DBRS Morningstar Downgrades Three Classes of JP Morgan Chase Commercial Mortgage Securities Trust 2011-C5, Removes Five Ratings from UR-Neg

DBRS Limited (DBRS Morningstar) downgraded the ratings on three classes of Commercial Mortgage Pass-Through Certificates, Series 2011-C5 issued by JP Morgan Chase Commercial Mortgage Securities Trust 2011-C5 as follows:

-- Class D to BB (sf) from BBB (low) (sf)
-- Class E to B (sf) from BB (sf)
-- Class F to B (low) (sf) from B (sf)

In addition, DBRS Morningstar confirmed the ratings on the remaining classes as follows:

-- Class A-3 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at AA (low) (sf)
-- Class X-B at B (low) (sf)
-- Class G at CCC (sf)

The trends on Classes D, E, F, and X-B are Negative while Class G does not carry a trend. All other trends are Stable. DBRS Morningstar also removed the ratings on Classes D, E, F, G, and X-B from Under Review with Negative Implications, where they were placed on August 6, 2020.

The rating downgrades and Negative trends reflect DBRS Morningstar’s concerns about the ongoing performance challenges facing the underlying collateral caused by the Coronavirus Disease (COVID-19) global pandemic, particularly the largest loans in special servicing. In addition to the loans in special servicing as of the November 2020 remittance, representing 24.0% of the pool balance, DBRS Morningstar also notes the pool’s concentration in retail and hospitality properties, representing 53.4% and 34.8% of the pool balance, respectively. Because the coronavirus pandemic has affected both property types most severely, these concentrations indicate increased risks for the pool.

As of the November 2020 remittance, 14 of the original 44 loans remain in the pool, representing a collateral reduction of 63.9% since issuance. Two loans, representing 24.0% of the pool balance, are in special servicing, both of which are in the top 10. The largest specially serviced loan, Asheville Mall (Prospectus ID#3; 16.7% of the pool balance), is secured by a regional mall in Asheville, North Carolina. CBL Properties (CBL) owns the property, which is the only regional mall within a 60-mile radius of Asheville; the property’s main competition stems from two power centers and a lifestyle center. The loan transferred to special servicing at CBL’s request, citing coronavirus-driven performance declines as the reason for the requested relief. The loan is more than 60 days delinquent with the November 2020 remittance report, but the servicer reports that discussions with CBL are ongoing.

The subject property reported a March 2020 occupancy rate of 96.3%, in line with the YE2019 and YE2018 occupancy rates of 96.0% and 97.0%, respectively. At issuance, the mall was anchored by non-collateral tenants in Belk, Dillard’s, Sears, and JCPenney; however, Sears vacated in 2018. The largest collateral tenants include Barnes & Noble, Old Navy, and Gap. Prior to the coronavirus pandemic, the subject reported YE2019 and YE2018 debt service coverage ratios (DSCR) of 1.30 times (x) and 1.52x, respectively. In addition to the declining cash flows in recent years, there are additional challenges surrounding the redevelopment of Sears’ previous space and the sponsor’s recent filing for Chapter 11 bankruptcy protection. DBRS Morningstar has not received an updated appraisal to date, but the property’s as-is value has likely declined significantly from the issuance figure of $123.0 million. Given these increased risks since issuance, the loan’s delinquency status, and concerns with existing tenants such as JCPenney, the loan was liquidated in DBRS Morningstar’s analysis for this loan with an implied loss severity exceeding 35.0%.

The second-largest specially serviced loan, LaSalle Select Portfolio (Prospectus ID#9; 7.4% of the pool balance), was originally secured by a portfolio of four suburban office buildings in the Norcross/Peachtree Corners submarket northeast of Atlanta. The loan transferred to special servicing in December 2017 for imminent default and has been real estate owned since August 2018. The special servicer liquidated one of the four properties in August 2019. As of December 2019 appraisals, the combined value for the remaining properties in the portfolio was $31.4 million, a 21.7% decline from the issuance appraised value of approximately $40.1 million and below the trust exposure of approximately $27.3 million. In addition, DBRS Morningstar believes it is likely that the properties’ as-is values have declined since the 2019 appraisal date, given the increased economic stress driven by the coronavirus pandemic in 2020. Based on these factors, DBRS Morningstar assumed a significant haircut to the 2019 appraisal values in its analysis for this loan with a liquidation scenario implying a loss severity exceeding 65.0%.

According to the November 2020 remittance, three loans are on the servicer’s watchlist, representing 38.3% of the pool balance. The largest loan in the pool, InterContinental Hotel Chicago (Prospectus ID#1; 34.8% of the pool balance), has been on and off the watchlist several times since issuance because of cash flow declines and an in-place DSCR of less than 1.20x. Most recently, the loan reported a YE2019 DSCR of 1.17x and a trailing 12-month period ended June 30, 2020, DSCR of -0.12x. The servicer also reported that the borrower submitted, but later withdrew, a coronavirus relief request. Given the increased risks since issuance and cash flows that were below issuance expectations for much of the loan’s life—a situation that the pandemic’s effects have severely exacerbated—DBRS Morningstar analyzed this loan with a liquidation scenario that assumed a significant haircut to the issuance value, resulting in a loss severity exceeding 18.0%.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

DBRS Morningstar materially deviated from its North American CMBS Insight Model when determining the ratings assigned to Classes C and D as the quantitative results suggested a higher rating on Class C and a lower rating on Class D. The material deviations are warranted given the uncertain loan-level event risk with the loans in special servicing and on the servicer’s watchlist, in addition to the increased concentration of the pool in terms of the number of loans remaining.

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#3 – Asheville Mall (16.7% of the pool)
-- Prospectus ID#9 – LaSalle Select Portfolio (7.4% of the pool)

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes loan-level 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 North American CMBS Surveillance Methodology (March 6, 2020), which can be found on 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 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.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

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.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

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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