Morningstar DBRS Changes Trends on Four Classes of J.P. Morgan Chase Commercial Mortgage Securities Trust 2021-NYAH to Negative From Stable, Confirms Credit Ratings on All Classes

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on all classes of JPMCC 2021-NYAH Commercial Mortgage Pass-Through Certificates issued by J.P. Morgan Chase Commercial Mortgage Securities Trust 2021-NYAH as follows:

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

Morningstar DBRS changed the trends on Classes E, F, G, and H to Negative from Stable. The trends on all remaining classes are Stable.

The Negative trends reflect Morningstar DBRS' concerns for the underlying loan, which is collateralized by the borrower's fee-simple interest in 11 multifamily portfolios comprising 31 properties across the Bronx, Brooklyn, Queens, and Upper Manhattan boroughs of New York. The loan matured in June 2024; however, the master servicer and the borrower are still discussing a potential maturity extension while exploring options regarding a replacement interest rate cap agreement. Morningstar DBRS notes that a transfer to the special servicer could be imminent if a resolution is not reached in the near term. The portfolio is highly exposed to rent-stabilized, affordable housing, which represents 86.9% of the total units. Although occupancy across the portfolio has remained above 85.0% since 2019, with the most recent reporting reflecting cash flow that is relatively in line with the issuance figure, the Housing Stability & Tenant Protection Act of 2019, elevated inflation rates, and increasing operating expenses--which continue to outpace permitted rental rate increases for rent stabilized apartments--have, in some instances, critically impaired the value of rent-stabilized assets in New York City over the past five years. In addition, given the floating-rate nature of the loan, debt service obligations have increased considerably, placing downward pressure on the debt service coverage ratio (DSCR), which could complicate the borrower's efforts to secure replacement financing in the near to moderate term.

To further test the durability of the credit ratings, Morningstar DBRS considered a stressed scenario by applying a haircut to the in-place net cash flow (NCF) and using a capitalization rate of 6.25%. The result of that analysis indicates downward pressure on the lower-rated bonds, further supporting the Negative trends assigned to Classes E, F, G, and H. However, the higher-rated classes remain generally well-insulated with the unrated Class J and KRR representing the first loss certificates and having a cumulative balance of $56.5 million as of the August 2024 remittance, supporting the credit rating confirmations with this review.

The properties within the portfolio, which in aggregate consist of 3,531 units, were built between 1915 and 1964; however, the sponsor has invested $130.6 million ($36,982 per unit) toward capital improvements since its acquisition. Specifically, the sponsor has completed $96.0 million ($27,202 per unit) of building wide capex and 1,255 unit renovations. At issuance, the sponsor was working toward completing an additional 227 unit renovations at a cost of $34.5 million ($23,303 per unit). Morningstar DBRS has reached out to the servicer for an update on the status of those renovations. Four properties, representing 18.3% of the allocated loan amount (ALA), benefit from some form of tax abatement or exemption. As of the August 2024 reporting, reserve balances total $4.9 million, the majority of which is held in a replacement reserve account.

The sponsor for the loan is A&E Real Estate (A&E), a privately owned, New York-based real estate management and investment firm founded in 2011. A&E is involved in direct asset management, property management, and construction management for its portfolio, which is primarily focused on moderate- and low-income housing with ownership and management interests in more than 15,000 multifamily units throughout New York City.

The $600.0 million whole loan consists of a mortgage loan of $506.3 million, which serves as collateral for the trust, and a mezzanine loan of $93.7 million, that is split into two subordinate notes that do not serve as collateral. While the sponsor used proceeds from the mortgage loan to repatriate $15.2 million of equity at issuance, approximately $175.0 million of unencumbered market equity remained in the transaction based on the appraiser's as-is valuation of $775.0 million. In addition, since acquiring the properties between 2015 and 2017 for $776.8 million, the sponsor has invested a considerable amount of capital toward property improvements, as noted above. As such, the resulting cost basis at issuance was approximately $910.0 million, suggesting the sponsor's implied equity totals more than $300.0 million.

The floating-rate, interest-only (IO) loan had an initial maturity date in June 2024, with two one-year extension options that are subject to the purchase of a replacement interest rate cap agreement, confirmation of no events of default, and the satisfaction of a debt yield of at least 5.5%. The borrower has signaled its intention to exercise the first extension option but has requested that the lender waive the interest rate cap requirement. The loan allows for pro rata paydowns for the first 22.5% of the original principal balance and has release provisions, allowing the release of individual assets at 105.0% of the ALA (aggregate prior releases must not exceed 25.0% of the original principal balance) and 110.0% of the ALA for the release of individual assets thereafter.

As of the March 2024 reporting, the portfolio was 90.6% occupied, in line with the issuance figure of 89.7%. According to the financials for the trailing 12 months (T-12) ended March 31, 2024, the portfolio generated $28.5 million of NCF (a DSCR of 0.56 times (x)); greater than the YE2023 figure of $27.4 million (a DSCR of 0.55x), but below the Morningstar DBRS NCF of $29.3 million (a DSCR of 2.31x) derived at issuance. While the servicer-reported financials reflect consistent growth in revenue, operating expenses have grown by 10.4% over the Morningstar DBRS figure, primarily driven by an increase in utilities, management fees, and professional fees.

At issuance, Morningstar DBRS derived a value of $468.6 million based on a capitalization rate of 6.25% and a Morningstar DBRS NCF of $29.3 million. The Morningstar DBRS value represents a -39.5% variance from the issuance appraised value of $775.0 million. The resulting Morningstar DBRS whole loan-to-value ratio (LTV) was 108.1% compared with the LTV of 65.3% based on the appraised value at issuance. Given the unknowns regarding the loan's ultimate resolution and the general challenges faced by rent-stabilized assets in New York, the Negative trends reflect Morningstar DBRS' view that the loan's credit profile could continue to deteriorate in the near to moderate term. Morningstar DBRS maintained positive qualitative adjustments to the LTV sizing benchmarks totaling 4.5% to account for the portfolio's urban geography and cash flow stability.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

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 Factors in Credit Ratings at https://dbrs.morningstar.com/research/437781 (August 13, 2024).

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 01, 2024; https://dbrs.morningstar.com/research/428798/north-american-cmbs-surveillance-methodology)

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 info-DBRS@morningstar.com.

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.

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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 Single-Asset/Single-Borrower Ratings Methodology (July 11, 2024); https://dbrs.morningstar.com/research/436004

-- Rating North American CMBS Interest-Only Certificates (June 28, 2024), https://dbrs.morningstar.com/research/435294

-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (June 28, 2024), https://dbrs.morningstar.com/research/435293

-- Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024); https://dbrs.morningstar.com/research/428623

-- 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 info-DBRS@morningstar.com.