DBRS Morningstar Downgrades Two Classes of J.P. Morgan Chase Commercial Mortgage Securities Trust 2012-C8

DBRS Limited (DBRS Morningstar) downgraded ratings on two classes of Commercial Mortgage Pass-Through Certificates, Series 2012-C8 issued by J.P. Morgan Chase Commercial Mortgage Securities Trust 2012-C8 as follows:

-- Class X-B to B (sf) from B (high) (sf)
-- Class G to B (low) (sf) from B (sf)

The trends on both classes were changed to Stable from Negative.

The rating downgrades are reflective of increased concentration and exposure to underperforming assets following the repayment of all but one loan in 2022. Since the last rating action, 26 loans have repaid from the trust, contributing $606.2 million in principal, which paid down classes A-3 through F in addition to the notional class X-A certificate.

One loan remains outstanding. Ashford Office Complex (Prospectus ID#5, 100% of the current pool), transferred to special servicing in August 2022 after failing to repay at its scheduled maturity date. As of the November 2022 remittance, the loan remains current, and an updated appraisal has not yet been ordered; however, DBRS Morningstar believes the current collateral value is below the loan balance.

The loan is secured by three Class B office buildings in the heart of the Energy Corridor of Houston. Performance has been on the decline since 2017 as a result of volatility within the oil and gas industry, reporting debt service coverage ratios (DSCR) less than 1.0 times (x) since 2018. Occupancy declined in 2018 to 51% following the departure of several major tenants, and soft submarket conditions have been exacerbated by the pandemic, with occupancy falling further to 47.2% as of YE2021. The borrower has reportedly made progress on lease signings in 2022, resulting in occupancy increasing to 62.0% as of Q2 2022; however, the collateral’s submarket has historically experienced high availability, most recently reporting an average vacancy of 27.7% as of Q3 2022, according to Reis. The borrower has been covering operating shortfalls for several years as well as funding various capital expenditure projects and, according to special servicer commentary, is in the process of finalizing a maturity extension proposal.

With over $36.0 million remaining in the unrated first-loss piece, a minimum sale price of $22 per square foot would be required to repay Class G in full. With demand in the office sector weakening, DBRS Morningstar performed an in-depth analysis of the collateral value, using sales comparables from transactions completed over the past two years for comparable properties within the same submarket. DBRS Morningstar has concluded that, even though a loss to the loan is likely, Class G is sufficiently insulated.

ENVIRONMENTAL, SOCIAL, AND 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 (May 17, 2022).

Class X-B is an interest-only (IO) certificate that references 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.

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

The principal methodology is North American CMBS Surveillance Methodology (October 3, 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.

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

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