DBRS Morningstar Downgrades Ratings on Four Classes of JPMBB Commercial Mortgage Securities Trust 2015-C30

DBRS Limited (DBRS Morningstar) downgraded ratings on four classes of Commercial Mortgage Pass-Through Certificates, Series 2015-C30 issued by JPMBB Commercial Mortgage Securities Trust 2015-C30 as follows:

-- Class D to BB (sf) from BB (high) (sf)
-- Class E to B (low) (sf) from B (high) (sf)
-- Class X-D to BB (high) (sf) from BBB (low) (sf)
-- Class X-E to B (sf) from BB (low) (sf)

In addition, DBRS Morningstar confirmed the following ratings:

-- 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 B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class F at CCC (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AA (sf)
-- Class X-C at A (sf)
-- Class EC at A (low) (sf)

Negative trends were maintained on Classes B, C, D, E, X-B, X-C, X-D, X-E, and EC. The trends on all remaining classes are Stable, with the exception of Class F, which has a rating that does not carry a trend.

The rating downgrades and Negative trends reflect the increased credit concerns for the pool, primarily driven by the two loans in special servicing and a DBRS Morningstar Hotlist loan, which are discussed in detail below.

The One City Centre loan (Prospectus ID#12, 3.8% of the pool) 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 commercial mortgage-backed securities (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 it has most recently been 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 challenges 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 decreases 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 severity above 65.0%.

The next largest contributor to the rating downgrades and Negative trends is the Sunbelt Portfolio loan (Prospectus ID#3, 5.9% of the pool), which transferred to special servicing in March 2022 for imminent monetary default at the borrower’s request. This loan is secured by three cross-collateralized and cross-defaulted office properties totalling 1.3 million sf. The Shipt Tower (previously known as Wells Fargo Tower) and Inverness Center are in Birmingham, Alabama, while the Meridian Building is in Columbia, South Carolina. The whole loan was split pari passu between two CMBS transactions, both of which are rated by DBRS Morningstar.

DBRS Morningstar had been monitoring this loan on the Hotlist prior to its transfer because of declines in occupancy, which further deteriorated following the pandemic. According to the September 2021 rent roll, the portfolio was 70.1% occupied, compared with 67.2% at YE2020 and 82.6% at issuance. At the property level, the Shipt Tower, Inverness Center, and the Meridian Building reported September 2021 occupancy rates of 73.3%, 51.0%, and 92.3%, respectively. At the Shipt Tower, a portion of the former Wells Fargo space was initially backfilled in 2019 by Shipt Inc., which has gradually expanded its footprint and currently occupies 15.0% of the property (8.4% of the portfolio net rentable area (NRA)), with the most recent lease executed in November 2021. All of Shipt Inc.’s leases expire in October 2030. Across the portfolio, the borrower has maintained various master leases, likely in an effort to keep occupancy and revenue up. The greatest exposure is at Inverness Center, where 19.5% of the property (7.0% of the portfolio NRA) is subject to a master lease that expired in December 2021. According to Reis, the submarkets reported Q1 2022 vacancy rates ranging from 13.8% to 16.4%.

Based on financials for the trailing 12 months ended September 30, 2021, the loan reported a debt service coverage ratio (DSCR) of 2.56 times (x) on the senior portion of the loan. When including subordinate and mezzanine debt held outside of the trust, the whole-loan DSCR was 1.07x. The senior note DSCR declined slightly when compared with the YE2020 DSCR at 2.65x (1.11x on the whole loan). At issuance, the sponsor contributed $48.8 million of equity as part of the acquisition of the portfolio; however, the loan’s transfer to special servicing at the request of the borrower suggests the borrower may not be willing to cover the operating or debt service shortfalls anymore. Given the sustained occupancy declines for the portfolio and general weakening of the submarkets, DBRS Morningstar maintains an elevated credit risk profile for the loan, and the analysis includes a stressed probability of default (POD) to reflect this.

The Castleton Park loan (Prospectus ID#6, 4.6% of the pool) is secured by a 1.1 million-sf office park in Indianapolis, located 12 miles northeast of the CBD. This loan has been on the DBRS Morningstar Hotlist because of sustained occupancy declines since issuance. The subject was 54.2% occupied as of the March 2022 rent roll, down from 67.6% at YE2020 and 81.6% at issuance. Two of the largest tenants at issuance, National Government Services (NGS) and Community Health Network, Inc., have reduced their footprint over the years. NGS originally occupied 22.6% of NRA and currently represents 2.3% of NRA on a lease through September 2022. Community Health Network, Inc. originally occupied 9.8% of NRA but currently occupies 6.4% of the NRA on a lease through February 2025. In addition to NGS, leases representing 11.2% of the NRA are scheduled to roll in the next 12 months. The loan was structured with a cash flow sweep in the event that NGS exercised any termination options and the servicer noted there is currently $2.7 million held in the excess cash flow reserve. As of May 2022, there is $6.2 million held across all reserves, including $2.2 million in tenant reserves.

According to Reis, office properties in the Northeast submarket reported a vacancy rate of 18.8% as of Q1 2022, down from 22.4% at Q1 2021 and 21.6% at Q1 2020. Based on online postings, the property advertised an asking rental rate of $17.75 psf, compared with the submarket asking rental rate of $20.14 psf. The loan reported a DSCR of 0.67x for YE2021, compared with the YE2020 DSCR of 1.09x and DBRS Morningstar Issuance DSCR of 1.31x. Given the submarket vacancy, year-over-year occupancy declines, and additional upcoming lease rollover, DBRS Morningstar expects the borrower will continue to face challenges leasing up vacant space at the property. DBRS Morningstar’s analysis included an elevated POD to reflect the increased credit risk for this loan.

At issuance, DBRS Morningstar shadow-rated the Pearlridge Center (Prospectus ID#2, 6.9% of pool) and Scottsdale Quarter (Prospectus ID#11, 4.0% of pool) loans as investment grade. Both of these loans are sponsored by a joint venture with O’Connor Capital Partners and Washington Prime Group (WPG). WPG had filed for Chapter 11 bankruptcy in June 2021 and cited challenges faced during the pandemic as a contributor to the filing, but it had exited bankruptcy in October 2021. Both of these properties were listed as Tier 1 (core assets) in the bankruptcy filings. The collateral for both loans has generally performed above DBRS Morningstar’s expectations and historically reported healthy DSCRs. As such, DBRS Morningstar confirmed that the performance of these loans remains consistent with investment-grade loan characteristics with this review.

As of the May 2022 remittance, 59 of the original 70 loans remain in the pool, representing a collateral reduction of 21.5% since issuance. Since the last rating action, one loan was liquidated from the trust, resulting in a $3.6 million realized loss, which has been contained to the nonrated Class NR certificate. In addition, two loans were repaid in full from the trust, contributing approximately $63.5 million in principal paydowns. Despite the increased credit support stemming from proceeds and principal paydowns, DBRS Morningstar remains concerned about possible further credit deterioration should the performance of the specially serviced loans or Castleton Park loan continue to decline or additional defaults occur. As of the May 2022 remittance, loans secured by office properties represent the greatest property type concentration, accounting for 50.8%, the majority of which are in secondary markets. In addition to the two loans in special servicing, there are 18 loans on the servicer’s watchlist, representing 23.6% of the current pool balance. Six loans are fully defeased, representing 3.2% of the pool balance.

ESG CONSIDERATIONS
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/396929.

DBRS Morningstar materially deviated from its North American CMBS Insight Model when determining the rating assigned to Class B, as the quantitative results suggested a lower rating. The material deviation is warranted given the uncertain loan-level event risk with the loans in special servicing and on the servicer’s watchlist.

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.

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. 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 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 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. 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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