DBRS Morningstar Confirms Ratings on JPMBB Commercial Mortgage Securities Trust 2015-C29

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2015-C29 issued by JPMBB Commercial Mortgage Securities Trust 2015-C29 as follows:

-- Class A-3A1 at AAA (sf)
-- Class A-3A2 at AAA (sf)
-- Class A-4 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 (sf)
-- Class B at AA (low) (sf)
-- Class X-C at A (sf)
-- Class C at A (low) (sf)
-- Class EC at A (low) (sf)
-- Class D at CCC (sf)
-- Class E at C (sf)
-- Class F at C (sf)

The trends on Classes X-C, C, and EC were changed to Stable from Negative, and Classes D, E, and F, have ratings that do not carry trends. All other trends are Stable.

At last review, in June 2021, DBRS Morningstar downgraded three classes and added Negative trends to another three classes as a reflection of concerns with select loans in the pool. With this review, the trends on those classes were changed to Stable as a reflection of lower loss amounts compared with DBRS Morningstar’s projections for three loans disposed in the last year. In general, DBRS Morningstar’s outlook for the remainder of the pool remains stable from last review, with concerns for select loans further detailed below.

The CCC (sf) and C (sf) ratings at the bottom of the capital stack reflect DBRS Morningstar’s expectation that the three loans in special servicing will be liquidated at significant losses to the trust. All three of these loans are top 10 loans, and the largest is One City Centre (Prospectus ID#2, 10.1% of the pool). The loan is secured by the borrower’s fee interest in a 602,122-square foot (sf) office property in Houston’s central business district (CBD) and is part of a whole loan that was split pari passu between two CMBS transactions, both of which are rated by DBRS Morningstar.

Following the loss of the largest tenant in late 2020, the loan transferred to the special servicer in April 2021 after the borrower communicated an unwillingness to fund operating shortfalls. The loan has fallen delinquent a few times since transferring to special servicing, but has most recently reported current since January 2022. The special servicer reports workout discussions remain ongoing, but nothing material has been provided to date. Given the low in-place occupancy rate of 25.5% and market headwinds in the Houston CBD, which reported an average vacancy rate of 20.3% as of Q1 2022, according to Reis, DBRS Morningstar believes the as-is value is well below the outstanding loan balance.

DBRS Morningstar has identified six office loans within the Houston metropolitan statistical area that have reported value changes since 2020. Value declines for these properties ranged from 38% to 83% (average of 68%), with values per square foot (psf) from $14 to $141 (average of $67 psf). Based on that information, DBRS Morningstar assumed a liquidation scenario for the subject loan that assumed a significant haircut to the issuance value, resulting in a loss to this trust of $39.5 million and an overall loss severity of 65.8%.

As of the April 2022 remittance, 49 of the original 63 loans remained in the pool, representing a collateral reduction of 39.7% since issuance via loan payoffs, scheduled amortization, and $4.6 million of realized losses to the trust, which have been confined to the nonrated Class NR. In addition, 14 loans representing 13.1% of the pool have been defeased. The three loans in special servicing represent 18.3% of the pool. There were also 12 loans representing 29.0% of the pool on the servicer’s watchlist, including the second-largest loan, 2025 M Street (Prospectus ID#1, 10% of the pool).

The 2025 M Street loan is secured by the borrower’s fee interest in a 191,281-sf office property in the CBD of Washington, D.C. The loan is being monitored after the loss of the property’s second-largest tenant, Smithbucklin, which occupied 37.3% of the net rentable area (NRA) and accounted for 52.3% of base rent at issuance, vacated at lease expiration in June 2020. The tenant’s departure triggered a cash management provision, and although the borrower has been actively marketing the space, no significant developments have been achieved to date. The loan remains current with no loan modification processed to date. The servicer most recently reported a year-end 2021 debt service coverage ratio of 0.49 times, with an occupancy rate of 63%. The loan reports a tenant reserve balance of $3.5 million as of the April 2021 remittance. Given that the borrower continues to fund shortfalls and has also spoken of plans to possibly renovate the building lobby, DBRS Morningstar believes the overall likelihood of default remains moderate; however, given the challenges regarding the low in-place occupancy rate and cash flows being well below breakeven, the risks have notably increased since issuance, and the loan was analyzed with a stressed scenario to increase the expected loss.

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, and X-C 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#2 – One City Centre (10.1% of the pool)
-- Prospectus ID#1 – 2025 M Street (10.0% of the pool)

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.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology (March 4, 2022), 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. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS Morningstar long-term rating scale definition indicates that ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are 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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