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

DBRS, Inc. (Morningstar DBRS) confirmed its credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2022-ACB issued by J.P. Morgan Chase Commercial Mortgage Securities Trust 2022-ACB as follows:

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

All trends are Stable.

The credit rating confirmations reflect the overall stable performance of the transaction, as demonstrated by the underlying collateral property’s most recently reported strong occupancy rate and increasing net cash flow since issuance.

The loan is secured by the borrower's fee-simple interest in the American Copper Building, a luxury multifamily property in midtown Manhattan. The property is in the Murray Hill neighborhood overlooking the East River, close to Grand Central station and within walking distance of many large office buildings. The property offers extensive, superior amenities, including a rock-climbing wall, a fitness center and studios, a rooftop infinity pool, and spa facilities. The loan is sponsored by a joint venture between Black Spruce Management, which owns a portfolio of more than 40 properties across four boroughs in New York, and The Orbach Group, which focuses on affordable housing. Both sponsors own real estate portfolios exceeding $1.0 billion.

The Reis market data points to a strong submarket, as the vacancy rate is forecast to average 2.4% over the three-year period ending December 2027. Murray Hill, more specifically the Stuyvesant/Turtle Bay submarket, where the property is located, is the third-smallest of the nine New York Metro submarkets with the highest asking rent per unit.

The $675 million subject transaction consists of a $611.4 million mortgage loan and $63.5 million of mezzanine debt, which is spread across two separate loans. The transaction is interest only throughout its fully extended five-year term, with an initial two-year term and three one-year extension options. The fully extended maturity date is scheduled in March 2027. According to the servicer, the borrower requested to exercise their first extension option in March 2024.

The loan benefits from 421-a tax exemptions through June 2038, well past the fully extended loan term. The abatement exempts the property from 100% of its taxes on improvements for the first 12 years, with the exemption percentage declining in 20% increments every other year until year 20, when the exemption expires. As part of the terms of the tax exemption, the property is required to have designated affordable units and offers 160 affordable units, representing approximately 21.0% of the total unit count. The remaining 601 units are not subject to any rent restrictions. At issuance, the average monthly affordable rate for studio, one-bedroom, two-bedroom, and three-bedroom units was $854, $923, $1,111, and $1,302, respectively, which compares to the average monthly market rate for studio, one-bedroom, two-bedroom, and three-bedroom units of $4,027, $5,686, $9,125, and $12,336, respectively. The affordable units account for less than 5.0% of rental revenue. The benefit of the tax abatement is significant, as exhibited in the tax obligation of approximately $1.2 million for the 2021–22 period, well below the full tax liability of $16.3 million without the tax abatement.

According to servicer reporting as of September 2023, the overall property occupancy rate was 92.9%, relatively in line with the occupancy rate at issuance when the subject’s market-rent units were 93.7% occupied and the affordable units were 98.8% occupied. The two ground-floor retail tenants, Bright Horizons (a childcare provider) and Hole in the Wall (a restaurant) have lease expiration dates in February 2037 and July 2029, respectively, both of which are well beyond the loan’s fully extended maturity date. The servicer-reported annualized net cash flow (NCF) for the period ended September 30, 2023, was $38.2 million, compared with the YE2022 NCF of $34.6 million and the Morningstar DBRS NCF of $34.2 million. The debt service coverage ratio declined to 1.11 times (x) as of the trailing 12-months period ended September 30, 2023, from 1.34x at YE2022 because of the floating-rate nature of the loan.

At issuance, Morningstar DBRS derived a value of $595.5 million based on the Morningstar DBRS NCF of $34.2 million and a capitalization rate of 5.75%. The Morningstar DBRS value represents a 29.8% haircut from the issuance appraised value of $848.0 million. The resulting Morningstar DBRS loan-to-value ratio (LTV) was 102.7% on the mortgage loan and 113.3% when the mezzanine loan is factored in. Positive qualitative adjustments totaling 7.5% were applied to the LTV sizing at issuance to account for limited cash flow volatility because of the property’s historically high occupancy, as well as the property above-average quality and excellent location in the Murray Hill neighborhood with proximity to many demand drivers.

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 Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024; https://dbrs.morningstar.com/research/427030).

All credit ratings are subject to surveillance, which could result in credit ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by Morningstar DBRS.

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

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

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

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.

Morningstar DBRS 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://dbrs.morningstar.com/about/methodologies.

-- North American Single-Asset/Single-Borrower Ratings Methodology (October 19, 2023),
https://dbrs.morningstar.com/research/422174
-- Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023),
https://dbrs.morningstar.com/research/415687
-- DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 22, 2023),
https://dbrs.morningstar.com/research/420982
-- North American Commercial Mortgage Servicer Rankings (August 23, 2023),
https://dbrs.morningstar.com/research/419592
-- Legal Criteria for U.S. Structured Finance (December 7, 2023),
https://dbrs.morningstar.com/research/425081

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

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