DBRS Morningstar Upgrades Two Classes and Confirms Two Classes of J.P. Morgan Chase Commercial Mortgage Securities Trust 2017-FL11

DBRS, Inc. (DBRS Morningstar) upgraded its ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2017-FL11 issued by J.P. Morgan Chase Commercial Mortgage Securities Trust 2017-FL11 as follows:

-- Class B to AAA (sf) from AA (low) (sf)
-- Class C to AA (sf) from A (sf)

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

-- Class D at BBB (high) (sf)
-- Class E at BB (low) (sf)

In addition, DBRS Morningstar discontinued its ratings on Class A as the class was repaid in full following the payoff of the Cooper Hotel Portfolio as of the September 2021 remittance report.

DBRS Morningstar also changed the trends on Classes B, C, and D to Stable from Negative while the trend on Class E remains Negative. The upgrades and trend changes reflect the stable performance of the transaction as well as the significant paydown since issuance. The trend on Class E remains Negative given concerns surrounding the loans on the servicer’s watchlist, which are detailed below.

At issuance, the subject transaction consisted of seven floating-rate mortgages secured by 20 commercial properties, with a total mortgage balance of $519.1 million, which were divided into two collateral groups. Collateral Group A consisted of six loans secured by 19 commercial properties with a cumulative mortgage balance of $496.6 million and Collateral Group B represented a $22.5 million junior companion loan secured by the Park Hyatt Beaver Creek. The pooled certificates in this transaction (Classes A, B, C, D, E, F, X-CP, X-EXT, and VRR Interest) are backed by Collateral Group A while the nonpooled certificates (Classes BC and BC-RR Interest) are backed by Collateral Group B. The DBRS Morningstar analysis of this transaction incorporates only Collateral Group A as the nonpooled certificates are not rated by DBRS Morningstar.

As of the September 2021 remittance, four of the original six loans remain in the trust with an aggregate principal balance $260.9 million, representing a collateral reduction of 49.8% since issuance because of the full repayment of two loans.

Three of the four remaining loans in the pool (71.9% of the current trust balance) are on the servicer’s watchlist: The Centre at Purchase (Prospectus ID#3; 28.9% of the trust balance), Hyatt Regency Jacksonville Riverfront (Prospectus ID#5; 25% of the trust balance), and One Westchase Center (Prospectus ID#6; 18% of the trust balance). The Centre at Purchase loan matured in August 2021 and the loan remains with the master servicer while the borrower negotiates refinancing options with lenders. According to the servicer, the borrower has provided a loan application from the refinancing lender. The loan is secured by a Class A office campus across four buildings totaling 681,983 square feet in Purchase, New York, approximately 25 miles north of New York City. The property was 87% occupied as of YE2020, down from 92% as of YE2019. According to YE2020 reporting, the property generated a debt service coverage ratio (DSCR) of 1.61 times (x). The loan includes one 12-month extension option subject to a minimum debt yield of 13.0%; however, based on the YE2020 net cash flow (NCF), the debt yield was 12.7%.

DBRS Morningstar also maintains a cautious view on the Hyatt Regency Riverfront Jacksonville loan because of performance-related concerns after the hotel reported negative cash flow in 2020. The loan is backed by a 951-room full-service hotel within the Jacksonville, Florida central business district (CBD). The loan was previously in special servicing before transferring back to the master servicer in January 2021. While in special servicing, the borrower exercised its second extension option, extending the loan to September 2021. In conjunction with the extension, the borrower paid the loan down by $3.1 million. An updated appraisal valued the hotel at $99.1 million, down from $126.5 million at issuance. In September 2021, the borrower exercised its final maturity extension option, extending the loan to September 2022. The loan remains on the servicer’s watchlist for performance concerns related to the pandemic. Prior to the pandemic, the loan maintained a stable performance as the YE2019 NCF was up nearly 4.0% compared with issuance and the DSCR was 1.94x. Per the Smith Travel Research report for the trailing 12 months ended June 30, 2019, the subject reported an occupancy rate, average daily rate, and revenue per available room of 71.9%, $130, and $94, respectively, compared with the June 2018 figures of 58.7%, $132 and $77, respectively.

The Westchase Center loan remains on the servicer’s watchlist for performance-related issues because of weak submarket fundamentals. The loan is secured by a Class A office property totaling 466,159 square feet in Houston's Westchase District, 15 miles west of the CBD. The loan transferred to special servicing in June 2020 after the borrower requested coronavirus relief and was unable to repay the loan at loan maturity. During this time, the mezzanine lender acquired the borrower’s interest in the senior note and shortly thereafter Nitya Capital acquired the property for an undisclosed sale price in August 2020. The loan returned to the master servicer after it was extended for 12 months to the current October 2021 maturity date. The loan reported reported negative cash flow in 2020 as the occupancy rate had declined to 68.7% as of the July 2021 rent roll, down from 80% at YE2020 and 87.2% at YE2017. Prior to the pandemic, the YE2019 NCF was 33.2% below the issuance figure. In addition to occupancy concerns, cash flow was also affected by increased rental abatements and a decrease in expense reimbursements.

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.

The DBRS Morningstar rating for Class D is lower than the results implied by the LTV Sizing Benchmarks. Given the low in-place cash flows and uncertain timelines for the Hyatt Regency Riverfront Jacksonville and Westchase Center, the variance is warranted.

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 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.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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.

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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