DBRS Morningstar Downgrades Three Classes of JPMBB Commercial Mortgage Securities Trust 2015-C27

DBRS Limited (DBRS Morningstar) downgraded the following ratings on the Commercial Mortgage Pass-Through Certificates, Series 2015-C27 issued by JPMBB Commercial Mortgage Securities Trust 2015-C27:

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

DBRS Morningstar also confirmed the ratings on the following classes:

-- Class A-3A1 at AAA (sf)
-- Class A-3A2 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-S 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)
-- Class F at CCC (sf)

DBRS Morningstar discontinued the ratings on classes X-E and X-FG as their reference classes are rated CCC (sf). The trends for Classes D and X-D, are Negative, while the trends for the remaining classes are Stable, with the exception of Classes E and F, which do not carry a trend. The rating downgrades reflect DBRS Morningstar’s concerns with the second-largest loan in the pool, The Branson at Fifth (Prospectus ID#3, 11.8% of the pool), as well as the largest loan in special servicing, The Outlet Shoppes of the Bluegrass (Prospectus ID#6, 4.6% of the pool). Class F continues to have an Interest in Arrears designation. Class E had accumulated outstanding interest shortfalls of $153,625, which were repaid with the May 2021 remittance upon the return of The Branson at Fifth loan to the master servicer.

The Branson at Fifth, secured by a mixed-use multifamily and retail property in Midtown Manhattan, transferred to special servicing in July 2019 when the sponsor failed to remit a $2.0 million letter of credit into the rollover reserve account as was stipulated in the loan documents in the event that the sole retail tenant, Domenico Vacca, vacated its space (which it did in mid 2019). The space remains vacant to date. After a series of legal filings by both the borrower and the tenant (which have been resolved), a loan modification was agreed upon in January 2021 and the loan was brought current as of the May 2021 remittance. Terms of the loan modification include a reduction in note interest rate to 3.0%, an $11.0 million guaranty that can decrease by $2.0 million per year if the loan remains current, cash management with all excess cash flow applied toward outstanding accrued interest, and a 50% guarantee on any unpaid accrued interest at the loan’s maturity in February 2025.

The property received an updated appraisal in December 2020, which valued the property at $37.8 million, representing a 68.2% decline from its issuance value of $119.0 million. Based on the loan’s current trust balance of $73.0 million, the loan-to-value is now over 100%. Despite the loan’s return to the master servicer in April 2021, the property’s significant value decline from issuance is concerning in advance of the loan’s February 2025 maturity date, especially given the pandemic-driven effects on New York retail. Similar to its prior review, DBRS Morningstar analyzed this loan with a liquidation scenario, resulting in an implied loss severity in excess of 60.0%.

The largest loan in special servicing, The Outlet Shoppes of the Bluegrass, is secured by a 374,683-square foot upscale outlet mall in Simpsonville, Kentucky, approximately 26 miles east of Louisville. The sponsor for the loan is a joint venture between CBL Properties (CBL) and Horizon Group Properties. The loan briefly transferred to special servicing at the onset of the pandemic in April 2020 but no payment relief was provided and the loan transferred back to the master servicer in July 2020. The loan again transferred to special servicing in February 2021 after CBL filed for bankruptcy. Despite the filing, the loan has remained current and is making all payments as agreed. As of the YE2020 financials, the loan reported a debt service coverage ratio of 1.32 times (x) on a net cash flow (NCF) of $5.9 million, a decline of 20.2% from YE2019’s NCF and a 27.7% decline from the issuer’s underwritten figure of $8.2 million. Occupancy has decreased to 85% as of March 2021 from 98% at YE2019, primarily because of the departure of the property’s largest tenant, Saks Fifth Avenue (6.6% of net rentable area (NRA)), in January 2020. The remaining tenancy is quite granular with no tenant comprising more than 4% of NRA. Due to the uncertainty and risks surrounding CBL’s bankruptcy filing, DBRS Morningstar opted to increase the loan’s probability of default in this analysis.

At issuance, the transaction consisted of 44 loans at an original trust balance of $836.5 million. According to the July 2021 remittance, 36 loans remain in the transaction at a current trust balance of $618.6 million. There are 17 loans, representing 49.2% of the current pool balance, on the servicer’s watchlist, and two loans, representing 6.2% of the pool, in special servicing.

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.

Classes X-A, X-B, X-C, X-D, X-E, and X-FG 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.

The DBRS Viewpoint platform provides additional information on this transaction and underlying loans including DBRS Morningstar metrics, commentary, servicer-reported cash flows, and other performance-related data.

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 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].

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