DBRS Morningstar Changes Trends on Ten Classes of J.P. Morgan Chase Commercial Mortgage Securities Trust 2018-WPT to Negative from Stable

DBRS Limited (DBRS Morningstar) confirmed its ratings on the following Commercial Mortgage Pass-Through Certificates, Series 2018-WPT issued by J.P. Morgan Chase Commercial Mortgage Securities Trust 2018-WPT:

-- Class A-FL at AAA (sf)
-- Class A-FX at AAA (sf)
-- Class XA-FX at AAA (sf)
-- Class B-FL at AA (low) (sf)
-- Class B-FX at AA (low) (sf)

-- Class C-FL at A (low) (sf)
-- Class C-FX at A (low) (sf)
-- Class X-FL at BBB (high) (sf)
-- Class XB-FX at BBB (high) (sf)
-- Class D-FL at BBB (sf)
-- Class D-FX at BBB (sf)
-- Class E-FL at BBB (low) (sf)
-- Class E-FX at BBB (low) (sf)
-- Class F-FL at BB (low) (sf)
-- Class F-FX at BB (low) (sf)
-- Class G-FL at B (low) (sf)
-- Class G-FX at B (low) (sf)

DBRS Morningstar changed the trends on Classes D-FX, E-FX, F-FX, G-FX, D-FL, E-FL, F-FL, G-FL, X-FL and XB-FX to Negative from Stable to reflect declines in performance metrics compared with DBRS Morningstar’s expectations and elevated refinance risk for the loan maturity in July 2023. The loan was transferred to the special servicer with the May 2023 remittance; no servicer commentary has been provided, but the transfer appears to be related to the upcoming maturity. The trends on all other classes are Stable.

The collateral loan is secured by the fee and leasehold interests in a portfolio of 147 properties, consisting of nearly 9.9 million square feet (sf) of office and flex space with a loan balance of $1.1 billion as of the April 2023 reporting, reflecting a 0.3% collateral reduction since issuance. Built between 1972 and 2013, the portfolio includes 88 office properties (6.5 million sf) and 59 flex buildings (3.4 million sf). Located across four states (Pennsylvania, Florida, Minnesota, and Arizona), the collateral encompasses five distinct metropolitan statistical areas (MSAs) and more than 15 submarkets. The largest concentration of properties is in the Philadelphia MSA, with 69 properties totaling 40.3% of the allocated loan balance (ALB) at issuance, followed by the Tampa MSA (34 properties; 16.5% of the ALB), the Minneapolis MSA (19 properties; 13.0% of the ALB), the Phoenix MSA (14 properties; 12.9% of the ALB), and the Southern Florida MSA (11 properties; 17.3% of the ALB). These properties are generally in dense suburban markets that benefit from favorable accessibility and proximity to their respective central business districts.

Property releases are permitted upon the following provisions: (1) a prepayment of 115% of the original allocated loan amount (ALA) and (2) a remaining portfolio loan-to-value ratio (LTV) equal to or less than the issuance LTV or the LTV prior to the release. Specific to the 155 Great Valley Parkway asset, there is a tenant with a purchase option at a price that is greater than the release price of 110% of the ALA.

The mortgage loan is split into (1) a floating-rate component of approximately $255.0 million, with a two-year initial term and three one-year extension options and (2) a five-year fixed-rate loan totaling $1.02 billion, comprising the $850.0 million trust balance and three companion loans totaling $170.0 million. The companion loans are secured across three other DBRS Morningstar-rated transactions, including BMARK 2018-B5, BMARK 2018-B6, and BMARK 2018-B7, as well as a fourth deal, BMARK 2018-B8, which was not rated by DBRS Morningstar.

According to the September 2022 financials, the annualized and consolidated net cash flow (NCF) for the trailing nine months ended September 30, 2022, was reported at $98.9 million (reflecting a debt service coverage ratio (DSCR) of 1.48 times (x)), a 2.2% decline from the YE2021 figure of $101.1 million (a DSCR of 1.57x) and the DBRS Morningstar NCF of $101.2 million. The cash flow decline was predominantly due to decreases in base rent and expense reimbursements following a drop in occupancy since YE2021. The servicer reporting reflects a September 2022 occupancy of 81.6%, down from 84.1% at YE2021 and a continuation of a three-year downward occupancy trend since 2019.

The high office concentration in the pool in addition to DBRS Morningstar’s cautious outlook for the office sector is a concern for refinancing at loan maturity in July 2023. According to the servicer, the previously noted plan by the borrower to release 68 properties for the purpose of refinancing has fallen through. DBRS Morningstar notes that the sustained decline in cash flows and limited options for borrowers looking to refinance loans backed by office properties have significantly increased the risks for this loan since last review. Given these stresses, DBRS Morningstar updated the LTV sizing in the analysis for this review to reflect an updated DBRS Morningstar value of $1.1 billion, based on the 8.8% cap rate used when ratings were assigned in 2020 and the YE2022 NCF of $98.9 million. This value represents a 36.1% variance from the issuance appraised value of $1.63 billion and is a decline from the DBRS Morningstar value of $1.2 billion, derived in 2020 and based on a DBRS Morningstar NCF of $104.7 million. The updated DBRS Morningstar value implies an LTV of 99.3% for the combined floating- and fixed-rate portions of the loan, as compared with the issuance LTV of 67.6%. The updated sizing suggested downward pressure on the ratings at the bottom of the capital stack, supporting the Negative trends on 10 classes as listed above.

The DBRS Morningstar ratings assigned to Classes E-FL, E-FX, F-FL, F-FX, G-FL, and G-FX are higher than the results implied by the LTV sizing benchmarks. These variances are warranted given uncertain loan-level event risk with the loan’s recent transfer to special servicing and upcoming maturity; DBRS Morningstar notes that the loan continues to perform above breakeven, with a relatively stable occupancy rate overall. The trend on all 10 of the classes showing these variances have Negative trends to reflect the downward pressure resulting from the analysis with this review.

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 (May 17, 2022).

Classes X-FL, XA-FX, and XB-FX 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.

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

The principal methodology is North American CMBS Surveillance Methodology (March 16, 2023; https://www.dbrsmorningstar.com/research/410912).

Other methodologies referenced in this transaction are listed at the end of this press release.

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 rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process for this rating action.

DBRS Morningstar had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is a solicited credit rating.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

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.

DBRS Limited
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Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

Rating North American CMBS Interest-Only Certificates (December 19, 2022; https://www.dbrsmorningstar.com/research/407577)

North American Single-Asset/Single-Borrower Ratings Methodology (February 23, 2023; https://www.dbrsmorningstar.com/research/410191)

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 12, 2022; https://www.dbrsmorningstar.com/research/402646)

North American Commercial Mortgage Servicer Rankings (September 8, 2022; https://www.dbrsmorningstar.com/research/402499)

Interest Rate Stresses for U.S. Structured Finance Transactions (August 30, 2022; https://www.dbrsmorningstar.com/research/402153)

Legal Criteria for U.S. Structured Finance (December 7, 2022; https://www.dbrsmorningstar.com/research/407008)

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