DBRS Morningstar Confirms All Classes of J.P. Morgan Chase Commercial Mortgage Securities Trust 2021-1MEM

DBRS Limited (DBRS Morningstar) confirmed its ratings on the following classes of Commercial Mortgage Pass-Through Certificates issued by J.P. Morgan Chase Commercial Mortgage Securities Trust 2021-1MEM:

-- Class A at AAA (sf)
-- Class X 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 (low) (sf)
-- Class HRR at B (high) (sf)

All trends are Stable.

The rating confirmations and Stable trends reflect overall stable performance of the transaction, which benefits from the collateral property’s location within an area exhibiting strong demand and institutional sponsorship in MetLife and Norges Bank Investment Management. Although the property’s largest tenant, Intersystems Corporation (Intersystems), with nearly 60% of the net rentable area (NRA), has exercised a termination option and will be vacating it space, there are mitigating factors to support the rating confirmations and Stable trends with this review. The loan structure provides for a cash flow sweep to be initiated with the termination, which will net a significant amount of money for re-leasing efforts that should be bolstered by the favorable market dynamics.

The loan is collateralized by One Memorial Drive, a Class A, 17-story office building totaling 409,422 square feet directly adjacent to the Massachusetts Institute of Technology (MIT) campus in Cambridge, Massachusetts. The property includes a five-story, approximately 300-stall parking garage, and amenities include a fitness center, full-service café, on-site Blue Bike station, EV chargers, and bike storage. The property was built in 1985 and renovated in 2018, with approximately $49.0 million spent on capital improvements, including elevator modernizations, HVAC upgrades, roof replacements, and tenant improvements for the two largest tenants.

The whole loan proceeds of $414.0 million include six pari passu senior notes with an aggregate initial principal balance of $299.3 million and one junior note with an initial principal balance of $114.7 million. The subject transaction totals $255.8 million and consists of one senior note with a principal balance of $141.5 million and the junior note. The remaining notes are securitized in the BMARK 2021-B30 ($95.0 million) and BMARK 2021-B31 transactions ($63.2 million), neither of which are rated by DBRS Morningstar. The loan is interest-only (IO) throughout its 10-year term with a scheduled maturity in October 2031. The collateral’s strong occupancy to date contributed to the reported YE2022 NCF of $30.3 million, representing a whole loan debt service coverage ratio (DSCR) of 2.68 times (x). These figures remain in line with the DBRS Morningstar NCF and DSCR of $27.7 million and 2.45x at issuance.

The largest tenants at the property are InterSystems (58.5% of the NRA) and Microsoft Corporation (Microsoft) (38.3% of NRA). The property was 98.2% occupied as of YE2022. Microsoft has a lease scheduled to roll in 2028, two years prior to the loan’s scheduled maturity and there are no termination options available in Microsoft’s lease. It is considered an investment-grade tenant, has been in occupancy since 2007, and has one 10-year extension option remaining on its lease. InterSystems has been headquartered at the property since 1987, having executed multiple expansions in the building since. The tenant recently gave notice as of May 2022 of its intention to terminate its lease following a failed attempt to further expand space within the subject building. The termination will be effective 18 months from the date of the notice and a termination fee equal to unamortized leasing costs will be paid and reserved with the servicer. During the notice period, all excess cash flow is to be swept into a cash management account, and is projected to accumulate to a balance of approximately $27.6 million. DBRS Morningstar has requested confirmation of the balance of the sweep account and as of the date of this press release, the servicer’s response is pending.

The property is situated within Kendall Square, a global hub of research and development for the life sciences industry, and is near to MIT and Harvard. According to Reis, the submarket had a Q1 2023 vacancy rate of 11.9% (-110 basis points from Q4 2022) and an average rent of $81.55 per square foot (psf) for Class A office buildings in the area. In comparison, the property is achieving an average rental rate of $74.68 psf. InterSystems is currently paying a below-market rate, so there is upside potential in the tenant’s departure. Eighteen of the 20 largest pharmaceutical companies and 11 of the largest 15 biotechnology companies in the world have a presence in the submarket. The concentration of such pharmaceutical and biotech companies has driven technology companies such as Apple, Google, and others to seek traditional office spaces close to these life sciences companies, as evidenced by the submarket’s declining vacancy rate.

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/416784 (July 4, 2023).

Class X 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 credit ratings are subject to surveillance, which could result in credit 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 credit rating was initiated at the request of the rated entity.

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

This is a solicited credit rating.

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

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

The credit 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.

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

-- 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 (June 9, 2023); https://www.dbrsmorningstar.com/research/415687.

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

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/417279.

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