DBRS Morningstar Confirms All Classes of JPMCC Commercial Mortgage Securities Trust 2017-JP7

DBRS, Inc. (DBRS Morningstar) confirmed the ratings on all classes of the Commercial Mortgage Pass-Through Certificates, Series 2017-JP7 issued by JPMCC Commercial Mortgage Securities Trust 2017-JP7 as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- 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 B at AA (high) (sf)
-- Class X-B at A (high) (sf)
-- Class C at A (sf)
-- Class D at A (low) (sf)
-- Class E-RR at BBB (low) (sf)
-- Class F-RR at BB (sf)
-- Class G-RR at B (high) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which has remained in line with DBRS Morningstar’s expectations since issuance. At issuance, the trust comprised 37 fixed-rate loans secured by 168 commercial and multifamily properties with an $811.0 million trust balance. Per the November 2021 remittance report, all loans remain in the pool with a trust balance of $790.2 million, representing a 2.6% collateral reduction since issuance. The pool is concentrated by property type as 39.4% of the trust balance is secured by office properties and 20.2% is secured by retail properties. Two loans, Gateway Net Lease Portfolio (Prospectus ID#2—8.9% of the trust balance) and West Town Mall (Prospectus ID#7—3.6% of the trust balance), were shadow-rated investment grade by DBRS Morningstar at issuance. The performance of these loans remains consistent with investment-grade characteristics; however, as a conservative measure, DBRS Morningstar removed the shadow-rating treatment for West Town Mall given the loan’s July 2022 maturity and the general disruption in financing opportunities for regional malls in the last few years.

The pool is concentrated by loan size as the largest five and 10 loans total 41.7% and 60.5% of the pool, respectively. Four loans, totaling 5.0% of the trust balance, are fully defeased as of the November 2021 remittance report. Per the November 2021 remittance, three loans, totaling 13.7% of the trust balance, are in special servicing. The largest loan in the trust, 245 Park Avenue (Prospectus ID#1—9.5% of the trust balance), transferred to the special servicer in November 2021 after the sponsor filed for Chapter 11 bankruptcy in October 2021. The other two specially serviced loans are relatively small and are secured by hospitality properties that were greatly affected by the Coronavirus Disease (COVID-19) pandemic. Six loans, totaling 20.8% of the trust balance, are on the servicer’s watchlist as of the November 2021 remittance, with most loans secured by hospitality and retail properties that had low debt service coverage ratios caused by the pandemic.

The 245 Park Avenue loan is secured by a 44-story Class A office property with ground-floor retail in Midtown Manhattan. According to an October 2021 Bloomberg article, the borrower filed for Chapter 11 bankruptcy because the property manager has been unable to backfill Major League Baseball’s (MLB) space (12.6% of net rentable area), which vacated the property in January 2020 ahead of its October 2022 lease expiration (a departure that was known to be forthcoming at issuance). A December 2020 rent roll showed that the property was 93.2% occupied with an average base rent of $79.72 per square foot (psf), compared with the 91.2% occupancy rate and $80.72 psf average base rent at issuance. The loan is sponsored by HNA Group, a China-based Fortune 500 company that was relatively new to owning and managing commercial real estate at issuance.

The collateral benefits from its location in one of Manhattan’s premier office corridors and its accessibility to Grand Central Terminal. The subject’s historical occupancy rate has remained above 90% for several years, largely because of the long-term leases to investment-grade tenants. The loan is structured with a springing cash management lockbox that was triggered when MLB vacated in 2020, and the tenant reserve balance totaled $26.3 million as of November 2021. DBRS Morningstar anticipated the possibility of the MLB space going completely vacant and acknowledged MLB’s above-market rents at issuance. The loan transfer to the special servicer is primarily related to borrower-related issues rather than the collateral’s credit profile. Tenant reserves are anticipated to continue accruing until MLB’s lease expires, and the current balance provides a sufficient tenant improvement package of $119 psf for the MLB space to attract a new tenant. DBRS Morningstar will continue to monitor leasing and sponsor updates, but the low leverage for the senior loan, with an issuance loan-to-value of 48.9%, suggests the overall risk profile remains healthy.

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 and X-B 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#1 – 245 Park Avenue (9.5% of the pool)
-- Prospectus ID#7 – West Town Mall (3.6% of the pool) – DBRS Morningstar Hotlist Loan
-- Prospectus ID#13 – Springhill Suites Newark Airport (2.3% of the pool)
-- Prospectus ID#17 – Carolina Hotel Portfolio (2.0% 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.

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.

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

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