Morningstar DBRS Confirms Credit Ratings on All Classes of J.P. Morgan Chase Commercial Mortgage Securities Trust 2022-ACB
CMBSDBRS Limited (Morningstar DBRS) confirmed its credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2022-ACB issued by J.P. Morgan Chase Commercial Mortgage Securities Trust 2022-ACB as follows:
-- Class A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at AA (sf)
-- Class D at A (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class G at B (low) (sf)
All trends are Stable.
The credit rating confirmations and Stable trends reflect the transaction's overall stable performance, as evidenced by cash flow and occupancy growth since Morningstar DBRS assigned the credit ratings in 2022. The loan is secured by the borrower's fee-simple interest in the American Copper Buildings, a Class A luxury multifamily property in midtown Manhattan. The property boasts extensive and superior amenities, including a rock-climbing wall, a fitness center and studios, a rooftop infinity pool, and spa facilities. The total trust loan amount of $611.4 million is backed by a joint venture between Black Spruce Management, LLC, which owns a portfolio of over 40 properties across four boroughs in New York, and The Orbach Group, LLC, which specializes in affordable housing. Both sponsors have real estate portfolios exceeding $1.0 billion.
The $675 million floating-rate loan is interest only and includes an additional $63.5 million in mezzanine debt, which is further divided into two separate loans that are set to mature in March 2025. The loan matured in March 2024 and the borrower exercised the first of up to three one-year extension options, with a current maturity date of March 2025. The fully extended maturity date is March 2027. A cash flow sweep will commence upon an event of default or if the debt yield falls below 5.8% after March 2024. As of the trailing 12-month period ended June 30, 2024 (T-12), financial reporting, the debt yield remained above this threshold at 6.8% on the trust loan and 6.2% on the whole loan. The loan benefits from City of New York 421-A tax exemptions, which remain in effect until June 2038, 11 years after the fully extended loan maturity date. As a requirement to maintain its tax-exempt status, the property is required to lease designated affordable units. The property currently offers a total of 160 affordable units, representing approximately 21.0% of the total unit count. The tax abatement exempts the property from 100% of its taxes on improvements for the first 12 years. After that, the exemption percentage decreases in 20% increments every other year until Year 20, at which point the exemption expires.
According to the T-12 financials, the property reported a net cash flow (NCF) of $41.7 million, representing a debt service coverage ratio (DSCR) of 0.83 times (x), which continues the upward trend over the YE2022 and YE2023 cash flow figures. The T-12 NCF represents an increase of 21.9% compared with the Morningstar DBRS NCF of $34.2 million at issuance. Despite this positive cash flow trend, the floating-rate nature of the loan has created downward pressure on the DSCR, which decreased from 1.33x at YE2022. The in-place interest rate cap agreement serves as a mitigant to the increased floating-rate benchmark. To exercise each available extension option, the borrower is required to purchase a new interest rate cap agreement with a strike price such that a minimum DSCR of 1.10x is achieved.
The growth in cash flow is primarily a result of increased rental rates for the market-rate units. As of the June 30, 2024, rent roll, the average rental rate of all units was $5,481 per unit while the average rental rate of market-rate units and affordable housing were $6,746 per unit and $1,015 per unit, respectively. This is a significant increase from September 2022, when the overall average rental rate was $5,163 per unit for all units, $6,364 per unit for market-rate units, and $923 per unit for affordable units. In addition, vacancy at the property continued to remain low at 5.9% as of June 2024. In comparison, according to Reis' Q3 2024 data, the Stuyvesant/Turtle Bay submarket average asking rental and vacancy rates were $6,157 per unit and 3.1%, respectively. Vacancy is projected to tighten to 2.0% by 2029. The two ground-floor retail tenants, Bright Horizons and Hole in the Wall, have lease expiration dates in February 2037 and July 2029, respectively, beyond the loan's fully extended maturity date.
Morningstar DBRS' credit ratings are based on a value analysis completed at issuance, which considered a capitalization rate of 5.75%, resulting in a Morningstar DBRS Value of $595.5 million and a loan-to-value (LTV) ratio of 102.7% on the mortgage loan. The Morningstar DBRS Value of $595.5 million represents a variance of -29.8% from the appraised value of $848.0 million at issuance. In addition, Morningstar DBRS maintained positive qualitative adjustments to the LTV sizing benchmarks totaling 7.5% to reflect the high quality of the property, strong market fundamentals, and historically stable cash flow.
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 (December 13, 2024; https://dbrs.morningstar.com/research/444617).
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.
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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 (December 13, 2024; https://dbrs.morningstar.com/research/444612)
-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (September 19, 2024; https://dbrs.morningstar.com/research/439702)
-- Legal Criteria for U.S. Structured Finance (December 3, 2024; https://dbrs.morningstar.com/research/444064)
-- 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, 2024; https://dbrs.morningstar.com/research/438283)
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 https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.
Ratings
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