Morningstar DBRS Downgrades Seven Classes of JPMBB Commercial Mortgage Securities Trust 2015-C27

DBRS Limited (Morningstar DBRS) downgraded the credit ratings on seven classes of Commercial Mortgage Pass-Through Certificates, Series 2015-C27 issued by JPMBB Commercial Mortgage Securities Trust 2015-C27 as follows:

-- Class X-A to BBB (high) (sf) from AAA (sf)
-- Class A-S to BBB (sf) from AAA (sf)
-- Class X-B to CCC (sf) from A (low) (sf)
-- Class B to CCC (sf) from BBB (high) (sf)
-- Class X-C to C (sf) from BBB (low) (sf)
-- Class C to C (sf) from BB (high) (sf)
-- Class EC to C (sf) from BB (high) (sf)

In addition, Morningstar DBRS confirmed the following credit ratings:

-- Class A-4 at AAA (sf)
-- Class D at C (sf)
-- Class E at C (sf)
-- Class F at C (sf)

The trends on Classes A-4, A-S, and X-A are Negative, while the remaining classes have credit ratings that do not typically carry trends in commercial mortgage-backed securities (CMBS) credit ratings.

The credit rating downgrades reflect Morningstar DBRS' recoverability expectations for the remaining loans in the pool. Since the last credit rating action in March 2024, 25 loans have repaid from the pool, leaving 10 loans of which five, representing 84.0% of the pool, are in special servicing as of the January 2025 remittance. As the pool continues to wind down, Morningstar DBRS looked to a recoverability analysis, the results of which suggest that losses could erode into the Class C certificate.

In addition, the credit rating downgrades reflect ongoing interest shortfalls that have exceeded Morningstar DBRS' tolerance for timely interest to rated bonds. As of the January 2025 remittance, cumulative unpaid interest totaled approximately $10.4 million, up from $6.7 million at the last credit rating action in March 2024. Unpaid interest continues to accrue month over month, primarily driven by special servicing fees and appraisal subordinate entitlement reduction from the second-largest loan in special servicing, The Branson at Fifth (Prospectus ID#3; 24.6% of the pool). Morningstar DBRS' tolerance for unpaid interest is limited to three to four remittance periods at the BBB (sf) credit rating category and six remittance periods at the BB (sf) and B (sf) credit rating categories.

The Negative trends reflect the increased propensity for interest shortfalls that, as of the January 2025 remittance, are now affecting Class B. While the results of the recoverability analysis suggest that the senior classes will ultimately be repaid, because of the pool's increased level of adverse selection, a portion of the principal proceeds from the pool's distressed loans will be required in order to repay the remaining $96.1 million of investment grade-rated debt. In the event that workout strategies are prolonged, interest shortfalls may affect the transaction's senior certificates, further supporting the Negative trends with this review.

Morningstar DBRS remains concerned about the largest loan in the pool, The Club Row Building (Prospectus ID#1; 37.1% of the pool), which is secured by a Class B office building in Midtown Manhattan that transferred to special servicing in January 2025 for maturity default. The loan has been monitored on the servicer's watchlist since November 2023 for low debt service coverage ratio, which was most recently reported at 1.02 times as of the financials for the trailing nine months ended September 30, 2024. The occupancy rate has continued to decline year over year, most recently being reported at 63.3% as of October 2024 following the departure of the second- and third-largest tenants in 2024. According to a November 2024 news article, the sponsor signed Noor Staffing to a lease that is expected to increase the occupancy rate to approximately 71.0%. Despite the recent signing, Morningstar DBRS believes re-leasing the property will likely be challenging given the subject's Class B construction and the declining demand for office space. Morningstar DBRS estimates the as-is value has fallen significantly from issuance, with a balloon loan-to-value ratio well over 100.0%. In its analysis for this review, Morningstar DBRS liquidated the loan with a haircut to its issuance value, resulting in a loss severity in excess of 30.0%.

The second-largest specially serviced loan in the pool, The Branson at Fifth, is secured by a mixed-use (multifamily and retail) property in Midtown Manhattan, New York. The property's retail space has remained vacant since 2019, resulting in depressed cash flows and extended loan delinquency. According to the servicer's commentary, the borrower is proposing a loan modification to extend the loan as its February 2025 maturity date approaches. A new equity component as well as a structure to collect previous payment guarantees is reported to be part of the proposal. An updated appraisal as of September 2024 valued the property at $37.5 million, in line with the September 2023 appraised value of $38.9 million and a -68.5% variance from the issuance value of $119.0 million. Given the depressed value and lack of leasing activity, Morningstar DBRS analyzed this loan with a liquidation scenario, resulting in a loss severity in excess of 75.0%.

The 717 14th Street loan (Prospectus ID#4; 12.5% of the pool) is secured by a 114,204-square-foot office property in Washington, D.C. The loan transferred to special servicing in February 2023 for monetary default following the departure of several large tenants, resulting in the occupancy rate falling to 54.0% as of June 2024. The property's largest tenant, U.S. Department of the Treasury (47.9% of net rentable area), extended its lease to 2032, however, the tenant may terminate its lease at any time during the lease term, provided that 150 days' notice is given. Although the property is close to the White House, the lack of demand for Class B office space and high submarket vacancy rate exceeding 20.0% have contributed to the absence of leasing activity in the last few years. As a result, the property was re-appraised in February 2024 at a value of $10.5 million, representing an -81.3% variance from the issuance value of $56.0 million. In the analysis for this review, Morningstar DBRS liquidated the loan, resulting in a loss severity in excess of 90.0%.

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

Classes X-A, X-B, and X-C 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 (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.

Morningstar DBRS notes that a traditional model-based sensitivity was not performed, however, Morningstar DBRS notes that the credit ratings are sensitive to the recoverability assumptions on the 10 remaining loans that are detailed in the accompanying press release. Should recoverability of the remaining loans be lower than that implied by the stressed values in the latest analysis, credit ratings lower in the capital stack would be those most negatively affected.

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 (December 13, 2024), https://dbrs.morningstar.com/research/444616

-- 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.

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.