalizes Provisional Ratings on J.P. Morgan Chase Commercial Mortgage Securities Trust 2017-FL11

DBRS, Inc. (DBRS) finalized its provisional ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2017-FL11 (the Pooled Certificates) to be issued by J.P. Morgan Chase Commercial Mortgage Securities Trust 2017-FL11:

-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (sf)
-- Class D at BBB (high) (sf)
-- Class E at BB (low) (sf)

All trends are Stable.

All classes have been privately placed.

The collateral consists of seven floating-rate mortgages secured by 20 commercial properties with a total mortgage loan amount of $519.1 million, which are broken up into two collateral groups: Collateral Group A consists of six loans secured by 19 commercial properties with a collective mortgage balance of $496.6 million, and Collateral Group B represents a $22.5 million junior companion loan secured by the Park Hyatt Beaver Creek. The pooled certificates in this transaction (Classes A, B, C, D, E, F, X-CP, X-EXT and VRR Interest) are backed by Collateral Group A, while the non-pooled certificates (Classes BC and BC-RR Interest) are backed by Collateral Group B. The DBRS analysis of this transaction incorporates only Collateral Group A, and the loan number, balances and metrics within this report only reflect this collateral group. The non-pooled certificates are not rated by DBRS. The transaction is a sequential-pay pass-through structure.

The floating-rate mortgages were analyzed to determine the provisional ratings, reflecting the long-term probability of loan default within the term and its liquidity at maturity. Because of the floating-rate nature of the loans, the index (one-month LIBOR) was modeled at the lower of a DBRS stressed rate that corresponded to the remaining fully extended term of the loans or the strike price of the interest rate cap, with the respective contractual loan spread added to determine a stressed interest rate over the loan term. When the cut-off loan balances were measured against the DBRS Stabilized net cash flow (NCF) and their respective stressed constants, no one loan 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 one loan, representing 18.9% of the pool, having refinance DSCRs below 1.00x.

The second-largest loan in the pool – Cooper Hotel Portfolio – representing 22.2% of the pool balance, exhibits credit characteristics consistent with an investment-grade shadow rating of BBB (low). Overall, the pool exhibits a very strong DBRS weighted-average (WA) Term DSCR of 2.39x, which indicates low term default risk. All loans have a DBRS Term DSCR in excess of 1.50x, and four loans, representing 71.6% of the balance, have DBRS Term DSCRs in excess of 2.00x. Even when excluding the Cooper Hotel Portfolio, the pool still exhibits a robust DBRS Term DSCR of 2.26x. All loans are secured by properties located in core suburban markets; no one loan is located in a tertiary/rural market. DBRS identified the largest loan, representing 22.2% of the pool, as having Strong sponsor strength.

The pool is concentrated by property type, as three loans, representing 56.9% of the pool, are secured by full-service hotel properties, and three loans, representing 43.1% of the pool, are secured by office properties. Despite the concentration, the hotel and office loans exhibit very robust credit metrics with a DBRS Term DSCR of 2.79x and 1.85x, respectively. All loans have a floating-rate interests and are interest only during the original two-year initial term, creating interest rate risk. All sponsors have purchased an interest rate cap to protect against a rise in interest rates over the loan term. Given that the majority of the loans have a relatively low LIBOR cap at 3.0%, the DBRS stressed interest rate for all loans is at least 120 basis points higher than the assumed interest rate. Additionally, all loans are short-term loans and have three one-year extension options. In order to qualify for the extension options, all loans except for the Eagle Hotel Portfolio must meet minimum Debt Yield requirements for the second and third option periods for the senior mortgage loan in addition to all requirements in the mezzanine agreements.

The DBRS sample included all six loans in the pool. Site inspections were performed on 12 of the 19 properties in the portfolio (82.7% 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 82.7% of the pool. A cash flow review as well as a cash flow stability and structural review were completed on all loans, and the DBRS sample had an average NCF variance of -13.2%, and ranges from -23.3% to -4.6%.

All ratings will be subject to ongoing surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed or discontinued by DBRS.

For more information on this transaction and supporting data, please log into viewpoint.dbrs.com. DBRS will continue to monitor this transaction with periodic updates provided in the DBRS 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 North American Single-Asset/Single-Borrower Methodology, which can be found on dbrs.com under Methodologies. For a list of the Structured Finance related methodologies that may be used during the rating process, please see the DBRS Global Structured Finance Related Methodologies document on www.dbrs.com. Please note that not every related methodology listed under a principal Structured Finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

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.