DBRS Morningstar Finalizes Ratings on J.P. Morgan Chase Commercial Mortgage Securities Trust 2021-410T

DBRS, Inc. (DBRS Morningstar) finalized its ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2021-410T issued by J.P. Morgan Chase Commercial Mortgage Securities Trust 2021-410T (JPMCC 2021-410T):

-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (high) (sf)
-- Class HRR at BBB (sf)
-- Class X-A at AA (sf)

All trends are Stable.

Class X-A is an interest-only (IO) class whose balance is notional.

The JPMCC 2021-410T single-asset/single-borrower transaction is collateralized by the borrower’s fee-simple interest in a newly redeveloped Class A office and retail building, 410 Tenth Avenue, in the Hudson Yards submarket of Manhattan, New York. DBRS Morningstar takes a generally positive view on the credit characteristics of the collateral based on the property's desirable location and high proportion of investment-grade tenancy.

The building benefits from long-term, investment-grade tenancy in the form of new leases to Amazon.com, Inc. (Amazon) and First Republic Bank (FRB) which, together with a handful of smaller tenants, result in a weighted-average (WA) remaining lease term of 16.8 years across the building. DBRS Morningstar believes that the lease structure should largely shield the property from any short- or medium-term dislocations in the Manhattan office market resulting from the ongoing Coronavirus Disease (COVID-19) pandemic. The building's desirable location, with the Related Companies' Hudson Yards Redevelopment Project to the west and Brookfield Properties' Manhattan West development and Penn Station to the east, also makes it a potentially attractive option for a variety of tenants in the future.

Approximately 92% of the building's concluded in-place base rent is derived from investment-grade tenants that qualified for long-term credit tenant treatment in DBRS Morningstar's concluded net cash flow. Amazon leases approximately 335,000 square feet (sf) at the property and comprises 55% of base rent while FRB leases approximately 212,000 sf of office and retail space at the property and comprises 37% of base rent. Collectively, Amazon and FRB have a WA scheduled remaining lease term of 15.7 years, which is well beyond the fully extended 10-year loan term.

The property is nearing completion of a complete gut renovation at an estimated cost of $145.5 million, excluding tenant improvement allowances and additional tenant investments. The prior owner, SL Green Realty Corp. (SL Green), has overseen the redevelopment and repositioning of the asset, which includes a brand new lobby entrance along the 33rd Street thoroughfare, a facade facelift with the installation of oversized casement windows throughout the building, new elevator and HVAC infrastructure, and a rooftop amenity space with sweeping southern views.

The transaction is structured with an anticipated repayment date (ARD) beginning in January 2028. In addition to penalty interest due on the mortgage and mezzanine loans after this date, all property cash flow after current debt service will be diverted away from the sponsor and toward hyperamortizing the mortgage loan balance. This feature strongly incentivizes the sponsor to arrange takeout financing before the ARD date, and therefore reduces maturity risk for the certificateholders. DBRS Morningstar provided an explicit benefit for this structure; for more information, please refer to the Rating Rationale section of the presale report.

The Amazon lease includes two termination options that present potential risk to the stability of cash flow at the property. First, the Amazon lease includes a clause that permits Amazon to terminate the entirety of its lease if the landlord does not deliver on its obligations by October 2021 (with the exception of the 15th floor). DBRS Morningstar has determined that this risk is negligible, but not nonexistent, given the current status of construction at the property. In addition to touring the property in person to ascertain progress, DBRS Morningstar reviewed Marx|Okubo's construction report, which concluded that landlord obligations were approximately 96% complete as of January 27, 2021. Furthermore, while Amazon's scheduled lease expirations are in May and July 2037, the tenant has a termination option exercisable on the 10th anniversary of rent commencement (no earlier than March 2032). By this date, however, the mortgage loan will have been repaid or will have amortized significantly based on the ARD structure. Additionally, Amazon must provide 600 days' notice and would be responsible for a termination payment of approximately $37 million.

The property is currently in the final phases of redevelopment. The seller, SL Green, is responsible for completing landlord obligations at the property and is in the process of delivering various floors to their respective tenants (primarily in broom-clean condition for tenant build-out). In lieu of escrowing the estimated $12.4 million in remaining completion costs upfront, SL Green executed a guaranty for the costs. While DBRS Morningstar would typically expect such costs to be reserved upfront in cash, SL Green carries an investment-grade rating and the overall dollar figure is relatively minimal in the context of the total redevelopment cost. Furthermore, if SL Green's rating is downgraded prior to completion, the firm must post cash collateral with the lender in an amount determined by the lender's project management consultant to achieve completion.

The property's tenancy is heavily concentrated, with Amazon and FRB collectively accounting for 86.5% of the building's net rentable area and 92.2% of the base rent. While both tenants are currently rated investment grade, either tenant could be downgraded or otherwise experience financial difficulty before the mortgage loan's fully extended maturity date.

While the DBRS Morningstar loan-to-value (LTV) ratio is moderate at 84.78% based on the $565 million in total mortgage debt, the leverage increases substantially to an all-in DBRS Morningstar LTV of 105.78% when factoring in both the senior and junior mezzanine loans, which collectively total $140 million.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Class X-A is an IO certificate that references 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.

For supporting data and more information on this transaction, please log into www.viewpoint.dbrsmorningstar.com. DBRS Morningstar provides analysis and in-depth commentary in the DBRS Viewpoint platform.

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

With regard to due diligence services, DBRS Morningstar was provided with the Form ABS Due Diligence-15E (Form-15E), which contains a description of the information that a third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While due diligence services outlined in Form-15E do not constitute part of DBRS Morningstar’s methodology, DBRS Morningstar used the data file outlined in the independent accountant’s report in its analysis to determine the ratings referenced herein.

The principal methodology is the North American Single-Asset/Single-Borrower Ratings Methodology (March 2, 2021), 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.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at [email protected].

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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