DBRS Assigns Provisional Ratings to J.P. Morgan Chase Commercial Mortgage Securities Trust 2018-WPT

DBRS, Inc. (DBRS) assigned provisional ratings to the following classes of the Commercial Mortgage Pass-Through Certificates, Series 2018-WPT (the Certificates) to be issued by J.P. Morgan Chase Mortgage Securities Trust 2018-WPT:

-- Class A-FL at AAA (sf)
-- Class B-FL at AA (low) (sf)
-- Class C-FL at A (low) (sf)
-- Class X-FL at BBB (high) (sf)
-- Class D-FL at BBB (sf)
-- Class E-FL at BBB (low) (sf)
-- Class F-FL at BB (low) (sf)
-- Class G-FL at B (low) (sf)
-- Class A-FX at AAA (sf)
-- Class XA-FX at AAA (sf)
-- Class B-FX at AA (low) (sf)
-- Class C-FX at A (low) (sf)
-- Class XB-FX at BBB (high) (sf)
-- Class D-FX at BBB (sf)
-- Class E-FX at BBB (low) (sf)
-- Class F-FX at BB (low) (sf)
-- Class G-FX at B (low) (sf)

All trends are Stable.

The Class X-FL, Class XA-FX and Class XB-FX balances are notional. Class X-FL will be equal to the Class D-FL certificate. Class XA-FX will be equal to the Class A-FX certificate. Class X-B-FX will be equal to the Class B-FX, Class C-FX and Class D-FX certificates.

The subject loan is secured by the fee and leasehold interests in a portfolio of 147 properties, comprising nearly 9.9 million square feet (sf) of office and flex space, located in four different states across the United States. Of the 147 properties, 88 assets are office (6.5 million sf; 76.3% of DBRS Base Rent) and 59 assets are flex (3.4 million sf; 23.7% of DBRS Base Rent). The smallest property in the pool, 100 Gibraltar Road (2,800 sf), was identified as a retail property by the appraiser. This property is a freestanding bank branch located in the Philadelphia metropolitan statistical area (MSA) and represents 0.03% of the cut-off date allocated loan amount. For the purposes of this presale, DBRS classified the 100 Gibraltar Road property as an office. Built between 1972 and 2013, the portfolio properties are in markets that have benefited from positive demand drivers and limited new supply of office and flex space. Located across Pennsylvania, Florida, Minnesota and Arizona, the collateral encompasses five distinct MSAs and over 15 submarkets. The largest concentration of portfolio properties is found in the Philadelphia MSA with 69 properties totaling 40.3% of the mortgage balance, followed by the Tampa MSA (34 properties; 16.5% of the loan); the Minneapolis MSA (19 properties; 13.0% of the loan); the Phoenix MSA (14 properties; 12.9% of the loan); and, the Southern Florida MSA (11 properties; 17.3% of the loan). Although none of the subject properties are located in what DBRS would consider urban markets, the assets are generally located within dense suburban markets that benefit from favorable accessibility and close proximity to their respective central business districts.

As of June 1, 2018, the portfolio reported occupancy of 88.6%, which equates to roughly 8.8 million sf of the total 9.9 million sf. Average occupancy remained favorable throughout the economic downturn, ranging from 88.5% to 91.6% between 2008 and 2010. Since 2005, the portfolio has averaged 90.4% and has remained at or above 88.5% during this same time period. Much of the portfolio’s stable performance is attributable to its highly granular rent roll with more than 500 tenants, none of which accounts for more than 4.2% of the total net rentable area (NRA). The portfolio’s top five tenants, representing a combined 13.4% of the NRA and 13.3% of the DBRS Base Rent, include many large corporations such as United Healthcare Services, Inc. (419,543 sf); Aetna Life Insurance Company (323,943 sf); Siemens Medical Solutions USA, Inc. (241,297 sf); Kroll Ontrack, LLC (195,879 sf); and Dell Marketing L.P. (141,290 sf). Eleven of the top 20 tenants have investment-grade credit ratings, and account for 17.7% of the NRA. In all, investment-grade tenants lease 2.9 million sf (29.7% of the NRA) across the entire portfolio and generate 30.8% of the DBRS Base Rent. Seven of the investment-grade tenants that occupy 261,963 sf and account for 2.9% of the DBRS Base Rent are considered long-term credit tenants by DBRS.

The loan is sponsored by Workspace Property Trust, L.P., a privately held, full-service commercial real estate company specializing in the acquisition, development, management and operation of office and flex properties. Led by a management team with over 75 years of combined real estate experience, the company acquired 39 of the assets in January 2016 and the remaining 108 assets in October 2016. Prior to the acquisitions, the subject properties were owned by Liberty Property Trust. A portion of the portfolio was previously securitized in the JPMCC 2016-WPT transaction.

Total loan proceeds of $1.275 billion ($129 psf) were used to pay off $827.5 million ($84 psf) of existing debt and an existing credit line totaling $227.6 million ($23 psf); redeem a preferred equity interest held by Square Mile Capital Management LLC; fund upfront reserves of approximately $32.9 million; pay initial public offering–related expenses, deferred LP distribution and asset management fees; and cover closing costs. Upfront reserves included $13.3 million for outstanding tenant improvements and leasing commissions, $11.8 million for upfront tax reserves, $3.5 million for free rent reserves and $3.2 million for an upfront TI/LC reserve, as well as deferred maintenance, insurance, environmental and replacement reserves. The mortgage loan is split into (1) a floating-rate component of approximately $255.0 million, with a two-year initial term and three one-year extension options and (2) a five-year fixed-rate loan totaling $1.02 billion, comprising the $850.0 million trust balance and three companion loans totaling $170.0 million that will be included in future securitizations. The original loan totaled $1.28 billion; however, in July 2018, the sponsorship group made a voluntary prepayment of $5.0 million to the original $260.0 million floating-rate loan, bringing the total mortgage down to $1.275 billion. All calculations and loan metrics are based on the $1.275 billion cut-off date balance. CBRE, Inc. has determined the as-is value of the portfolio to be $1.634 billion ($165 psf), based on a direct capitalization method using a weighted average cap rate of 7.5%. The DBRS value is substantially lower at $1.119 billion ($113 psf) and was calculated by applying a WA cap rate of 9.25% to the DBRS net cash flow, resulting in a DBRS loan-to-value of 114.0%, which is indicative of high-leverage financing. However, the DBRS cap rate represents a significant stress over current prevailing market cap rates.

Classes X-FL, XA-FX and XB-FX are interest-only (IO) certificates that reference a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation tranche adjusted upward by one notch if senior in the waterfall.

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 www.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 for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrs.com.

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