DBRS Morningstar Confirms Ratings on JPMCC Commercial Mortgage Securities Trust 2017-JP6, Maintains Negative Trends on Two Classes

DBRS, Inc. (DBRS Morningstar) confirmed the following ratings on the Commercial Mortgage Pass-Through Certificates, Series 2017-JP6 issued by JPMCC Commercial Mortgage Securities Trust 2017-JP6:

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

The trends on Classes F-RR and G-RR remain Negative, while the trends on all other classes are Stable.

The rating confirmations reflect the generally stable performance of the transaction. The Negative trends reflect continued performance issues with some of the larger loans in the pool that are secured by office and lodging properties.

As of the November 2021 remittance, 38 of the original 48 loans remained in the pool, with an aggregate principal balance of $669.3 million, representing a collateral reduction of 14.9% since issuance as a result of loan amortization and repayment. The pool is concentrated by property type as 53.7% of the trust balance is secured by office properties and 25.5% is secured by retail properties.

Two loans, representing 18.2% of the pool, are in special servicing. One of these loans is also the largest loan in the pool, 245 Park Avenue (Prospectus ID#1; 14.6% of the pool), which transferred to special servicing with the November 2021 remittance after the sponsor filed for Chapter 11 bankruptcy in October 2021. The second loan in special servicing, Marriot Colorado Springs (Prospectus ID#8; 3.6% of the pool), transferred to special servicing in January 2020 because of nonpermitted equity transfers; however, these items have since been cured. Aside from significant cash flow disruptions caused by the pandemic, the borrower has kept the loan current and the loan is expected to be returned to the master servicer in the near future.

In addition, 10 loans, representing 17.3% of the pool, are on the servicer’s watchlist. Four of these are secured by office properties (8.9% of the pool), another four by hotel properties (6.1% of the pool), and the remaining two by retail properties (2.2% of the pool). Most of these loans are being monitored for net cash flow declines stemming from 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 had been unable to backfill Major League Baseball’s (MLB) space (12.6% of net rentable area) after MLB vacated the property in January 2020 ahead of its October 2022 lease expiration (a departure that was known to be forthcoming at issuance). The 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’s transfer to the special servicer is primarily related to borrower-associated issues rather than the collateral’s credit profile. Tenant reserves are expected 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 its 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.

DBRS Morningstar materially deviated from its North American CMBS Insight Model when determining the rating assigned to Class C by assigning a rating that was higher than the implied results. The material deviation is warranted due to uncertain loan level event risk.

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 loan in the transaction:

-- Prospectus ID#1 – 245 Park Avenue (14.6% of the pool)
-- Prospectus ID#6 – Bingham Office Center (4.4% of the pool)
-- Prospectus ID#8 – Marriott Colorado Springs (3.6% 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 the North American CMBS Surveillance Methodology (March 6, 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 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.

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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