DBRS Morningstar Downgrades Ratings on Two Classes, and Changes Trends to Negative on Two Classes for JPMBB Commercial Mortgage Securities Trust 2015-C27

DBRS Limited (DBRS Morningstar) downgraded the following ratings on the Commercial Mortgage Pass-Through Certificates, Series 2015-C27 issued by JPMBB Commercial Mortgage Securities Trust 2015-C27:

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

DBRS Morningstar confirmed the remaining ratings 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 E at CCC (sf)
-- Class F at CCC (sf)

DBRS Morningstar changed the trends on Classes C and EC to Negative from Stable. The trends on Classes D and X-D remain Negative. All other trends are Stable with the exception of Classes E and F, which have ratings that do not carry trends. DBRS Morningstar also designated Classes D, E, and F as having Interest in Arrears.

The Negative trends and rating downgrades reflect the continued performance challenges for the loans showing increased risks from issuance, including two loans that remain in special servicing and several watchlisted loans that are being monitored for occupancy and performance declines. DBRS Morningstar’s concerns and outlook for these loans are further outlined below.

The rating confirmations reflect DBRS Morningstar’s view that, outside of the loans in special servicing and on the servicer’s watchlist, the transaction’s overall performance remains stable since the last surveillance review. The trust consists of 33 of the original 44 loans, with an aggregate principal balance of $610.4 million, reflecting a collateral reduction of 27.0% since issuance as a result of loan repayments and scheduled amortization. In addition, three loans, representing 2.7% of the pool, are fully defeased. As of the May 2022 reporting, there are 16 loans, representing 38.3% of the pool, on the servicer’s watchlist. There are two loans in special servicing, representing 16.5% of the pool, and one loan, 4.1% of the pool, that is 30+ days delinquent and still with the master servicer. The pool has not realized any losses to date; however, DBRS Morningstar expects significant losses will be realized with the resolution of the largest loan in special servicing, supporting the CCC (sf) ratings for Classes E and F and the downgrades for Classes D and X-D with this review. One loan previously in special servicing, Hampton Inn & Suites – Union Centre (Prospectus ID#25, 1.6% of the pool), has been resolved and returned to the master servicer. Although the resolution is considered a positive development, DBRS Morningstar notes that a July 2021 appraisal estimated an as-is value for the collateral hotel that suggests the loan-to-value ratio remains near 100%, suggesting the overall risk profile for the loan remains significantly elevated from issuance.

The largest specially serviced loan, The Branson at Fifth (Prospectus ID#3, 11.9% of the pool), is secured by a mixed-use (multifamily and retail) property in Midtown Manhattan, New York. The property was transferred back to special servicing for a second time in September 2021 based on insufficient cash flow and, as of the May 2022 remittance, remains delinquent. The borrower requested an additional loan modification in the form of forbearance or discounted payoff. The retail portion of the property is more than 20% vacant, and the sole tenant is paying reduced rent. Cash flows have been reported well below breakeven since YE2019, a trend that began with the loss of the sole commercial tenant at issuance, Domenico Vacca, earlier that year. The multifamily units were 89.3% occupied as of February 2022, up from 79.5% at November 2021. Updated values reported by the special servicer have been well below the issuance value of $119.0 million, with the most recent figure, from November 2021, showing an as-is value of $37.7 million, well below the trust’s exposure of approximately $75.0 million. Based on a haircut to the 2021 appraisal, DBRS Morningstar estimates a loss in excess of $40.0 million will be realized at resolution.

The second specially serviced loan, The Outlet Shoppes Of The Bluegrass (Prospectus ID#6, 4.5% of the pool), is secured by an outlet mall in Simpsonville, Kentucky, approximately 25 miles east of Louisville. The loan transferred to special servicing in February 2021 after the loan sponsor, CBL Properties (CBL), filed for bankruptcy. The loan has been current throughout the stint in special servicing and the servicer reports that, as of the May 2022 remittance, the loan has been modified as a corrected mortgage loan and will be returned to the master servicer once the waiver of default is finalized. The property was 93.0% occupied as of November 2021, and there have been several new tenants signed at the property including Rally House (1.8% of net rentable area (NRA)), a sports-centered apparel company which opened in April 2022, and Restoration Hardware Outlet, a luxury furniture company which opened in February 2022. In addition to recent leasing traction, the property reported annual sales of $395 per square foot at YE2020, in line with the previous year, suggesting the impact of the Coronavirus Disease (COVID-19) pandemic to mall traffic was relatively minimal. Revenues have fallen since issuance, however, with the YE2021 figure of $10.7 million up from the YE2020 figure by approximately $500,000, but almost $2.0 million below the Issuer’s figure of $12.7 million. The recent lease signings should contribute to an increase in revenues. Although CBL is considered a weaker operator, the subject property benefits from its status as the primary outlet mall in the Louisville area, with the nearest competing malls owned by Simon Property Group almost 100 miles away, in Edinburgh, Indiana, and Cincinnati, Ohio.

DBRS Morningstar is monitoring one of the larger watchlisted loans, 4141 North Scottsdale Road (Prospectus ID#9, 4.1% of the pool), which is secured by a Class A low-rise suburban office building in Scottsdale, Arizona. The loan was added to the servicer’s watchlist in June 2021 after the former largest tenant, Aetna, Inc. (Aetna; previously 71.0% of the NRA), failed to renew its lease 12 months prior to lease expiration and subsequently vacated the property at lease expiration in December 2021. No leasing activity has been reported, and the loan was reported 30+ days delinquent as of the May 2022 remittance. A springing lockbox was triggered with Aetna’s nonrenewal, and the loan reported approximately $1.06 million across the leasing and lockbox reserves as of May 2022. The property was 16.1% occupied at YE2021, and the servicer commentary notes several leads to backfill the vacancy and the borrower’s plan to complete comprehensive building upgrades as part of a marketing strategy. Leasing such a large space will be difficult in this environment and the market dynamics do not suggest heavy demand. According to Reis, similar properties within a five-mile radius reported an average vacancy rate of 21.0%. DBRS Morningstar has requested further information regarding the loan’s payment status and prospects for backfilling space. As of the date of this press release, the servicer’s response is pending.

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/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

Classes X-A, X-B, X-C, and X-D 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.

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.

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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