DBRS Morningstar Downgrades Six Classes of JPMBB Commercial Mortgage Securities Trust 2015-C30

DBRS Limited (DBRS Morningstar) downgraded the ratings on six classes of the Commercial Mortgage Pass-Through Certificates, Series 2015-C30 issued by JPMBB Commercial Mortgage Securities Trust 2015-C30 as follows:

-- Class X-D to BBB (low) (sf) from BBB (sf)
-- Class D to BB (high) (sf) from BBB (low) (sf)
-- Class X-E to BB (low) (sf) from BB (sf)
-- Class E to B (high) (sf) from BB (low) (sf)
-- Class X-F to B (low) (sf) from B (high) (sf)
-- Class F to CCC (sf) from B (sf)

DBRS Morningstar also confirmed the ratings on the remaining classes as follows:

-- 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 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)

DBRS Morningstar changed the trends on Classes B, C, EC, D, X-B, X-C, and X-D to Negative from Stable. The trends on Classes E, X-E, and X-F are also Negative. All other trends are Stable with the exception of Class F, which has a rating that does not carry a trend.

The rating downgrades and Negative trends reflect the increased losses to the trust and resulting deterioration of the credit enhancement for the affected bonds expected by DBRS Morningstar. The bulk of the deterioration is the result of projected losses for one top 15 loan in special servicing that was liquidated in the analysis for this review and two additional loans in the top 15 that were analyzed with an increased Probability of Default (PoD) to increase the expected losses for each.

The liquidated loan, One City Centre (Prospectus ID#12, 3.5% of the pool), is part of a pari passu loan split between the subject and the JPMBB Commercial Mortgage Securities Trust 2015-C29 transaction, which is also rated by DBRS Morningstar. The collateral has seen a significant drop in occupancy following the departure of its largest tenant. The loan, secured by a 602,122-square-foot (sf) Class A office building in the Houston central business district (CBD), has been monitored on the servicer’s watchlist since August 2018 after its largest tenant, Waste Management (40.5% of net rentable area (NRA)), gave notice that it would vacate at lease expiry in December 2020. The loan ultimately transferred to special servicing in April 2021 for imminent monetary default and the borrower has stated that it will no longer fund shortfalls on the loan. Occupancy has fallen to 28.0% and there are no prospective tenants or leasing updates in regards to the vacant space, although the loan reports $9.1 million across all reserves. The subject had struggled with maintaining market occupancy levels prior to 2020, as it has been only 68.0% occupied since 2018. The Houston CBD submarket remains soft, as Reis reports an average vacancy rate of 21.9% as of Q1 2021. DBRS Morningstar has identified six office loans within the Houston metropolitan statistical area that have reported value changes since 2020. Value declines for these properties range from 38.0% to 83.0% (average of 68.0%) with values per sf (psf) from $14 to $141 (average of $67 psf). DBRS Morningstar analyzed this loan with a liquidation scenario, which resulted in a loss severity in excess of 65.0%.

Also driving the rating downgrades and Negative trends is the Sunbelt Portfolio loan (Prospectus ID#3, 5.5% of the pool), which is secured by three cross-collateralized and cross-defaulted office properties totalling 1.3 million sf. The Shipt Tower (previously known as Wells Fargo Tower) and Inverness Center are in Birmingham, Alabama, while the Meridian Building is in Columbia, South Carolina. This pari passu loan has a piece secured in the JPMBB Commercial Mortgage Securities Trust 2015-C31 transaction (which is rated by DBRS Morningstar) and according to the servicer, the loan is on the servicer’s watchlist because of a low cash flow. It is unclear what watchlist criteria the servicer is following, however, as the YE2020 debt service coverage ratio (DSCR) reported for the trust loan was 2.65 times (x) and 1.11x when including the debt service for subordinate and mezzanine debt not held in either transaction. The senior note DSCR is in line with previous years, with a YE2019 DSCR of 2.45x (1.03x on the whole loan) and the DBRS Morningstar DSCR at issuance of 1.41x (1.13x on the whole loan).

Although cash flows have held relatively steady to date, occupancy has been on the decline since issuance with the December 2020 rent roll reporting an occupancy of 70.0%, compared with the YE2019 occupancy rate of 80.6% and issuance occupancy rate of 82.6%. Several tenants in place at issuance are no longer in place after having vacated at lease expirations, including Sungard Financial Systems (8.1% of total NRA), Wells Fargo (6.8% of total NRA), and Southern Company Services (4.0% of total NRA), all of which vacated at lease expirations in December 2017, December 2019, and June 2018, respectively. A portion of the former Wells Fargo space was backfilled by Shipt Inc., which initially represented 4.5% of total NRA and was expected to expand its footprint to 5.8% of total NRA by May 2021. The borrower appears to have signed a master lease for some of the vacant space in 2019, as the servicer reported a tenant in several spaces with the name “Sunbelt Master Lease” (11.0% of total NRA) with a lease expiration of March 2021. The servicer recently confirmed that the master lease was not renewed. At the property level, the Shipt Tower, Inverness Center, and the Meridian Building reported December 2020 occupancy rates of 67.2%, 55.1%, and 95.4%, respectively. According to Reis, the submarkets reported Q1 2021 vacancy rates ranging from 13.1% to 16.8%, compared with Q1 2020 vacancy rates that ranged from 12.3% to 15.7%. The loan does report substantial reserves of $6.5 million as of May 2021, held across eight accounts earmarked for capital expenditures, leasing costs, free rent, and lockbox receipts.

Given the sustained occupancy declines for the subject portfolio and the softening in the submarkets, DBRS Morningstar believes the risks for this loan have materially increased since issuance and analyzed the loan with an elevated PoD to increase the expected loss for this review.

The Castleton Park loan (Prospectus ID#6, 4.2% of the pool) is secured by a 1.1 million-sf office park in Indianapolis, 12 miles northeast of the CBD. This loan is on the servicer’s watchlist because of a low DSCR, which was reported at 1.09x for YE2020, compared with the YE2019 DSCR of 1.07x and DBRS Morningstar DSCR at issuance of 1.31x. Occupancy has declined to 63.0% as of the March 2021 rent roll, compared with the YE2020 occupancy rate of 67.6%, YE2019 occupancy rate of 74.4%, and issuance occupancy rate of 81.6%. The current largest and third-largest tenants, National Government Services and Community Health Network, respectively, have reduced their footprints in the years since issuance and now represent 15.5% and 5.4% of the NRA, respectively. National Government Services has a lease expiration of September 2021, and the tenant is expected to vacate the majority of its space as noted by the servicer. According to Reis, office properties in the Northeast submarket reported a Q1 2021 vacancy rate of 22.4%, compared with the Q1 2020 vacancy rate of 21.6%. This loan also reports a significant total reserve amount of $6.5 million, $2.3 million of which is held across leasing and capital improvement reserves.

Given the sustained occupancy declines for the subject property and the softening in the submarket conditions, DBRS Morningstar believes the risks for this loan have materially increased since issuance and analyzed the loan with an elevated PoD to increase the expected loss for this review.

According to the May 2021 remittance, the current balance of the trust was $1.1 billion, representing a 13.7% collateral reduction since issuance. There are four loans in special servicing and 20 loans on the servicer’s watchlist, representing 9.1% and 25.9% of the pool balance, respectively. The watchlisted loans are being monitored for various reasons, including a low DSCR or occupancy figure, tenant rollover risk, delinquent taxes, deferred maintenance, and/or Coronavirus Disease (COVID-19) pandemic-related forbearance requests. There are five loans, representing 3.2% of the pool, that are fully defeased.

At issuance, DBRS Morningstar shadow-rated the Pearlridge Center (Prospectus ID#2, 6.3% of pool) and Scottsdale Quarter (Prospectus ID#11, 3.7% of pool) loans as investment grade. Both of these loans are sponsored by a joint venture with O’Connor Capital Partners and Washington Prime Group (WPG). On June 13, 2021, WPG filed for Chapter 11 bankruptcy and cited challenges faced during the pandemic as a contributor to the filing. DBRS Morningstar has concerns surrounding WPG’s declining financial position and the general stress on brick and mortar retail, particularly for regional malls in secondary markets, both of which were exacerbated by the pandemic. In March 2021, DBRS Morningstar received notice from the servicer regarding the Pearlridge Center borrower’s request for a temporary waiver of any and all bankruptcy events of default and any penalties and costs as a result of such action. The servicer agreed to forbear all defaults triggered by any filing through July 1, 2021, for a period of 270 days after.

It does not appear that this same request was made by the borrower for the Scottsdale Quarter loan, which transferred to special servicing in May 2021. DBRS Morningstar believes that the impending bankruptcy filing by WPG was a likely contributor to the loan’s transfer to special servicing, but that has not been confirmed to date. Although WPG’s bankruptcy filing is a noteworthy development for these loans, neither of the sponsor entities affiliated with WPG were included in the bankruptcy filing, and the property-level debt is not expected to be directly affected by these events. In the bankruptcy filings, WPG continues to list both properties as Tier 1 (core) assets for the firm. The collateral for both loans have generally performed above DBRS Morningstar’s expectations and have historically reported healthy DSCRs. As such, with this review, DBRS Morningstar confirmed that the performance of these loans remains consistent with investment-grade loan characteristics.

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 rating assigned to Class B, as the quantitative results suggested a lower rating. The material deviation is warranted given the uncertain loan-level event risk with the loans in special servicing and on the servicer’s watchlist.

Classes X-A, X-B, X-C, X-D, X-E, and X-F 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#2 – Pearlridge Center (6.3% of the pool)
-- Prospectus ID#11 – Scottsdale Quarter (3.7% 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 26, 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 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.

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].

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