Morningstar DBRS Confirms All Credit Ratings on JPMBB Commercial Mortgage Securities Trust 2015-C29

DBRS, Inc. (Morningstar DBRS) confirmed all credit ratings on the classes of Commercial Mortgage Pass-Through Certificates, Series 2015-C29 issued by JPMBB Commercial Mortgage Securities Trust 2015-C29 as follows:

-- Class A-3A1 at AAA (sf)
-- Class A-3A2 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AA (sf)
-- Class B at AA (low) (sf)
-- Class X-C at A (sf)
-- Class C at A (low) (sf)
-- Class EC at A (low) (sf)
-- Class D at CCC (sf)
-- Class E at C (sf)
-- Class F at C (sf)

Morningstar DBRS changed the trend on Classes C, X-C, and EC to Negative from Stable. Classes D, E, and F have credit ratings that do not typically carry trends in commercial mortgage-backed securities (CMBS) credit ratings. The trends on all remaining classes are Stable.

The credit rating confirmations reflect the overall stable performance for the majority of the loans in the transaction, which remains in line with the Morningstar DBRS expectations at the last rating action in March 2023, as evidenced by the pool’s generally healthy weighted average (WA) debt service coverage ratio (DSCR) of 1.41 times (x). As of the January 2024 remittance, 46 of the original 63 loans remain in the pool, representing a collateral reduction of 44.8% since issuance. To date, the trust incurred $6.6 million of losses from loan liquidations, all of which are contained to the non-rated class. In addition, 22.1% of the pool is defeased, and loans on the servicer’s watchlist represent 17.6% of the pool. Since the last rating action, one small loan repaid and another small loan liquidated from the pool with losses of $2.1 million, which was a more favorable outcome when compared with the Morningstar DBRS loss projection at the last rating action.

The credit rating confirmations on Classes D through E, which are rated CCC (sf) or C (sf), are reflective of Morningstar DBRS’ continued concern for loans in special servicing, representing 14.2% of the pool balance. In the analysis for this review, Morningstar DBRS assumed a liquidation scenario for these loans, resulting in a loss forecast of $67.8 million, fully eroding Class F and the non-rated Class NR, and majority of Class E. The Negative trends are reflective of the increased propensity for interest shortfalls related to loans in special servicing. In addition, the majority of the loans are scheduled to mature in 2025, and Morningstar DBRS is concerned with several loans backed by office properties (representing 14.3% of the pool) that are exhibiting performance declines from issuance, thereby increasing refinance risk. This includes the second largest loan, 2025 M Street (Prospectus ID#1, 10.5%), which reported low net cash flow (NCF) and occupancy figures. In all cases, those loans were analyzed in this review with stressed scenarios to increase the probability of default (PD) and/or increase the loan-to-value (LTV) ratios, as applicable, resulting in WA losses that are more than double the pool average expected loss. There are also a few loans backed by other property types that were analyzed with stressed scenarios given increased risks from issuance, further contributing to the pool’s increased expected loss with this review.

The largest specially serviced loan, One City Centre (Prospectus ID#2, 11.0% of the pool), is secured by the borrower’s fee interest in a 602,122-square foot (sf) office property in Houston’s central business district (CBD) and is part of a whole loan that was split pari passu between two CMBS transactions, both of which are rated by Morningstar DBRS. The loan transferred to special servicing in April 2021 because of imminent default related to the borrower’s unwillingness to fund operating shortfalls after the former largest tenant, Waste Management (40.5% of net rentable area (NRA)), vacated upon its lease expiration in December 2020. As of the most recent servicer reporting in September 2023, the occupancy rate remains relatively unchanged at approximately 25.0% where it has hovered since YE2021, a significant decline from 68.0% at YE2020 and 82.6% at issuance. Similarly, the loan has been reporting negative NCFs since 2022, compared with the issuance DSCR of 2.04x. Based on the August 2023 appraisal, the property was valued at $30.4 million. Given the lack of progress in resolving the loan, declining performance metrics, dismal leasing traction, and soft Houston office market fundamentals, the loan was analyzed with a liquidation scenario, resulting in a loss severity of approximately 85.0%.

Morningstar DBRS continues to be concerned about the persisting depressed performance of the second largest loan in the pool, 2025 M Street loan, which is secured by the borrower’s fee interest in a 191,281-sf office property in the Washington D.C. CBD. Occupancy has been depressed since the departure of the former second largest tenant, SmithBucklin Corp (37.3% of NRA), which vacated in June 2020, resulting in a drop in occupancy to nearly 63.0%; however, this has decreased further as per the September 2023 occupancy rate of 58.8%. DSCR continues to be well below break-even since 2021. As of the January 2024 loan level reserve report, there is $6.1 million held across reserves, which includes $2.4 million in the tenant reserve account and $3.5 million in the other reserve account. The loan remains current, with the borrower continuing to fund operating shortfalls. While marketing material for the available space and the servicer note anticipated property renovations, which further demonstrates the borrower’s commitment to the property, overall concerns related to the Washington office market loom. Given the deteriorated outlook for the office sector, prolonged lease-up period, and a DSCR below break-even, the loan was analyzed with a stressed scenario resulting in an expected loss that is nearly 2.5 times the loss for the pool.

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 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).

Classes X-A, X-B, and X-C 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 Morningstar DBRS.

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

The principal methodology is s 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. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The Morningstar DBRS Long-Term Obligation Rating Scale definition indicates that credit ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS’ outlooks and credit ratings are monitored.

DBRS, Inc.
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The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

-- North American CMBS Multi-Borrower Rating Methodology (November 3, 2023)/North American CMBS Insight Model v 1.2.0.0, (https://dbrs.morningstar.com/research/422859)
-- Rating North American CMBS Interest-Only Certificates (December 13, 2023), https://dbrs.morningstar.com/research/425261
-- 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
-- Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023), https://dbrs.morningstar.com/research/415687
-- 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 (July 17, 2023).

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