DBRS Morningstar Confirms Ratings on All Classes of J.P. Morgan Chase Commercial Mortgage Securities Trust 2021-NYAH

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

-- Class A at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AA (high) (sf)
-- Class X-CP at AA (sf)
-- Class X-EXT at AA (sf)
-- Class D at AA (low) (sf)
-- Class E at A (low) (sf)
-- Class F at BBB (low) (sf)
-- Class G at BB (low) (sf)
-- Class H at B (low) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the underlying loan, which has remained in line with DBRS Morningstar’s expectations since issuance. The transaction has experienced limited seasoning with minimal updates to the financial reporting since the transaction closed in November 2021.

The transaction is secured by the fee-simple interest in 11 multifamily portfolios comprising 31 properties across the Bronx, Brooklyn, Queens, and Upper Manhattan boroughs of New York. The properties are generally older construction; however, at issuance, the sponsor had invested roughly $130.6 million in capital expenditures since its acquisition of the properties and was working to complete renovations on approximately 200 units at issuance, which were to be funded from the $20.0 million upfront replacement reserve. Approximately 86.9% of the collateral units are rent-stabilized, affordable housing, which DBRS Morningstar views as favorable because of the enhanced cash flow stability. In addition, four properties, representing 18.3% of the allocated loan amount (ALA), benefit from some form of tax abatement or exemption.

The transaction benefits from experienced sponsorship in A&E Real Estate (A&E), a New York-based company that was founded in 2011. A&E is involved in direct asset management, property management, and construction management for its portfolio, which is primarily focused on moderate- and low-income housing in New York. According to an article by Real Estate Weekly published in November 2022, A&E had acquired more than 3,284 units over the past 12 months across 43 buildings in Brooklyn, Manhattan, and Queens, with ownership and management interests in more than 20,000 multifamily units throughout New York City.

The $600.0 million whole loan consists of a mortgage loan of $506.3 million, which serves as collateral for the trust, and a mezzanine loan of $93.7 million, that is split into two subordinate notes that do not serve as collateral. Loan proceeds were used to refinance existing debt, return equity to the transaction sponsor, fund upfront reserves, and pay closing costs. While the sponsor is using proceeds from the mortgage loan to repatriate $15.2 million of equity, approximately $175.0 million of unencumbered market equity remains in the transaction based on the appraiser’s as-is valuation of $775.0 million and $307.4 million of implied equity based on its cost basis of $907.4 million. The trust notes are evidenced by a three-year, floating-rate, interest-only (IO) loan, with an initial maturity date in June 2024, and two one-year extension options. The loan allows for pro rata paydowns for the first 22.5% of the original principal balance and has release provisions, allowing the release of individual assets at 105.0% of the ALA (aggregate prior releases must not exceed 25.0% of the original principal balance) and 110.0% of the ALA for the release of individual assets thereafter.

As of March 2023, the portfolio was 87.5% occupied, relatively in line with the reporting since issuance when occupancy was 90.5%. Based on the financials for the trailing 12 months ended March 31, 2023, the loan reported a net cash flow (NCF) of $25.3 million, which was greater than the YE2022 figure of $24.8 million, but below the DBRS Morningstar NCF of $29.3 million derived at issuance. While the servicer-reported financials reflect consistent growth in revenue, operating expenses have grown by almost 8.0% over the DBRS Morningstar figure, primarily driven by increased utilities, management fees, and professional fees. Given the increased expenses coupled with the rising interest rates, the loan’s debt service coverage ratio has fallen below breakeven to 0.73 times as of Q1 2023; however, the loan has been kept current to date, with a highly committed and incentivized sponsor.

At issuance, DBRS Morningstar derived a value of $468.6 million based on a capitalization rate of 6.25% and DBRS Morningstar NCF of $29.3 million, resulting in a DBRS Morningstar loan-to-value ratio (LTV) of 108.05% compared with the LTV of 65.3% based on the appraised value at issuance. The properties benefit from tax abatements, reduced cash flow volatility because of desirable rent-stabilized units in the New York City market, and considerable sponsorship investment. DBRS Morningstar made positive qualitative adjustments to the final LTV sizing benchmarks, totaling 4.5% to account for the cash flow volatility, properties’ quality, and market fundamentals.

ENVIRONMENTAL, SOCIAL, AND 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/416784 (July 4, 2023).

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 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 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, Inc.
22 West Washington Street
Chicago, IL 60602 USA
Tel. +1 312 332-3429

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.dbrsmorn ingstar.com/research/407008)

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