DBRS Morningstar Confirms Ratings on J.P. Morgan Chase Commercial Mortgage Securities Trust 2021-MHC

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on the following classes of JPMCC 2021-MHC Mortgage Trust Commercial Mortgage Pass-Through Certificates issued by J.P. Morgan Chase Commercial Mortgage Securities Trust 2021-MHC (the Issuer):

-- Class A at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AA (high) (sf)
-- Class X-CP at A (high) (sf)
-- Class X-EXT at A (high) (sf)
-- Class D at A (sf)
-- Class E at BB (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which remains in line with DBRS Morningstar’s expectations at issuance. The loan is secured by the fee-simple interest in a portfolio of 93 manufactured housing communities (MHCs) containing 11,129 pads and one self-storage property across 13 states, with the largest concentrations in the Midwest and Texas. Of the 11,129 total pads, 10,897 are manufactured housing pads, 194 are recreational vehicle pads, and 38 are site-built homes. The collateral benefits from an experienced sponsor, Horizon Land Management, that demonstrated its commitment to the portfolio with a significant equity contribution at acquisition, which represented 34.8% of the purchase price.

According to the February 2023 remittance, the current loan balance is $478.5 million, reflecting nominal collateral reduction since issuance, attributable to the release of two properties within the collateral portfolio. Net operating income (NOI) as of YE2022 was $35.3 million compared with the Issuer’s NOI of $34.4 million and the DBRS Morningstar NOI of $30.3 million at issuance. The servicer reported YE2022 debt service coverage ratio (DSCR) declined to 1.69 times (x) compared with the YE2021 DSCR of 2.41x, the Issuer’s DSCR of 2.29x, and the DBRS Morningstar DSCR of 2.01x at issuance as a result of interest rate volatility. DBRS Morningstar notes the property type benefits from its status as a more affordable housing option within the portfolio’s markets compared with homeownership and multifamily and single-family home rental rates. As a result, MHC pad renters tend to have higher renewal probabilities—even with annual rental rate increases—than traditional multifamily renters, as the cost to move manufactured homes deters pad lessees from moving manufactured homes to competitive MHCs. In addition, MHC properties have historically performed well during prior economic recessions relative to other property types.

The floating-rate interest-only (IO) loan has an initial term of 24 months, with three one-year extension options available. The $488.6 million first-mortgage loan, $40.0 million mezzanine loan, and $258.8 million of sponsor equity were used to acquire the portfolio for $743.3 million, fund an earn-out reserve of $11.0 million, finance an immediate repair upfront reserve of $1.0 million, and cover closing costs of $32.2 million. The transaction is structured to allow the release of one or more individual properties upon prepayment of 105% of the allocated loan amount (ALA) for such individual property, except in the case of the five individual properties with the greatest ALA, for which 110% of the ALA for such individual property will be required.

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 (May 17, 2022).

Classes X-CP and X-EXT are 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.

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 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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