DBRS Morningstar Confirms All Classes of J.P. Morgan Chase Commercial Mortgage Securities Trust 2012-C8

DBRS, Inc (DBRS Morningstar) confirmed the ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2012-C8 issued by J.P. Morgan Chase Commercial Mortgage Trust 2012-C8:

-- Class A-3 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-S at AAA (Sf)
-- Class X-A at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AA (low) (sf)
-- Class EC at AA (low)
-- Class D at A (low) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (sf)
-- Class X-B at B (high) (sf)
-- Class G at B (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction. As of the February 2020 remittance, 30 of the original 43 loans remained in the pool, with collateral reduction of 37.4% since issuance as a result of scheduled loan amortization and loan repayments. To date, there have been no losses incurred to the trust, and as of the February 2020 remittance, no loans were delinquent or in special servicing. The pool benefits from defeasance collateral as two loans, representing 5.3% of the pool, are fully defeased.

Based on the most recent year-end (YE) reporting, the pool had a weighted-average (WA) debt service coverage ratio (DSCR) and WA debt yield of 1.74 times (x) and 11.8%, respectively, compared with the DBRS Morningstar figures derived at issuance of 1.53x and 9.4%, respectively.

As of the February 2020 remittance, there are seven loans on the servicer’s watchlist (22.0% of the pool). Four of these loans (14.8% of the pool) were flagged for performance related reasons, with two top-10 loans (12.1% of the pool) included. Based on the most recent financials, the watchlisted top-10 loans reported a WA DSCR of 0.50x, reflecting a 57.4% net cash flow (NCF) decline from the DBRS Morningstar figures at issuance. As of the February 2020 remittance, both loans remain current.

The Ashford Office Complex (Prospectus ID#5, 7.5% of the pool) is the largest loan on the watchlist, secured by three office buildings in the Energy Corridor of Houston. Occupancy bottomed out at 51.0% in 2018 and remained depressed through 2019. As of YE2019, the loan reported a DSCR of 0.52x, reflecting a 59.9% NCF decline from the DBRS Morningstar figure derived at issuance. While the property recently underwent renovations with high-end finishes installed throughout, leasing demand is expected to remain stunted as office properties within a one-mile radius of the subject reported a vacancy rate of 37.1% as of Q4 2019, according to Reis.

The Crossings (Prospectus ID#9, 4.6% of the pool) is the second-largest loan on the watchlist and is secured by two mid-rise office buildings in Dallas. Occupancy has been on the decline since issuance, when the property was 79.0% occupied, dropping to its lowest rate of 55.0% in 2018. According to the servicer, this property also completed extensive renovations in 2018 and 2019, in an effort to attract new tenants and boost occupancy. As of Q3 2019, the property was 59.0% occupied and the loan reported an annualized amortizing DSCR of 0.47x, reflecting a 53.2% NCF decline from the DBRS Morningstar figure derived at issuance.

Both of the largest watchlisted loans were modeled with a probability of default penalty to increase the expected loss for each in the DBRS Morningstar analysis for this review. Both loans have also been added to the DBRS Morningstar Hotlist, with further information available in the loan commentary on the DBRS Viewpoint platform, for which information has been provided, below.

The largest loan in the pool, Battlefield Mall (Prospectus ID#1, 16.1% of the pool), is secured by a regional mall in Springfield, Missouri, owned and operated by Simon Property Group. The loan is on the DBRS Morningstar Hotlist for the upcoming closure of noncollateral anchor Sears, paired with low sales for both the Macy’s and JCPenney anchors. These issues are particularly concerning given the near-term maturity date in 2022.

Mitigating some of the concern is the recent announcement that H&M will take a 20,000-sf space at the mall, combining several of the mall’s retail spaces into one unit to house the incoming tenant, with an expected opening in the fall of 2020. Despite its location in a secondary market, the subject mall is one of the only regional malls within the southeastern part of the state, pulling shoppers from the surrounding area with its relatively healthy mix of national retailers, including some luxury brands as well. As of Q3 2019, the loan reported an annualized amortizing DSCR of 2.0x, in line with the DBRS Morningstar Term DSCR derived at issuance of 1.96x. Given the increased risks as previously described, a probability of default penalty was applied in the analysis for this review.

DBRS Morningstar also notes the portfolio’s exposure to hotel loans in its top 15, with the Hotel Sorella Citycentre (Prospectus ID #7, 6.2% of the pool) and the Shamin Virginia Portfolio (Prospectus ID #14, 3.0% of the pool) loans, both secured by full-service hotel properties in Houston and Colonial Heights, Virginia (within the Richmond MSA), respectively. Although both loans are performing as expected, with property cash flow slightly improved to significantly improved from the Issuer’s underwritten figures as of the most recent reporting for each, DBRS Morningstar notes the recent impact to the hospitality industry amid the Coronavirus Disease (COVID-19) outbreak, which has significantly reduced both business and leisure travel around the world. Hotels have been immediately affected with devastatingly low occupancy rates reported as of the most recent STR reporting. As such, these and other loans secured by hotel properties are likely to see a significant impact to near and moderate term cash flow. DBRS Morningstar is monitoring closely for developments.

A description of how DBRS Morningstar considers environmental, social, and governance (ESG) risk factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Classes X-A and X-B 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 are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:

-- Prospectus ID#1 – Battlefield Mall (16.1% of the pool)
-- Prospectus ID#5 – Ashford Office Complex (7.5% of the pool)
-- Prospectus ID#9 – The Crossings (4.6% of the pool)

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrs.com. The platform includes issuer and servicer data for most outstanding CMBS transactions (including non-DBRS Morningstar rated), as well as loan-level and transaction-level commentary for most DBRS Morningstar-rated and -monitored transactions.

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

The principal methodology is the North American CMBS Surveillance Methodology, which can be found on www.dbrsmorningstar.com under Methodologies & Criteria. For a list of the structured-finance-related methodologies that may be used during the rating process, please see the DBRS Morningstar Global Structured Finance Related Methodologies document, which can be found on www.dbrsmorningstar.com in the Commentary tab under Regulatory Affairs. 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.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

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

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS Morningstar long-term rating scale definition indicates that ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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