DBRS Morningstar Changes Trends on Two Classes to Negative from Stable and Confirms All Classes of J.P. Morgan Chase Commercial Mortgage Securities Trust 2012-C8

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2012-C8 issued by J.P. Morgan Chase Commercial Mortgage Securities Trust 2012-C8:

-- Class A-3 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AA (low) (sf)
-- Class EC at AA (low) (sf)
-- Class D at A (low) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (sf)
-- Class X-B at B (high) (sf)
-- Class G at B (sf)

DBRS Morningstar changed the trends for Classes E and F to Negative from Stable, while the trends for Classes G and X-B remain Negative. All other classes have Stable trends. The trend changes reflect significant exposure to three of the largest loans in the pool, which are at increased risk of maturity default based on low occupancy and DBRS Morningstar’s valuation projections.

The rating confirmations reflect sufficient credit support relative to DBRS Morningar’s overall recovery expectations for the pool’s remaining loans. There are no loans in special servicing as of the January 2022 remittance report. In addition, defeasance increased considerably over the past 12 months, representing 40.7% of the trust balance as of January 2022. Since the last rating action, The Battlefield Mall loan (Prospectus ID#1; 16.7% of the trust balance) defeased, resulting in reduced credit risk for the trust.

At issuance, the trust comprised 43 fixed-rate loans secured by 84 commercial properties with a $1.14 billion trust balance. According to the January 2022 remittance, 27 loans secured by 29 properties remain in the trust with a trust balance of $657.0 million, representing a 42.2% collateral reduction since issuance. Loans representing 94.8% of the trust balance are scheduled to mature by year-end (YE)2022 with most loan maturities occurring in the second half of 2022. DBRS Morningstar has identified three loans with increased maturity default risk: Gallery at Harborplace (Prospectus ID#4; 10.4% of the trust balance), Ashford Office Complex (Prospectus ID#5; 7.7% of the trust balance) and The Crossings (Prospectus ID#9; 4.7% of the trust balance).

The Gallery at Harborplace loan is secured by a mixed-use property consisting of office and retail space in downtown Baltimore. The loan has been on the servicer’s watchlist since November 2020 because of a low debt service coverage ratio (DSCR) primarily driven by low occupancy and considerable increases in operating costs. The property has been negatively affected by the Coronavirus Disease (COVID-19) pandemic and the loss of several smaller retail tenants, resulting in an occupancy decline to 41% as of June 2021 from 79% as of December 2019. The Baltimore Sun reported in September 2021 that all retail tenants at the property have been told to vacate by the end of the year while the borrower reconsiders its plans for the building. The mayor of Baltimore announced plans to work with the borrower on major upgrades to the property in an effort to reinvigorate consumer traffic to the downtown core. The loan sponsor, Brookfield Properties, has not made public its plans for repositioning the subject.

The Ashford Office Complex loan is secured by three Class B office buildings in the heart of the Energy Corridor of Houston. The loan has been on the DBRS Morningstar Hotlist since March 2020 as performance has been negatively affected amid volatility within the oil and gas industry. Occupancy declined in 2018 to 51%, and soft submarket conditions have been exacerbated by the pandemic, with occupancy falling further to 47.2% as of September 2021. The borrower has been covering operating shortfalls for several years as well as funding various capex projects. DBRS Morningstar believes the current collateral value is below the loan balance.

The Crossings is secured by two mid-rise, Class A office buildings in Dallas and is being monitored for occupancy declines and low DSCR. The property was 53.6% occupied as of September 2021, and net cash flow has declined more than 70% since issuance. This deterioration is attributed to the weak submarket market conditions. The loan benefits from a modest 69.8% going-in loan-to-value ratio and the continued loan amortization since issuance. DBRS Morningstar believes the collateral value is considerably below the appraised value at issuance and the borrower has a limited amount of implied equity remaining in the subject.

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#4 – Gallery at Harborplace (10.4% of the pool)
-- Prospectus ID#5 – Ashford Office Complex (7.7% of the pool) – DBRS Morningstar Hotlist Loan
-- Prospectus ID#9 – The Crossings (4.7% of the pool) – DBRS Morningstar Hotlist Loan

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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