DBRS Morningstar Confirms Ratings on JPMCC Commercial Mortgage Securities Trust 2017-JP6

DBRS, Inc. (DBRS Morningstar) confirmed the ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2017-JP6 issued by JPMCC Commercial Mortgage Securities Trust 2017-JP6 as follows:

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

DBRS Morningstar also removed the ratings on Classes F-RR and G-RR from Under Review with Negative Implications, where they were placed on August 6, 2020. The trends on Classes F-RR and G-RR are Negative, reflecting the continued performance challenges to the underlying collateral, many of which the Coronavirus Disease (COVID-19) pandemic has driven. The trends on all other classes are Stable.

The rating confirmations reflect the stable performance of the transaction, which has remained in line with DBRS Morningstar’s expectations since issuance. At issuance, the transaction consisted of 48 loans with an original trust balance of $786.2 million. As of the December 2020 remittance report, 38 loans remain in the transaction with a current trust balance of $675.0 million, representing a collateral reduction of approximately 14.2% since issuance. Two loans, representing 4.96% of the pool, are in special servicing. One of these loans is the eighth-largest loan, Marriott Colorado Springs (Prospectus ID#8; 3.6% of the pool), which transferred to special servicing in February 2020 because of nonpermitted equity transfers. The loan is backed by the borrower’s fee interest in a 309-key full-service hotel in Colorado Springs, Colorado. The loan received coronavirus relief in August 2020, allowing the borrower to draw upon existing furniture, fixtures, and equipment (FF&E) reserves to cover debt service shortfalls as well as to defer the collection of monthly FF&E reserves. DBRS Morningstar’s concerns are also heightened because the transaction’s performance had been trending downward prior to the coronavirus pandemic with the year-end 2019 net cash flow 19% below the issuance figure following an $8 million property improvement plan completed in 2018. Furthermore, based on the most recent Smith Travel Research report for the 12-month period ended December 31, 2019 , the property underperformed its competitors, with occupancy, average daily rate, and revenue per available room penetration rates of less than 100% for each of the previous three years. The other specially serviced loan, the 106th South Office Building (Prospectus ID#30; 1.4% of the pool), transferred to special servicing for nonmonetary default. According to the servicer, the loan should return to the master servicer after the defaults are cured.

Eleven loans, representing 21.9% of the pool, are on the servicer’s watchlist as of the December 2020 remittance. The largest loan on the servicer’s watchlist is 740 Madison Ave (Prospectus ID#4; 5.93% of the pool), which is backed by the borrower’s fee interest in a 33,176-square-foot (sf) single-tenant retail property in Manhattan’s Upper East Side neighborhood. The property is 100.0% leased to Bottega Veneta through September 2038. The loan continues to be monitored on the watchlist after the tenant received a 50% rent abatement between May 2020 and August 2020.

While not on the servicer’s watchlist, DBRS Morningstar remains concerned about the pool’s largest loan, 245 Park Avenue (Prospectus ID#1; 14.5% of the pool). The loan, which is backed by a 1.8 million-sf Class A office property in Midtown Manhattan’s Grand Central submarket, will face rollover concerns in 2022 when the lease of the second-largest tenant, Major League Baseball (MLB), expires in October 2022. As noted at issuance, MLB, which represents 12.7% of the building’s net rentable area (NRA), will vacate the property upon its lease expiration. MLB vacated the property in January 2020 and has subleased a majority of its space. In addition, MLB is paying well above market rents at $124.75 per square foot (psf), which will likely have an adverse effect on cash flow as effective rents within the Grand Central submarket were $65.00 psf as of Q3 2020, according to Reis. The property’s largest tenant, JPMorgan Chase Bank, N.A. (rated AA (low) with a Stable trend by DBRS Morningstar), which represents 45.7% of the NRA, also has a lease expiration in October 2022 and has subleased the majority of its space to Société Générale and Houlihan Lokey, Inc. Société Générale has executed a direct 10-year lease totaling 560,000 sf that will commence in 2022. The property will likely face heightened risk in 2022 because of the MLB’s above-market rent coupled with softened office demand in a post-coronavirus environment.

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.

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 loan in the transaction:

-- Prospectus ID#8 – Marriott Colorado Springs (3.6% of the pool)

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.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 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 [email protected].

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