Morningstar DBRS Changes Trends on 11 Classes of JPMBB Commercial Mortgage Securities Trust 2015-C33 to Negative from Stable, Confirms Credit Ratings on All Classes

DBRS Limited (Morningstar DBRS) confirmed all credit ratings on the classes of Commercial Mortgage Pass-Through Certificates, Series 2015-C33 issued by JPMBB Commercial Mortgage Securities Trust 2015-C33 as follows:

-- Class A-3 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 (high) (sf)
-- Class B at AA (sf)
-- Class X-C at A (high) (sf)
-- Class C at A (sf)
-- Class D-1 at BBB (high) (sf)
-- Class X-D at BBB (sf)
-- Class D-2 at BBB (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (sf)
-- Class F at BB (low) (sf)
-- Class G at B (low) (sf)

Morningstar DBRS changed the trends on Classes B, C, D-1, D-2, D, E, F, G, X-B, X-C, and X-D to Negative from Stable. The Negative trends are reflective of an increase in Morningstar DBRS' projected loss expectations for the pool, primarily driven by the largest loan in the pool, 32 Avenue of the Americas (Prospectus ID#1, 20.7% of the current pool balance), along with four other loans Morningstar DBRS identified as being at increased risk of maturity default, given observed performance declines, concentrated upcoming tenant roll, and other refinance concerns. All but three small loans that represent 1.7% of the pool are scheduled to mature within the next 18 months. In a wind-down scenario where performing loans successfully repay from the pool, the potential for an adverse selection is significant given that Morningstar DBRS' loans of concern represent 36.6% of the pool balance. Should performance of these loans fail to stabilize or deteriorate further, or should future defaults occur, classes with Negative trends may be subject to credit rating downgrades. The trends on Classes A-3, A-4, A-SB, A-S, and X-A are Stable.

As of the April 2024 remittance, 58 of the original 64 loans remained in the trust, with an aggregate balance of $603.3 million, representing a collateral reduction of 20.8% since issuance. There are 13 fully defeased loans, representing 19.6% of the current pool balance. There is one loan with the special servicer, Fort Wayne Retail Portfolio (1.4% of the current pool balance), with Morningstar DBRS' projected losses well contained in the nonrated class. There are five loans on the servicer's watchlist that represent 26.7% of the pool, including the largest loan in the trust. The loans on the watchlist are being monitored primarily for occupancy and debt service coverage ratio (DSCR) declines. The pool is extremely concentrated by loan size, as the largest loan in the pool accounts for 20.7% of the entire deal balance. By property type, excluding defeasance, the pool is most concentrated by office properties, which represent 23.4% of the pool, followed by multifamily and retail properties which represent 22.7% and 20.3% of the pool, respectively.

The largest loan in the pool is 32 Avenue of the Americas, which is secured by a 1.2 million-square-foot (sf) dual office and data center property in Manhattan's Tribeca district. The 10-year interest-only (IO) loan is scheduled to mature in November 2025. It is one of five pari passu pieces of a $425.0 million whole loan, with other senior portions securitized in JPMCC 2015-JP1 and COMM 2016-CCRE28, which are also rated by Morningstar DBRS. The loan was added to the servicer's watchlist in April 2023 because of occupancy decline. Occupancy has trended downward year over year for the past several years. As per the December 2023 rent roll, the property was 60.5% occupied, down from 70.0% at YE2022, 75.6% at YE2021, and 95.0% at issuance. Consequently, the loan's DSCR has also been declining, with the YE2023 DSCR reported at 1.03 times (x), compared with the YE2022 DSCR of 1.78x and YE2021 DSCR of 1.96x. The loan is equipped with a cash management account, which will be activated at a DSCR trigger of 1.15x for two consecutive quarters. However, given the loan's coverage, it is unlikely that a meaningful amount of cash can be swept.

The performance declines can be attributed to the downsizing and departures of prominent tenants at the subject. Former largest tenant AMFM Operating Inc., part of iHeartMedia, vacated at lease expiry in December 2022. At issuance, the tenant occupied 14.6% of the net rentable area (NRA) but had downsized to 8.1% of the NRA prior to vacating. The current largest tenants are TELX (12.6% of the NRA, lease expiry in July 2033), Dentsu Holdings USA Inc. (Dentsu; 6.0% of the NRA, lease expiry in August 2025), and Cedar Cares Inc. (5.7% of the NRA, lease expiry in August 2027). At issuance, TELX occupied 22.5% of the NRA, and Dentsu occupied 14.5% of the NRA. However, both tenants began slowly giving back their space over the years, eventually downsizing to their current footprints at the subject. Moreover, as per the servicer commentary, Cedar Cares Inc. is looking to sublease some space as it has not grown as expected. There is also approximately 25% rollover risk prior to loan maturity, which would further exacerbate the property's performance since issuance and elevate refinancing risk.

The sponsor, Rudin Management, is currently advertising 41.6% of the NRA as available for leasing at an average rental rate of $73.79 per sf (psf), which is slightly higher than the current average in-place rental rate of $71.74 psf according to the December 2023 rent roll. As per Reis, office properties in the South Broadway submarket reported a YE2023 vacancy rate of 14.1% with an average asking rental rate of $72.52 psf, up from the YE2022 vacancy rate of 10.7% and average asking rental rate of $70.10 psf. Although the subject is a prominent telecom building in Manhattan, with infrastructure that has historically made it a popular location for data center and telecom tenants, media sources indicate the sponsor is exploring options to convert some space to retail use in the hopes of attracting leasing activity. However, given that the sponsor recently spent approximately $100 million renovating a nearby asset at 80 Pine Street with little notable impact on occupancy or value, combined with observed challenges in the current office landscape, the building's age, consistently declining occupancy, and a history of tenant departures/downsizing, Morningstar DBRS remains pessimistic about the property's near-term leasing prospects. Morningstar DBRS expects the borrower to face challenges in securing refinancing at loan maturity next year. Based on these factors, Morningstar DBRS analyzed this loan with an elevated loan-to-value ratio and a probability of default adjustment to increase the expected loss to approximately twice the weighted-average expected loss of the pool. Given the loan size relative to the pool as a whole, this is the primary driver of Morningstar DBRS' credit rating action.

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, and X-D are IO certificates that reference a single rated tranche or multiple rated tranches. The IO credit 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.

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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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].