DBRS Morningstar Assigns Provisional Ratings to J.P. Morgan Chase Commercial Mortgage Securities Trust 2022-DATA

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the following classes of Commercial Mortgage Pass-Through Certificates, Series 2022-DATA to be issued by J.P. Morgan Chase Commercial Mortgage Securities Trust 2022-DATA:

-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (sf)
-- Class HRR at BB (low) (sf)

All trends are Stable.

The property is a 2019-built, hyperscale data center with 238,000 square feet (sf) of space and 46.2 megawatts of critical IT load and is 100% leased to Google LLC (Google) through 2029. DBRS Morningstar views the collateral as a strong asset with a strong critical infrastructure, including power and redundancy that is built to accommodate technology needs of not only today, but also into the future. The loan has low leverage with an appraised loan-to-value ratio (LTV) of 45.0% and a DBRS Morningstar LTV of 90%. The appraised dark value is $522.0 million, which provides adequate coverage for the loan in the event that the tenant vacates the property.

The collateral backing this transaction is a modern, hyperscale facility that was purpose built to the needs of the client. As such, DBRS Morningstar believes that the current tenant, or any replacement tenant, would find that the property is not only suitable for its current needs, but has the flexibility of design to grow as the industry's needs evolve. Google, the Internet search giant, is the sole tenant under a lease that expires in April 2029. As with many such centers, the tenant has termination options built into its lease to allow it to re-focus its operations in other areas. Google may terminate its lease any time after March 2024. While this creates a risk that the property could be left with no revenue after that date, DBRS Morningstar has considered certain mitigating factors.

From a financial standpoint, an exercise of the termination option requires 18 months' notice and the payment of a termination fee equal to the present value of all remaining lease payments. The termination fee could be as high as $143.6 million, or $603 per square foot (psf), should Google exercise the option in 2024. This payment would be equal to about 45% of the outstanding loan balance and would provide cash that could be used to update the center to attract a new tenant. A cash flow sweep would also be triggered upon notice of termination that would impound additional cash during the 18-month notice period.

From the standpoint of the physical plant, the property is heavily powered with over 46 megawatts of critical IT load. Since taking occupancy, Google has slowly ramped up its usage and steadily added equipment. The power usage as of May 2022 was about 17 megawatts, meaning that Google has room to grow at the property as its own needs increase. Further, the configuration of the property was built with flexibility in mind, so that if Google was to terminate the lease, the property would be leasable to single or multiple users. Furthermore, the power and redundancy are more than adequate for a modern user and the construction and security features are sufficient to maintain the continuity of operations and the safety of the data being stored at the facility. Therefore, DBRS Morningstar expects the use as a data center to continue going forward.

Data centers, while having existed in one form for another for many years, have become a key component in the modern global technology industry. The advent of cloud computing, streaming media, file storage, and artificial intelligence applications has increased the need for these facilities over the last 10 years in order to manage, store, and transmit data globally. While previous incarnations of data centers were often constructed in existing buildings and converted, the needs of the market have begun to require purpose-built facilities that are engineered for this single use.

Data centers require large amounts of power in order to operate all of the equipment on site, adequate cooling to protect the equipment from heat, and redundancy to ensure that the centers can continue to operate through any disruptions in service. These items are critical factors in rating a data center transaction, because the lack of any one of these components could potentially result in a data center becoming functionally obsolete as the industry grows. The property has good power input with multiple feeds from the electrical grid to reduce the risk of a short term disruption in power. In addition, the modern design of the facility allows for a Power Usage Effectiveness ratio of 1.09, which is highly efficient and means that a high percentage of the power employed by the facility is used by the IT equipment rather than by the infrastructure and overhead. The cooling infrastructure is robust with a large network of chillers. The cooling system consists of a process water system that reduces the need to constantly operate the chillers and reduces electricity usage.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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.

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.

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

With regard to due diligence services, DBRS Morningstar was provided with the Form ABS Due Diligence-15E (Form-15E), which contains a description of the information that a third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While due diligence services outlined in Form-15E do not constitute part of DBRS Morningstar’s methodology, DBRS Morningstar used the data file outlined in the independent accountant’s report in its analysis to determine the ratings referenced herein.

The principal methodology is the North American Single-Asset/Single-Borrower Ratings Methodology (February 28, 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.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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