Morningstar DBRS Downgrades the Credit Rating on One Class of JP Morgan Chase Commercial Mortgage Securities Trust 2011-C3, Changes Trends to Stable from Negative

DBRS Limited (Morningstar DBRS) downgraded the credit rating on one class of Commercial Mortgage Pass-Through Certificates, Series 2011-C3 issued by JP Morgan Chase Commercial Mortgage Securities Trust 2011-C3 as follows:

-- Class C to BB (high) (sf) from BBB (high) (sf)

In addition, Morningstar DBRS also confirmed the following credit ratings:

-- Class B at A (high) (sf)
-- Class D at CCC (sf)
-- Class E at C (sf)
-- Class F at C (sf)
-- Class G at C (sf)
-- Class H at C (sf)
-- Class J at C (sf)

Morningstar DBRS changed the trends on Classes B and C to Stable from Negative. There are no trends on Classes D, E, F, G, H, and J, which have credit ratings that do not typically carry trends in commercial mortgage-backed securities (CMBS) credit ratings.

The credit rating downgrade is reflective of Morningstar DBRS' concerns regarding the lack of resolution over the past year for the two remaining assets in the pool, Holyoke Mall (Prospectus ID#1, 76.6% of the current pool balance) and Sangertown Square (Prospectus ID#6, 23.4% of the current pool balance). Both loans share common sponsorship in Pyramid Management Group (Pyramid), a privately held shopping mall developer that has encountered difficulty in meeting debt payments and maturity dates on other encumbered assets within its portfolio in recent years. Both loans were modified at their initial maturity dates in 2021, which included three-year maturity extensions. However, the borrower was unable to secure refinancing prior to the extended maturity dates in 2024 and the loans transferred back to the special servicer. The most recent servicer commentary for both loans notes that the sponsor and special servicer have agreed upon terms for a potential modification; however, no modifications have been confirmed as of this writing. Given the concentration of defaulted loans remaining, Morningstar DBRS' analysis considered conservative liquidation scenarios for both loans, based on stresses to the most recent appraised values ranging from 20-40%, to determine the recoverability of the outstanding bonds. Morningstar DBRS concluded that the senior certificates, including Classes B and C, continue to be insulated from losses. However, the timing for recoverability is likely to be extended, further exposing the trust to expenses and interest shortfalls. This expectation was considered a primary factor in Morningstar DBRS' decision to downgrade Class C below investment-grade.

With this rating action, Morningstar DBRS also changed the trend on Classes B and C to Stable. This is reflective of the slight improvement in performance of both loans since the last review. Both assets have received updated appraisals, which indicate that, even in a stressed value scenario, Classes B and C are likely to be recovered.

Holyoke Mall is secured by a 1.6 million-square-foot (sf) regional mall in Holyoke, Massachusetts. There is $35.0 million of mezzanine debt that amortizes pro rata with the $215.0 million first mortgage debt. The loan transferred to the special servicer in January 2024 for failing to repay at its extended maturity date, though the loan is current on the debt payments as of the November 2024 remittance report. The mall is anchored by collateral tenants Target (11.7% of the net rentable area (NRA), lease expiry in January 2025), JCPenney (11.2% of the NRA, lease expiry in May 2028), and non-collateral tenant Macy's. A collateral anchor space that was previously occupied by Sears remains vacant. As per the rent roll dated September 2024, the collateral was 71.7% occupied, with leases totaling approximately 10% scheduled to rollover by December 2025. The property was reappraised in April 2024 at $185.0 million, slightly less than the 2020 appraised value of $200.0 million, and a decline of 53.8% from the issuance value of $400.0 million. The updated value represents a loan-to-value (LTV) ratio of 87.5% based on the outstanding senior note and a whole-loan LTV of 106.4% when factoring in the $35.0 million mezzanine loan.

Sangertown Square is secured by an 894,127-sf regional mall in New Hartford, New York. The loan's modification 2021 included a conversion to interest-only (IO) payments for a 24-month period through May 2023. Upon completion of the IO period, the loan was again transferred to the special servicer for imminent monetary default and subsequently failed to repay at its extended January 2024 maturity date. As per the November 2024 remittance report, the loan is delinquent, last paid through August 2024. The mall is anchored by collateral tenants Boscov's (19.4% of the NRA, lease expiry in January 2037), Target (14.2% of the NRA, lease expiry in January 2028), and Dick's Sporting Goods (5.8% of the NRA, lease expiry in October 2028). The remaining two anchor spaces, previously occupied by JCPenney and Macy's, remain vacant. As per the rent roll dated September 2024, the subject was 55.9% occupied, with minimal rollover risk in the next 12 months. The property was reappraised in March 2024 at $21.2 million, marking a slight improvement from the 2021 appraised value of $19.1 million, but ultimately representing an 80.2% decline from the issuance value of $107.0 million.

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

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 info-DBRS@morningstar.com.

The credit ratings were initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for these credit rating actions.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with these credit rating actions.

These are solicited credit ratings.

Morningstar DBRS notes that a sensitivity analysis was not performed for this review as the transaction is winding down, with only two loans remaining. In such cases, Morningstar DBRS credit ratings are typically based on a recoverability analysis.

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 CMBS Multi-Borrower Rating Methodology (March 1, 2024),
https://dbrs.morningstar.com/research/428797

-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (September 19, 2024),
https://dbrs.morningstar.com/research/439702

-- North American Commercial Mortgage Servicer Rankings (August 23, 2024),
https://dbrs.morningstar.com/research/438283

-- Legal Criteria for U.S. Structured Finance (December 3, 2024),
https://dbrs.morningstar.com/research/444064

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 https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.