Morningstar DBRS Confirms All Credit Ratings on J.P. Morgan Chase Commercial Mortgage Securities Trust 2021-MHC

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

-- Class A at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AA (high) (sf)
-- Class X-EXT at A (high) (sf)
-- Class D at A (sf)
-- Class E at BB (sf)

All trends are Stable.

The credit rating confirmations reflect the stable performance of the transaction, which remains in line with Morningstar DBRS’ expectations at issuance. At issuance, the floating-rate interest-only (IO) loan was secured by the fee-simple interest in a portfolio of 93 manufactured housing communities containing 11,129 pads and one self-storage property across 13 states, with the largest concentrations in the Midwest and Texas. Of the 11,129 total pads, 10,897 are manufactured housing pads, 194 are recreational vehicle pads, and 38 are site-built homes.

According to the January 2024 remittance, the loan balance was $478.5 million, reflecting a 2.1% collateral reduction from the issuance figure of $488.6 million, because of the release of the River View property in 2021. The transaction documents allow for property releases at a release price of 105.0% of the allocated loan amount (ALA) for all but the five largest properties by ALA, and 110.0% of the ALA for the largest five properties.

Initial loan proceeds of $488.6 million along with a $40.0 million mezzanine loan and $258.8 million in sponsor equity were used to acquire the portfolio for $743.3 million, fund an earn-out reserve of $11.0 million, finance an immediate repair upfront reserve of $1.0 million and cover closing costs of $32.2 million. The loan is structured with an initial two-year term, with three one-year extension options bringing the fully extended maturity to April 2026. The loan is currently scheduled to mature in April 2024 and the borrower may exercise the second extension option, which is subject to a few requirements including no events of default, the borrower to purchase a replacement interest rate cap agreement, the loan must maintain a minimum debt yield of 6.0%, and an extension of the mezzanine loan. Based on the trailing 12 month period (T-12) ended September 30, 2023, financials, the portfolio reported a net cash flow (NCF) of $37.0 million, which is equivalent to a debt yield of 7.7%. The NCF is an improvement over the Morningstar DBRS NCF of $29.1 million, which accounts for the released property. It is worth noting that the most recent financials reported an A note debt service coverage ratio (DSCR) of 1.05 times (x) as a result of increases to the debt service given the floating-rate nature of the loan; however, it appears that the reporting does not account for the in-place interest rate cap agreement which ensures the DSCR does not fall to less than 1.10x. The portfolio was 84.1% occupied as of September 2023, generally in line with historical trends but slightly below the issuance occupancy rate of 87.4%.

In the analysis for this review, the Morningstar DBRS NCF was updated to reflect the released property, resulting in a Morningstar DBRS NCF of $29.1 million. A capitalization rate of 7.25% applied at issuance was maintained, resulting in an updated Morningstar DBRS value of $400.8 million, which represented a variance of -40.5% from the adjusted issuance appraised value of $673.1 million for the remaining properties in the portfolio. The Morningstar DBRS value implies a loan-to-value (LTV) of 119.4%, generally unchanged from the Morningstar DBRS LTV at issuance of 119.7%. Morningstar DBRS Maintained positive qualitative adjustments to the final LTV sizing benchmarks used for this credit rating analysis, totalling 7.5% to reflect the generally low cash flow volatility, good property quality and strong market fundamentals.

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 at (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.

Class X-EXT is an 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 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 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.

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

-- North American Single-Asset/Single-Borrower Ratings Methodology (October 19, 2023), https://dbrs.morningstar.com/research/422174
-- 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.

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