DBRS Morningstar Confirms Ratings on JPMDB Commercial Mortgage Securities Trust 2017-C7

DBRS, Inc. (DBRS Morningstar) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2017-C7 issued by JPMDB Commercial Mortgage Securities Trust 2017-C7 as follows:

-- Class A-1 at AAA (sf)
-- 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 (sf)
-- Class X-B at A (sf)
-- Class C at A (low) (sf)
-- Class X-D at BBB (sf)
-- Class D at BBB (low) (sf)
-- Class E-RR at BB (low) (sf)
-- Class F-RR at B (low) (sf)

DBRS Morningstar also removed the ratings on Classes E-RR and F-RR from Under Review with Negative Implications, where they were placed on August 6, 2020. The trends on Classes E-RR and F-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 41 loans with an original trust balance of $1.11 billion. As of the December 2020 remittance report, 40 loans remain in the transaction with a current trust balance of $1.08 billion, representing a collateral reduction of approximately 2.3% since issuance. Three loans, representing 6.4% of the pool, are in special servicing. The largest loan in special servicing is the Sheraton DFW (Prospectus ID#14, 3.0% of the pool), which transferred to special servicing in July 2020 for payment default after the loan became 60 days delinquent. The loan is backed by the borrower’s fee interest in a 302-key full-service hotel adjacent to the Dallas/Fort Worth International Airport. According to the servicer, the borrower and special servicer are in active discussions for a forbearance or modification. DBRS Morningstar’s concerns are also heightened because the transaction’s performance had been trending downward prior to the coronavirus pandemic with the YE2019 net cash flow (NCF) 30% below the issuance figure. 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 penetration rates of less than 100% for the average daily rate and revenue per available room. The second-largest specially serviced loan, Lightstone Portfolio (Prospectus ID#19, 2.3% of the pool), transferred to special servicing in May 2020 for payment default. The collateral comprises a portfolio of seven select- and limited-service hotels across Louisiana, Arkansas, and Florida. The YE2019 NCF was down 26% across the portfolio. The loan remained delinquent as of the December 2020 remittance as modification discussions were in progress.

Nine loans, representing 18.4% of the pool, are on the servicer’s watchlist as of the December 2020 remittance. The largest loan on the servicer’s watchlist is the AHIP Northeast Portfolio I (Prospectus ID#5, 5.1% of the pool), which is secured by a portfolio of five hotel properties located across Maryland, New Jersey, and Pennsylvania. The combined NCF for the portfolio has been declining since 2017, with the 2019 NCF reported at 29% lower than the issuance level. The loan received pandemic-related relief in June 2020, deferring the collection of furniture, fixtures, and equipment reserves as well as applying existing reserve balance to cover interest shortfalls between June and August 2020.

While not on the servicer’s watchlist, DBRS Morningstar remains concerned about the pool’s second-largest loan, Station Place III (Prospectus ID#3, 5.9% of the pool). This loan is secured by the borrower’s fee interest in a 517,653-square-foot Class A office building located in Washington, D.C.,’s central business district. It will face rollover concerns when the lease of the property’s largest tenant, the Securities and Exchange Commission (SEC), expires in September 2023. The tenant, which represents 40.5% of the building’s net rentable area, is expected to vacate upon its lease expiration after the Congressional Committee approved the SEC's search for a new headquarters. The General Services Administration tenant originally had a lease expiration of 2021 and renewed for an additional two years to allow additional time to search for a new headquarters. Mitigating this concern is the property’s location, which is adjacent to Union Station and a few blocks north of the United States Capitol. As of September 2020 the property was 100% occupied while the loan was covered with a debt service coverage ratio of 3.05 times.

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, X-B, and X-D 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#14 – Sheraton DFW (3.0% 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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