DBRS Morningstar Confirms All Classes of JPMCC Commercial Mortgage Securities Trust 2016-JP2

DBRS Limited (DBRS Morningstar) confirmed the ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2016-JP2 issued by JPMCC Commercial Mortgage Securities Trust 2016-JP2:

-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class X-C at BBB (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class F at B (low) (sf)

All trends are Stable. In addition, DBRS Morningstar discontinued the rating on Class A-2 as it was paid out as of the December 2020 remittance.

Classes X-C, D, E, and F were removed from Under Review with Negative Implications, where they were placed on August 6, 2020. The rating confirmations reflect the overall stable performance of the transaction since issuance. At issuance, the transaction consisted of 47 fixed-rate loans secured by 78 commercial and multifamily properties at a trust balance of $939.2 million. According to the January 2021 remittance, 45 of the original 47 loans remain in the pool, representing a collateral reduction of 5.5%. The transaction is concentrated by property type as 10 loans, representing 27.7% of the current trust balance, are secured by office collateral while the second largest concentration is represented by 10 loans secured by retail collateral, representing 26.0% of the current trust balance. The transaction benefits from three defeased loans, including the second-largest loan in the pool, which make up 11.0% of the current trust balance. Additionally, there are 21 loans, representing 38.3% of the pool, on the servicer’s watchlist. These loans are being monitored for various reasons including low debt service coverge ratios (DSCR) or occupancy, tenant rollover risk, and/or pandemic-related forbearance requests.

As of the January 2021 remittance, there was one loan, representing 3.3% of the pool, in special servicing. Hagerstown Premium Outlets (Prospectus ID#9, 3.3% of the pool), secured by a 485,000-sf Simon-operated open-air outlet center in Hagerstown, Maryland, transferred to the special servicer in June 2020 for imminent monetary default related to the coronavirus pandemic. Prior to the pandemic, the loan was being monitored as the property’s largest tenant, Wolf’s Furniture (13.8% of the net rentable area (NRA)) vacated in Q1 2020 after its parent company filed for bankruptcy. The property has experienced a precipitous decline in occupancy in recent years, falling to 51.9% as of September 2020 from 78.3% at YE2018. A forbearance has been agreed upon whereby principal payments will be deferred from October through December 2020. The deferred principal shall be repaid no later than March 31, 2021.

The largest loan on the servicer’s watchlist, 693 Fifth Avenue (Prospectus ID#3, 6.9% of the pool), is secured by a mixed-use office and retail property in Midtown Manhattan. The property has been approximately 65% occupied since issuance, with more than 80% of the rental income coming from the property’s sole retail tenant, Valentino (15.1% of NRA, lease expires July 2029). The retailer took legal action in June 2020 against the borrower in order to void its lease ahead of its expiry date, citing business interruption as a result of the coronavirus pandemic. The most recent correspondence with the servicer notes that the retailer was in arrears for its May 2020 and June 2020 rental payments. Given the risks surrounding these properties, both loans were analyzed with elevated probabilities of default for this review.

At issuance, DBRS Morningstar shadow-rated one loan, The Shops at Crystals (Prospectus ID#6, 5.6% of the pool), as investment grade. This assessment was supported by the loan’s above-average property quality and strong sponsorship. With this review, DBRS Morningstar confirms that the characteristics of these loans remain consistent with the investment-grade shadow rating.

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.

Classes X-A, X-B, and X-C 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#9 – Hagerstown Premium Outlets (3.3% 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 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 related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at [email protected].

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 [email protected].

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577