Morningstar DBRS Downgrades Credit Ratings on 10 Classes of JPMBB Commercial Mortgage Securities Trust 2015-C30

DBRS Limited (Morningstar DBRS) downgraded its credit ratings on 10 classes of Commercial Mortgage Pass-Through Certificates, Series 2015-C30 issued by JPMBB Commercial Mortgage Securities Trust 2015-C30 as follows:

-- Class X-B to A (sf) from AA (low) (sf)
-- Class B to A (low) (sf) from A (high) (sf)
-- Class X-C to BBB (low) (sf) from A (low) (sf)
-- Class C to BB (high) (sf) from BBB (high) (sf)
-- Class EC to BB (high) (sf) from BBB (high) (sf)
-- Class X-D to CCC (sf) from BB (sf)
-- Class D to CCC (sf) from BB (low) (sf)
-- Class X-E to C (sf) from B (sf)
-- Class E to C (sf) from B (low) (sf)
-- Class F to C (sf) from CCC (sf)

In addition, Morningstar DBRS confirmed the following credit ratings:

-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)

Morningstar DBRS changed the trends on Classes X-A, A-S, X-B, B, X-C, C, and EC to Negative from Stable. Classes X-D, D, X-E, E, and F have credit ratings that do not typically carry a trend in commercial mortgage-backed securities (CMBS) credit ratings. The trends on Classes A-4, A-5, and A-SB are Stable.

The credit rating downgrades reflect Morningstar DBRS’ increased loss projections for the pool, attributed to the three loans in special servicing and the largest loan on the servicer’s watchlist, which together represent 16.4% of the pool balance. With this review, Morningstar DBRS analyzed these four loans with liquidation scenarios at a total loss of nearly $93.0 million, as a result of sustained performance declines or value deterioration since issuance, which resulted in a significant reduction in the credit support for Classes B, C, and D; a partial principal writedown of approximately 90% for Class E; and a complete writedown for Classes F and NR. Additionally, the pool has a high concentration of loans secured by office properties, representing more than 50.0% of the pool balance, with sizable exposure to more challenged secondary and tertiary markets. Where applicable, Morningstar DBRS increased the probability of default penalties and/or increased loan-to-value ratios (LTV) to reflect the increased risk of maturity default. As the pool begins to wind down in 2025, Morningstar DBRS notes increased refinance risk for a few office-backed loans that could face difficulty securing replacement financing in the near to moderate term as performance declines from issuance and decreased tenant demand have likely eroded property values, which further supports the Negative trends on the classes most exposed to these increased risks with this review.

As of the April 2024 remittance, 55 of the original 70 loans remained in the pool with an aggregate principal balance of $990.5 million, representing a collateral reduction of 25.6% since issuance. There are 11 loans, representing 9.6% of the pool balance, that are fully defeased. As noted, the pool is heavily concentrated by office properties, followed by retail properties, representing 25.0% of the pool balance. There are 10 loans, representing 12.8% of the pool balance, on the servicer’s watchlist, and three loans, representing 11.6% of the pool balance, in special servicing.

The largest loan in special servicing, the Sunbelt Portfolio (Prospectus ID#3, 5.9% of the pool), is secured by the fee-simple interests in a portfolio of three office properties totaling 1.3 million square feet (sf) in Birmingham, Alabama; and Columbia, South Carolina, 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 January 2022 for imminent monetary default and was listed as delinquent with the April 2024 reporting. At last review, the servicer commentary suggested an agreement had been reached with the borrower to return the loan to the master servicer; however, the borrower had recently submitted a short-term payment deferral while the special servicer worked with the borrower to use lockbox funds to cover shortfalls. Concurrently, the special servicer is dual tracking the appointment of a receiver.

The portfolio has experienced precipitous occupancy declines in recent years, with the most recent figure showing the properties were 64.9% occupied as of YE2023, compared with 70.9% occupancy as of YE2022 and 85.4% at issuance. Because of declining occupancy, cash flows have fallen, with the YE2023 debt service coverage ratio (DSCR) at 0.80 times (x), down from 1.12x at YE2022 and 1.93x at issuance. The largest tenants as of the September 2023 rent roll included Nelson Mullins Riley & Scarborough (11.0% of the net rentable area (NRA), lease expiry in July 2030), Shipt Inc. (8.4% of the NRA, lease expiry in October 2030), and Burr & Forman LLP (7.9% of the NRA, lease expiry in December 2034). Through YE2024, there is minimal rollover concern at approximately 4.0% of the NRA; however, prior to the loan maturing in July 2025, leases representing 10.0% of the NRA are scheduled to expire.

To date, there is no updated appraisal for the subject, which was valued at $203.3 million at issuance; however, Morningstar DBRS expects the value to have declined. The portfolio’s location, declining occupancy rates, upcoming maturity, and the general uncertainty with office assets will complicate any workout and eventual refinance or disposition in the near future. Morningstar DBRS’ analysis included a liquidation scenario based on a stress to the issuance appraised value, resulting in a projected loss severity approaching 30.0% with this review.

The second-largest loan in special servicing, One City Centre (Prospectus ID#12, 4.0% of the pool), is secured by the borrower’s fee interest in a 602,122-sf office property in Houston’s central business district 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 the NRA), vacated upon its lease expiration in December 2020.

As of the most recent servicer reporting in December 2023, the occupancy rate remained relatively unchanged at approximately 24.0%, 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 net cash flows since 2022, compared with the issuance DSCR of 2.04x. Based on the August 2023 appraisal, the property was valued at $30.4 million, well below the issuance appraised value of $162.0 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 based on a stress to the most recent appraised value, resulting in a projected loss severity approaching 85.0%.

The largest loan on the servicer’s watchlist, the Castleton Park loan (Prospectus ID#6, 4.6% of the pool), is secured by a 903,325-sf office park that is made up of 31 office buildings in a northeast suburb of Indianapolis. The loan was placed on the servicer’s watchlist in December 2020 for low DSCR, driven primarily by a steady decline in occupancy and average rental rate since issuance. As of the December 2023 rent roll, the total occupancy was reported at 56.0%, with approximately 15.0% of the NRA subject to lease expiration prior to loan maturity in July 2025. According to the servicer, the borrower has several proposals to fill vacant spaces, which could total as much as 75,000 sf (8.3% of the NRA); however, no meaningful leasing momentum has recently been garnered to stabilize the portfolio prior to maturity and leasing details have not yet been provided.

The subject has historically struggled to maintain a stabilized occupancy with rates as low as 65.3% in 2012; however, the portfolio had a stabilized occupancy of 94.1% at contribution, which has slowly declined since, exacerbated by the effects of the coronavirus pandemic. While the collateral is well maintained and the borrower has kept the loan afloat, the buildings were constructed between 1972 and 1986 and are dated, which could hinder leasing traction, especially when coupled with the current headwinds of backfilling vacancy given the investor demand for this property type. There are reserves in place to fund potential costs should leases be signed, with nearly $4.0 million in lockbox receipts and leasing reserves as of April 2024.

The largest tenant is Royal United Financial Services LLC (6.2% of the NRA, lease expiry in February 2025), followed by Community Health Network, Inc. (5.4% of the NRA, lease expiry in February 2025), and Johnson Controls (4.5% of the NRA, lease expiry in July 2033). According to a Q4 2023 Reis report, the vacancy rate in the Northeast Indianapolis submarket was reported at 22.5%. As of the YE2023 financials, the loan reported a DSCR of 0.38x, down from 0.42x at YE2022, 0.67x at YE2021, and 1.09x at YE2020. While the borrower has continued to keep the loan current out of pocket, Morningstar DBRS estimates the collateral’s as-is value has declined significantly from issuance, with a balloon LTV that could be well over 250.0%, indicating the loan will face significant challenges in refinancing and likely incur loss upon disposition. Morningstar DBRS’ analysis included a liquidation scenario based on a stress to the issuance appraised value, resulting in a projected loss severity approaching 66.0% with this review.

At issuance, Morningstar DBRS shadow-rated the Pearlridge Center (Prospectus ID#2, 7.3% of the pool) and Scottsdale Quarter (Prospectus ID#11, 4.2% of the pool) loans as investment grade. The collateral for both loans has generally performed above Morningstar DBRS’ expectations and historically reported healthy DSCRs. Morningstar DBRS confirmed that the performance of these loans remains consistent with investment-grade loan characteristics with this review.

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 https://dbrs.morningstar.com/research/427030 (January 23, 2024).

Classes X-A, X-B, X-C, X-D, and X-E 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 North American CMBS Surveillance Methodology (March 1, 2024), https://dbrs.morningstar.com/research/428798.

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.
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 Limited
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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 CMBS Multi-Borrower Rating Methodology (March 1, 2024)/North American CMBS Insight Model version 1.2.0.0, https://dbrs.morningstar.com/research/428797
-- 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
-- Legal Criteria for U.S. Structured Finance (April 15, 2024), https://dbrs.morningstar.com/research/431205

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].