DBRS Morningstar Downgrades Two Classes of JP Morgan Chase Commercial Mortgage Securities Trust 2011-C3

DBRS Limited (DBRS Morningstar) downgraded two classes of the Commercial Mortgage Pass-Through Certificates, Series 2011-C3 issued by JP Morgan Chase Commercial Mortgage Securities Trust 2011-C3 as follows:

-- Class F to C (sf) from CCC (sf)
-- Class G to C (sf) from CCC (sf)

In addition, DBRS Morningstar confirmed the remaining classes as follows:

-- Class B at AAA (sf)
-- Class C at AA (low) (sf)
-- Class D at BBB (high) (sf)
-- Class E at B (sf)
-- Class H at C (sf)
-- Class J at C (sf)

DBRS Morningstar maintained the Negative trends on Classes D and E. The trends on Classes B and C remain Stable. Classes F, G, H, and J have ratings that do not carry trends.

The downgrades and Negative trends reflect the significant property value declines from issuance and the sustained weakened performance of the Holyoke Mall (Prospectus ID#1, 76.8% of the pool) and Sangertown Square (Prospectus ID#6, 23.2% of the pool) loans. Both properties are regional malls owned and operated by affiliates of the Pyramid Companies (Pyramid). A hypothetical liquidation scenario for both loans was applied in the DBRS Morningstar analysis with additional stress applied to the most recently reported appraisal values. DBRS Morningstar acknowledges there has been erosion in credit support to the bottom rated classes in the transaction in light of the significant value declines for both properties; however, DBRS Morningstar believes that further significant value decline would be needed to suggest potential losses to the investment-grade rated classes.

Holyoke Mall is secured by a 1.6 million-square-foot (sf) regional mall in Holyoke, Massachusetts. The mall is anchored by JCPenney, Macy’s, Target, and Burlington Coat Factory with Macy’s owning its space and not part of the loan collateral. One anchor space remains empty as Sears vacated in 2018. Junior anchors include Round1, Best Buy, DSW, Hobby Lobby, and Planet Fitness, which opened in 2019. An updated appraisal completed in August 2020, valued the property at $200 million, down from $400 million at issuance. The updated value reflects a trust debt loan-to-value ratio (LTV) of 100% and a whole loan LTV of 117.5% when factoring in the $35 million mezzanine loan. Pyramid had begun the process of converting the vacant Sears space into a Cinemark theater prior to the onset of the pandemic, securing permits in late 2019; however, an online article from masslive.com dated March 2022 noted the project remains on hold due to construction materials shortages. The loan returned to the master servicer in May 2021 after the servicer rejected the request for a second modification. Performance improved throughout 2021 as the year-end (YE) 2021 net cash flow (NCF) was 9.0% above the YE2019 NCF but remains 20% below issuance levels. Occupancy has remained stable, reported at 69.0% as of December 2021, similar to the 70.0% occupancy rate as of December 2020. As of the most recently reported financials, the loan reported a YE2021 debt service coverage ratio (DSCR) of 1.39 times (x), an increase from the YE2020 DSCR of 1.15x, but remaining below the issuance DSCR of 1.62x. The loan will remain on the servicer’s watchlist for a servicing trigger event, which will remain in effect until all amounts due on the loan have been paid in full. As of the May 2022 reserve report, the aggregate balance of $5.4 million consisted primarily of $3.0 million in the rollover account and $1.9 million in the other account. In its analysis, DBRS Morningstar assumed a hypothetical loss severity on the trust loan in excess of 30%

Sangertown Square is secured by a 894,127-sf regional mall in New Hartford, New York, a tertiary market between Utica and Syracuse. The loan transferred back to the master servicer in December 2021 following its second modification. Terms included the extension of the interest-only period to September 2022 from August 2020 and the deferral of any accrued amounts owed to be repaid over a 24-month period instead of 12 months, beginning January 2021. The most recent appraisal, dated November 2021, valued the property at $19.1 million, representing a 82% decline from the issuance value of $107.0 million. The property is anchored by Dick’s Sporting Goods, Target, and Boscov's, with the other two anchor spaces formerly occupied by JC Penney and Macy’s remaining vacant. The occupancy rate remained depresse, as of the December 2021 rent roll at 58.0% occupied compared with the 76.0% occupancy rate at YE2020 following JC Penney’s departure. Although the second loan modification has provided the borrower temporary relief, the decline in value indicates the trust will likely realize a significant loss at resolution. In its analysis, DBRS Morningstar assumed a hypothetical loss severity on the trust loan in excess of 75.0%.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) 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.

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 this transaction.

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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