DBRS Morningstar Downgrades Four Classes of JPMBB Commercial Mortgage Securities Trust 2015-C31, Changes Trends on 10 Classes to Negative
CMBSDBRS Limited (DBRS Morningstar) downgraded its ratings on four classes of Commercial Mortgage Pass-Through Certificates, Series 2015-C31 issued by JPMBB Commercial Mortgage Securities Trust 2015-C31 as follows:
-- Class D to BB (low) (sf) from BBB (low) (sf)
-- Class E to B (sf) from BB (low) (sf)
-- Class F to CCC (sf) from B (low) (sf)
-- Class X-D to BB (sf) from BBB (sf)
Classes D, E, F, and X-D were also removed from Under Review with Negative Implications, where they were placed on August 6, 2020.
In addition, DBRS Morningstar confirmed the remaining classes as follows:
-- Class A-2 at AAA (sf)
-- 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 X-B at AA (sf)
-- Class B at AA (low) (sf)
-- Class X-C at A (sf)
-- Class C at A (low) (sf)
-- Class EC at A (low) (sf)
Classes A-S, B, C, D, E, X-A, X-B, X-C, X-D, and EC have Negative trends. The trends for all other classes are Stable, with the exception of Class F, which has a rating that does not carry a trend.
The rating downgrades and Negative trends are largely reflective of increased risk of loss for the largest loan in the pool, Civic Opera Building (Prospectus ID#1, 9.4% of the pool), as well as the other loans currently in special servicing, which collectively represent 13.7% of the pool.
As of the March 2021 remittance, 55 of the original 58 loans remained in the pool, with scheduled amortization resulting in collateral reduction of 11.6% since issuance. Seven loans are in special servicing, and there are 16 loans representing 35.9% of the pool balance on the servicer’s watchlist, including three of the largest five loans in the pool. Between the servicer’s watchlist and the loans in special servicing, seven of the 10 largest loans in the pool are represented.
The Civic Opera Building loan is secured by an office building in Chicago’s West Loop District. The loan was transferred to special servicing in June 2020 for imminent monetary default and, as of the March 2021 remittance, was most recently paid in October 2020. The trust loan is a pari passu portion of a $164.0 million whole loan that was originated in 2015 and split between this transaction and the JPMBB Commercial Mortgage Securities Trust 2015-C32 transaction, which is also rated by DBRS Morningstar. Although the loan’s transfer to special servicing has been attributed to the effects of the Coronavirus Disease (COVID-19) pandemic, the property has reported cash flow declines from issuance for most years since the loan closed, with the most recent year-end figures showing a debt service coverage ratio (DSCR) of 0.76 times (x), with an occupancy rate of 80.0%. By Q2 2020, the annualized DSCR had fallen to 0.69x and the occupancy rate was at 75.0%. At issuance, the property was 92.0% occupied and the DBRS Morningstar DSCR was 1.06x.
Although the tenancy is quite granular, with the largest tenant representing only 6.9% of the net rentable area since issuance, precipitous tenancy losses have resulted in a sustained low occupancy rate for several years; the building’s age (constructed in 1929) and style bring some inherent challenges for leasing, particularly in this area of Chicago, where a significant amount of new supply has been delivered. Vacancy rates for most submarkets in Chicago were ticking up prior to the coronavirus pandemic, and those trends have recently been exacerbated with a glut of sublease space that has been put on the market in the last year. Given the sustained low coverage ratios and the challenges in leasing up the vacant space and securing renewals for existing tenants, the risk of loss to the trust for this loan has significantly increased from issuance. In the analysis for this review, DBRS Morningstar assumed a liquidation scenario based on a significant haircut to the issuance value, resulting in a loss severity in excess of 40.0%. The special servicer has not provided an updated appraisal, but DBRS Morningstar anticipates that figure will come in well below the issuance valuation of $220.0 million and could suggest an even higher loss severity at resolution, supporting the Negative trends through the Class E principal bond.
The largest loan on the servicer’s watchlist, The Roosevelt New Orleans Waldorf Astoria (Prospectus ID#2, 8.3% of the pool), is secured by a 504-key full-service hotel in New Orleans and was previously with the special servicer after a transfer in March 2020 as a result of the sponsor’s coronavirus relief request. The borrower ultimately received approval to obtain a Paycheck Protection Program loan, and the relief request was withdrawn. The loan has remained current through the stint in special servicing and as of the March 2021 remittance. The servicer continues to monitor the loan on the watchlist because of the low DSCR (0.66x) reported for the trailing 12 months (T-12) ended December 31, 2020, well below the 1.66x reported for the T-12 period ended December 31, 2019. Historically, the property has performed in line with to slightly above issuance expectations, and, although the impact of the coronavirus pandemic has introduced increased risk for this loan, mitigating factors include the loan’s current status and location within New Orleans, which is well positioned to benefit from a precipitous increase in leisure travel, as it is a drive or short flight away for many parts of the country.
The third-largest loan in the pool, Sunbelt Portfolio (Prospectus ID#3, 7.6% of the pool), is secured by a portfolio of three cross-collateralized and cross-defaulted office buildings in Birmingham, Alabama, and Columbia, South Carolina. This loan is also a pari passu loan that has pieces in two DBRS Morningstar-rated transactions, including the subject and the JPMBB Commercial Mortgage Securities Trust 2015-C30 transaction. The loan was placed on the servicer’s watchlist in April 2020 because of performance declines resulting from the loss of the portfolio’s former second-largest tenant, Wells Fargo, which vacated the Wells Fargo Tower property in Birmingham at lease expiration in December 2019. A new tenant, Shipt Inc., took a portion of the Wells Fargo space, and, as of the trailing nine months ended September 30, 2020, the portfolio reported an occupancy of 67.0% and the loan reported a DSCR of 1.17x, compared with the YE2019 occupancy of 80.6% and DSCR of 1.28x. Given the sustained occupancy declines and the headwinds amid the coronavirus pandemic for backfilling the vacant space across the buildings, a probability of default penalty was applied to increase the expected loss in the analysis for this review.
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.
DBRS Morningstar materially deviated from its North American CMBS Insight Model when determining the ratings for Classes A-S, B, C, and D, as the quantitative results suggested a lower rating. The classes were assigned a Negative trend as a result of the general direction of the quantitative results, which incorporated certain elevated expected loss adjustments to loans in special servicing or on the servicer’s watchlist. The material deviations are based on the uncertain loan-level event risk associated with the loans currently in special servicing and on the servicer’s watchlist.
Classes X-A, X-B, X-C, 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 issuance metrics and all historical surveillance commentary on the DBRS Viewpoint platform.
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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 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 info@dbrsmorningstar.com.
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.
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