DBRS Morningstar Confirms Ratings on All Classes of DBJPM 2017-C6 Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed its ratings on all classes of the Commercial Mortgage Pass-Through Certificates, Series 2017-C6 issued by DBJPM 2017-C6 Mortgage Trust as follows:

-- Class A-3 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-M at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class X-B at AA (low) (sf)
-- Class C at A (high) (sf)
-- Class X-D at BBB (high) (sf)
-- Class D at BBB (sf)
-- Class E-RR at BB (high) (sf)
-- Class F-RR at BB (low) (sf)

All trends are Stable.

The rating confirmations reflect DBRS Morningstar’s stable outlook and loss expectations for the transaction, which have not materially changed from the last rating action in November 2022. No loans have been defeased, repaid, or liquidated since the last rating action, but the largest loan in the pool, 245 Park Avenue (Prospectus ID#1, 9.8% of the pool), which was previously in special servicing, has since been returned to the master servicer. As of the September 2023 remittance report, 34 of the original 41 loans remain in the pool, representing a collateral reduction of 16.0% since issuance. Three loans, representing 8.7% of the pool, are fully defeased. In addition, eight loans, representing 32.0% of the pool, are on the servicer’s watchlist and two loans, representing 1.7% of the pool, are in special servicing.

The largest loan on the servicer’s watchlist, 245 Park Avenue, is secured by a high-rise Class A, 1.8 million square feet (sf) office tower in Midtown Manhattan. The loan is pari passu with accompanying notes secured in several transactions, including six other transactions that are also rated by DBRS Morningstar. The loan previously transferred to special servicing in November 2021 after the original sponsor (PWM Property Management LLC, an affiliate of HNA Group Co.) filed for Chapter 11 bankruptcy. According to servicer documents, SL Green Realty Corp. (SL Green) purchased the property and assumed the debt in late 2022. The loan was returned to the master servicer in November 2022 following the loan assumption.

Occupancy has been declining in recent years because of the departure of several tenants at lease expiration, the most notable of which was major tenant Major League Baseball (MLB; previously 12.7% of the net rentable area (NRA)). MLB vacated in January 2020 prior to its October 2022 lease expiration, and back-filling the space has been challenging. According to the June 2023 rent roll, the property was 73.4% occupied, down from 78.8% at YE2022, 83.3% at YE2021, and 92.2% at issuance. There is moderate rollover risk in the near term as leases representing approximately 9.7% of the NRA are scheduled to expire through the next 12 months. While JP Morgan Chase Bank (previously 45.4% of the NRA) did not renew at its lease expiration in October 2022, two subtenants, Societe Generale (29.4% of the NRA) and Houlihan Lowkey (10.3% of the NRA), have executed direct leases through October 2032 and October 2033, respectively, according to the servicer’s latest commentary. Additionally, the average rental rate of leases that were executed in 2022 was $79.94 per sf (psf) with rental abatements provided, which is above the Q2 2023 Grand Central average effective and asking rental rate of $59.20 psf and $75.62 psf, respectively, per Reis.

According to the most recent financials, the YE2022 net cash flow (NCF) was reported at $92.3 million (reflecting a debt service coverage ratio (DSCR) of 2.30 times (x) on the senior debt; 2.07x on the whole loan), compared with the YE2021 NCF of $94.4 million (DSCR of 2.35x on the senior debt; 2.11x on the whole loan) and the DBRS Morningstar NCF of $89.1 million (DSCR of 2.22x on the senior debt). According to The Real Deal, SL Green sold 50.0% of its stake in the subject property to Mori Trust in a deal implying a property value of approximately$2.0 billion, which is 9.5% below the issuance value of $2.2 million. As such, for this review, DBRS Morningstar applied a loan-to-value (LTV) stress to this loan to account for the slight decline in implied value, resulting in an expected loss that remains lower than that of the pool’s average.

The two specially serviced loans in the pool transferred between May 2020 and June 2020 and are delinquent. Both of the underlying properties are in receivership. The receiver assigned to the Long Meadow Farms loan (Prospectus ID#31; 1.0% of the pool) has been working on stabilizing the property’s occupancy. As of March 2023, the property was 62.1% occupied, and, according to the special servicer’s latest update, there have been two new leases executed since then. The special servicer and borrower remain in negotiations regarding the workout strategy. The smaller of the two specially serviced loans, Union Hotel – Brooklyn (Prospectus ID#34; 0.7% of the pool), is in foreclosure proceedings. The updated appraisals for these loans indicate an average value decline of 25.5% since issuance. DBRS Morningstar projects $5.8 million in expected loss between these two assets, which is contained to the nonrated Class G-RR certificate.

The pool is concentrated by property type, where loans secured by office and retail properties each represent more than 20.0% of the current pool balance. In general, the office sector has been challenged, given the low investor appetite for the property type and high vacancy rates in many submarkets. However, of the five nondefeased office loans (21.8% of the pool), only three (17.8% of the pool) exhibited performance that suggested increased credit risk since issuance and were stressed in the analysis for this review, which resulted in a weighted-average expected loss that remained below the pool average.

The above noted concerns are mitigated by the overall stable performance of the majority of the pool. The 10 largest nondefeased loans represent 62.2% of the pool balance and are generally out-performing issuance expectations as of the most recent year-end reporting. Additionally, the second- and third-largest loans Gateway Net Lease Portfolio – Trust (Prospectus ID#2; 8.6% of the pool) and Olympic Tower – Trust (Prospectus ID#3; 8.4% of the pool) were shadow-rated investment grade at issuance. These assessments were supported by the loans' strong credit metrics, sponsorship strength, and historically stable performance. DBRS Morningstar confirms that, as of this review, the characteristics of these loans remain consistent with the investment-grade shadow rating.

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).

Classes X-A, X-B, and X-D 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 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
DBRS Tower, 181 University Avenue, Suite 700
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 CMBS Multi-Borrower Rating Methodology (March 16, 2023)/North American CMBS Insight Model v 1.1.0.0 (https://www.dbrsmorningstar.com/research/410913)

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 (August 23, 2023; https://www.dbrsmorningstar.com/research/419592)

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].