DBRS Morningstar Downgrades One Class of JPMCC Commercial Mortgage Securities Trust 2015-JP1, Changes Trend to Negative on Two Classes

DBRS Limited (DBRS Morningstar) downgraded one class of Commercial Mortgage Pass-Through Certificates, Series 2015-JP1 issued by JPMCC Commercial Mortgage Securities Trust 2015-JP1 as follows:

-- Class F to B (low) (sf) at B (sf)

DBRS Morningstar also confirmed the following classes:

-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-5 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 (high) (sf)
-- Class B at AA (sf)
-- Class X-C at A (high) (sf)
-- Class C at A (sf)
-- Class X-D at A (low) (sf)
-- Class D at BBB (high) (sf)
-- Class X-E at BBB (high) (sf)
-- Class E at BBB (sf)
-- Class G to CCC (sf)

DBRS Morningstar changed the trends on Classes X-E and E to Negative from Stable and maintained the Negative trend on Class F. All other trends are Stable, with the exception of Class G which does not carry a trend. The downgrade and Negative trends primarily reflect the pending resolution of a number of the loans in special servicing, most notably the cross-collateralized/cross-defaulted Franklin Ridge loans (Prospectus IDs #13, 14, and 15), which represent an aggregate 2.9% of the current trust balance. The confirmations and Stable trends on the remaining classes reflect the otherwise overall stable performance of the transaction.

As of the December 2021 remittance, 39 of the original 51 loans remain in the pool, with an aggregate trust balance of $571.4 million, representing a collateral reduction of approximately 28.5% since issuance as a result of loan repayments, scheduled amortization, and the liquidation of four loans. Since DBRS Morningstar’s last review, three loans have been liquidated from the trust as anticipated with a cumulative realized loss to the trust of $12.5 million. The largest loss to the trust to date occurred in October 2020 when the $36.6 million Holiday Inn Baltimore Inner Harbor loan liquidated with a $22.6 million loss. These liquidations have resulted in the non-rated Class NR being written down by nearly 79% and significantly eroding the transaction’s credit support, particularly toward the bottom of the capital stack but even reaching into the investment grade classes.

Five loans, representing 7.7% of the current trust balance, are in special servicing. All of these loans are delinquent and listed with modification as the workout strategy. The largest specially serviced loan is the DoubleTree Anaheim – Orange County loan (Prospectus ID#10; 3.1% of the current trust balance), which is secured by a 461-room, full-service hotel in Orange County, California. The loan transferred to special servicing in July 2020 for payment default. According to PR Newswire in June 2021, AWH Partners and a subsidiary of Apollo Global Management acquired the subject property with Spire Hospitality taking over its management shortly thereafter. The financial terms of the transfer were not disclosed, however, new management indicated plans for a fulsome renovation. When the loan assumption was processed, the loan was brought current through the September 2021 payment but has since fallen delinquent again, with the loan reporting 60 days delinquent with the December 2021 remittance. It is unclear if the loan payments were made or if the issue is administrative in nature, as the special servicer’s commentary suggests ongoing efforts to work with the master servicer to onboard the new sponsor’s information. An updated appraisal as of July 2021 valued the property at $66.5 million, which is a 20.6% decline from issuance but an improvement from the August 2020 value of $61.1 million and well in excess of the whole-loan amount of $44.7 million. The subject has historically performed well and benefits from major demand drivers, including Disneyland and the Anaheim Convention Center.

The cross-collateralized/cross-defaulted Franklin Ridge loans (Prospectus IDs #13, 14, and 15, totaling 2.9% of the current trust balance) are secured by a total of 133,869 square feet (sf) of medical office space across three buildings in White Marsh, Maryland, about 11 miles east of Baltimore. The loans were transferred to the special servicer in February 2021 because of payment default after a major tenant, John Hopkins University (48.9% of portfolio net rentable area), vacated upon expiry of its lease term in December 2020. The tenant occupied small footprints at both 9900 and 9920 Franklin and was the sole tenant at 9910 Franklin. The borrower’s initial modification request was rejected and negotiations have since stalled as the borrower has reportedly been resistant to funding any capital to re-tenant the vacancy. Per the September 2021 rent rolls, the portfolio had an occupancy rate of 41.3% and an average rental rate of $22.37 per sf, both underperforming market levels. The loans most recently reported a weighted-average debt service coverage ratio of 0.75 times. According to the servicer, cash receipts from 9920 Franklin are lock-boxed and have been applied to principal and interest advances and also used to fund essential services at the properties. Given the borrower’s resistance to funding any leasing costs, the potential resolution roadmap for these loans remains unclear.

Thirteen loans, representing 24.2% of the pool, are on the servicer’s watchlist for a variety of reasons, primarily stemming from pandemic-driven cash flow declines; eight of the loans, representing 16.5% of the pool, are secured by lodging and retail properties, which have been the most adversely affected. The pool is most heavily concentrated in office properties with the three largest loans, 32 Avenue of the Americas (Prospectus ID#1; 17.5% of the current trust), 7700 Parmer (Prospectus ID#2; 13.1% of the current trust) and Heinz 57 Center (Prospectus ID#3; 7.9% of the pool) all being secured by office properties. Two loans, representing 4.2% of the current trust balance, have been fully defeased.

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, and X-E 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#10 – DoubleTree Anaheim - Orange County (3.1% of the pool)
-- Prospectus ID#13, 14 & 15 – Franklin Ridge 9900 , 9910, & 9920 Buildings (2.9% of the pool)

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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.

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.

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