Morningstar DBRS Downgrades Five Classes of JPMCC Commercial Mortgage Securities Trust 2017-JP6

DBRS Limited (Morningstar DBRS) downgraded its credit ratings on five classes of Commercial Mortgage Pass-Through Certificates, Series 2017-JP6 issued by JPMCC Commercial Mortgage Securities Trust 2017-JP6 as follows:

-- Class B to AA (low) (sf) from AA (high) (sf)
-- Class X-B to A (sf) from AA (low) (sf)
-- Class C to A (low) (sf) from A (high) (sf)
-- Class D to BBB (high) (sf) from A (sf)
-- Class E-RR to BB (high) (sf) from BBB (sf)

In addition, Morningstar DBRS confirmed the following credit ratings:

-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class F-RR at B (low) (sf)
-- Class G-RR at CCC (sf)

Morningstar DBRS also changed the trends on Classes B, C, D, E-RR, F-RR, X-A and X-B to Stable from Negative. Class G-RR is assigned a credit rating that does not typically carry a trend in commercial mortgage-backed securities (CMBS) credit ratings. The trends on all remaining classes are Stable.

At the prior credit rating action in March 2024, Morningstar DBRS downgraded its credit ratings on Classes F-RR and G-RR, primarily driven by the increased loss expectations associated with the 211 Main Street loan (Prospectus ID#2, 11.2% of the pool). Morningstar DBRS also changed the trends on Class B through Class F-RR along with the associated interest-only (IO) certificates to Negative from Stable because of concerns related to the high concentration of loans secured by office properties, which currently represent 55.6% of the pool balance as of the January 2025 reporting. While there have been notable updates for the two largest loans in the pool, 245 Park Avenue (Prospectus ID#1, 17.1% of the current pool) and 211 Main Street (211 Main) (Prospectus ID#2, 11.2% of the current pool), the performance of the underlying collateral securing several other loans secured by office properties, most of which are located in non-core suburban markets, has remained stagnant or further deteriorated.

In its analysis for this review, Morningstar DBRS liquidated one of the two specially serviced loans from the trust, resulting in a projected loss of approximately $2.5 million; however, additional loans exhibiting increased credit risks were analyzed with elevated probability of default (POD) penalties and/or stressed loan-to-value ratios (LTVs). As a result, the pool's overall adjusted expected loss (EL) has increased since the previous credit rating action. While the credit support toward the bottom of the capital stack has moderately improved given the updated analysis of the 211 Main loan, which was not liquidated in the current review, the credit rating downgrades reflect the increased risk to the transaction as noted above. Morningstar DBRS changed the trends on the downgraded classes to Stable as the updated credit ratings accurately reflect the current credit risk.

The credit rating confirmations reflect the increased credit support to the classes as there has been collateral reduction of 27.0% since issuance, with two loans, representing 2.4% of the pool, fully defeased. As of the January 2025 reporting, 34 of the original 42 loans remain in the pool. There are 11 loans, representing 35.3% of the pool, being monitored on the servicer's watchlist, with two loans, representing 5.0% of the pool, in special servicing.

The concentration of loans secured by office properties in noncore suburban markets totals 31.7% of the current pool balance. While a select number of those loans continues to perform as expected, several others exhibit increased credit risk. These loans include Bingham Office Center (Prospectus ID#6, 4.7% of the pool), Apex Fort Washington (Prospectus ID#14, 3.3% of the pool), Island View Crossing (Prospectus ID#18, 2.3% of the pool), Monroe Park Tower (Prospectus ID#24, 1.7% of the pool), and Atrium Office (Prospectus ID#26, 1.7% of the pool). Based on the most recent reporting, these five loans had a weighted-average (WA) occupancy rate and debt service coverage ratio (DSCR) of 79.0% and 1.06 times (x), respectively, compared with issuance figures of 88.0% and 1.72x, respectively. In addition to the general declines in performance, most of these properties are exposed to a heightened concentration of tenant rollover risk prior to respective loan maturity and softening market conditions, which will likely challenge borrowers' ability to secure take-out financing or sell properties.

The 211 Main loan transferred to the special servicer in April 2024 for maturity default; however, it later returned to the master servicer in November 2024 following a loan modification, which included a four-year maturity extension through April 2028 and a conversion to amortized payments The loan is secured by a 417,266-square-foot (sf) office building in downtown San Francisco, solely occupied by Charles Schwab (Schwab), on a lease through April 2028. In 2021, Schwab moved its headquarters to the Dallas-Fort Worth area and has since reduced its footprint at the subject to six floors from 17 floors. Schwab has no termination options in its lease and Morningstar DBRS expects all excess cash is being trapped by the servicer, according to the loan agreement. The tenant continues to honor its lease obligations, as evidenced by the stable reported cash flow and DSCR, which were $16.8 million and 2.34x, respectively, for the trailing 12-month period ended June 30, 2024. The submarket remains weak, as according to Q3 2024 Reis, Inc. reporting, the South Financial District office submarket reported a vacancy rate of 23.6% with net absorption of -1.84 million sf in YE2023. The loan extension provides the borrower additional time to identify potential replacement tenants; however, it also exposes the loan to increased maturity default risk as Schwab's lease is co-terminous with the extended maturity. An updated appraisal dated October 2024 valued the property at $152.0 million, below the issuance value of $294.0 million. Morningstar DBRS conducted a dark value analysis assuming that Schwab does not renew its lease, resulting in a stressed value of $115.0 million, or a LTV of 148.0% based on the senior debt. Morningstar DBRS also applied an elevated POD assumption, which resulted in an EL in line with the pool average.

The largest loan in the pool, 245 Park Avenue, is secured by a 1.7 million-sf, Class A office tower in Midtown Manhattan. The $1.2 billion whole loan has a pari passu structure with pieces securitized across five Morningstar DBRS-rated deals: JPMDB 2017-C7, CGCMT 2017-P8, JPMCC 2017-JP7, CSAIL 2017-C8, and DBJPM 2017-C6. The loan was previously transferred to special servicing in November 2021 after the original sponsor, PWM Property Management LLC, an affiliate of HNA Group Co., filed for Chapter 11 bankruptcy. According to servicer documents, SL Green Realty Corp. (SL Green) purchased the property and assumed the debt in late 2022; however, SL Green later sold its 50% stake to Mori Trust Co Ltd. for $1 billion, implying a collateral value of $2.0 billion at the time. While the servicer reporting indicates property cash flow and the occupancy rate have declined since issuance, there was positive leasing momentum during the second half of 2024, as the occupancy rate improved to 79.0% as of September 2024, from 71.2% in March 2024. Upcoming tenant rollover risk is minimal as leases representing only 4.5% of the net rentable area (NRA) are scheduled to expire prior to loan maturity in June 2027. A lease extension was negotiated with the second-largest tenant, Ares Management LLC (12.3% of NRA, through June 2043), and two new leases were executed with EQT Partners Inc (4.3% of NRA) and Stonepeak Infrastructure Partners (4.3% of NRA), which signed agreements through November 2040. The Q3 2024 annualized financials indicate net cash flow has fallen to $64.2 million from $70.4 million at YE2023; however, it appears the three recently executed leases included rental abatements, and, as such, performance is expected to rebound above YE2023 levels as the abatements burn off. Despite the projected improvement during 2025, the loan is still underperforming issuance expectations, and, as such, Morningstar DBRS analyzed the loan with elevated LTV and POD adjustments in its current review; however, the adjustments were favorable when compared with the adjustments from Morningstar DBRS' previous analysis of the loan. The resulting loan EL is below the EL for the overall pool.

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; https://dbrs.morningstar.com/research/437781/morningstar-dbrs-criteria-approach-to-environmental-social-and-governance-factors-in-credit-ratings).

Classes X-A and X-B are 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 the North American CMBS Surveillance Methodology (December 13, 2024; https:// 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. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The Morningstar DBRS Long-Term Obligation Rating Scale definition indicates that credit ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

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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 CMBS Multi-Borrower Rating Methodology (December 13, 2024; https://dbrs.morningstar.com/research/444616/north-american-cmbs-multi-borrower-rating-methodology)

-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (September 19, 2024; https://dbrs.morningstar.com/research/439702/morningstar-dbrs-north-american-commercial-real-estate-property-analysis-criteria)

-- Legal Criteria for U.S. Structured Finance (December 3, 2024; https://dbrs.morningstar.com/research/444064/legal-criteria-for-us-structured-finance)

-- North American Commercial Mortgage Servicer Rankings (August 23, 2024; https://dbrs.morningstar.com/research/438283/north-american-commercial-mortgage-servicer-rankings)

-- North American CMBS Insight Model v 1.2.0.0 (https://dbrs.morningstar.com/research/444616/north-american-cmbs-multi-borrower-rating-methodology)

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.