DBRS Morningstar Confirms Ratings on All Classes of J.P. Morgan Chase Commercial Mortgage Securities Trust 2022-DATA

DBRS Limited (DBRS Morningstar) confirmed its ratings on all Classes of the Commercial Mortgage Pass-Through Certificates, Series 2022-DATA issued by J.P. Morgan Chase Commercial Mortgage Securities Trust 2022-DATA as follows:

-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (sf)
-- Class HRR at BB (low) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which remains consistent with DBRS Morningstar’s expectations at issuance.

The transaction is collateralized by a 238,000-square-foot hyperscale data centre with 46.2 megawatts (MW) of critical IT load. The property is 100.0% leased to Google LLC (Google) through 2029 and was purpose-built to suit the tenant’s needs. DBRS Morningstar views the collateral favorably, given its strong critical infrastructure, including market leading power and redundancy capabilities.

The borrower used whole loan proceeds of $391.1 million, alongside $394.6 million of equity, to acquire the property for $709.0 million. The interest-only (IO) loan was structured with a 10-year term, maturing in May 2032, with no extension options. The loan benefits from strong sponsorship by TechCore, a joint venture of GI Partners, a private equity firm and California Public Employees Retirement System.

The property is in a prime location within Loudon County, Virginia, in a corridor referred to as Data Centre Alley, which has various advantages for data centre operators, including superior connectivity via an existing fiber network, low costs for power, and tax incentives for operators. The property has good power input with multiple feeds from the electrical grid to reduce the risk of a short-term disruption in power. Additionally, the cooling infrastructure is robust with a large network of chillers and consists of a process water system that reduces the need to constantly operate the chillers, effectively reducing electricity usage. The asset is one of the newest on the market, having been completed in 2019. DBRS Morningstar believes that the current tenant, or any replacement tenant, would find that the property is not only suitable for its current needs, but has the flexibility to grow as the industry's needs evolve.

Since taking occupancy, Google has slowly ramped up its usage and steadily added equipment. Power usage was reported at 17 MW, as of May 2022, meaning that Google has room to grow at the property as its own needs increase. Google may terminate its lease any time after March 2024, and while this creates a risk that the property could be left with no revenue after that date, DBRS Morningstar has considered certain mitigating factors. From a financial standpoint, an exercise of the termination option requires 18 months' notice and the payment of a termination fee equal to the present value of all remaining lease payments. The termination fee could be as high as $143.6 million, or $603 per square foot (psf), should Google exercise the option in 2024, or $90.7 million if the lease is terminated in 2026. This payment would be equal to about 45% of the outstanding loan balance and would provide cash that could be used to update the center to attract a new tenant. A cash flow sweep would also be triggered upon notice of termination that would impound additional cash during the 18-month notice period. As of the date of this release, Google’s termination option has not been exercised. Further, the configuration of the property was built with flexibility in mind, so that if Google was to terminate the lease, the property would be leasable to a single user or multiple users.

According to the most recent reporting for the period ending June 2022, the annualized net cash flow (NCF) of $27.9 million is 16.8% higher than the DBRS Morningstar NCF of $23.9 million, and the YE2022 debt service coverage ratio (DSCR) of 2.18x is above the DBRS Morningstar DSCR of 1.87x. DBRS Morningstar’s NCF analysis includes a higher capital expenditure and replacement reserve conclusion than budgeted at issuance, given the specialized property type. Loan leverage based on the appraised value is low at 45% appraised loan-to-value ratio (LTV); the DBRS Morningstar LTV is 90%. The appraised dark value is $522.0 million, which provides adequate coverage for the loan in the event that the tenant vacates the property.

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 (May 17, 2022).

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.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
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.

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].