Morningstar DBRS Downgrades Credit Ratings on Eight Classes of JPMCC Commercial Mortgage Securities Trust 2016-JP2, Changes Trends on Two Classes to Stable From Negative

DBRS Limited (Morningstar DBRS) downgraded its credit ratings on eight classes of Commercial Mortgage Pass-Through Certificates, Series 2016-JP2 issued by JPMCC Commercial Mortgage Securities Trust 2016-JP2 as follows:

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

In addition, Morningstar DBRS confirmed the following credit ratings:

-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class F at C (sf)

Morningstar DBRS changed the trends on Classes A-S and X-A to Stable from Negative; Classes B, C, and X-B continue to carry Negative trends. All other trends are Stable with the exception of Classes D, E, F, and X-C, which have credit ratings that do not typically carry trends in commercial mortgage-backed securities (CMBS) credit ratings.

The credit rating downgrades and Negative trends reflect Morningstar DBRS' increased liquidated loss projections for the loans in special servicing. There are four specially serviced loans, representing 13.9% of the current pool. All were liquidated in the analysis for this review, with the combined losses expected to fully erode the balance of the Class E certificate, the primary consideration in the downgrade to the credit ratings of Classes D and E. Morningstar DBRS' analysis also included consideration of a wind-down scenario given that all the remaining loans in the pool are scheduled to mature by July 2026, with the exception of one loan representing 0.9% of the pool that is scheduled to mature in February 2027. Most of the loans are expected to successfully repay at their respective maturity dates based on the performance of the underlying collateral, supporting the credit rating confirmations higher in the capital stack. Overall performance is healthy, as exhibited by a weighted-average (WA) debt service coverage ratio (DSCR) of 2.60 times (x) and WA debt yield of 15.3% as of the most recent year-end financials. Morningstar DBRS previously placed Negative trends on the Class A-S certificate and all subordinate classes below with applicable credit rating categories as a reflection of concerns surrounding the increased number of loans with performance declines at the time of the previous credit rating action. The change in trend to Stable for Classes A-S and X-A reflect Morningstar DBRS' expectation that the credit rating downgrades for those classes with this review reflects the increased credit risk and no further deterioration is expected over the next 12 months, barring unforeseen developments with the underlying loans.

Morningstar DBRS identified five loans, representing 16.8% of the current pool balance, which are at increased risk of maturity default based on concentrated scheduled tenant rollover or recent declines in performance. Of particular concern is the largest loan being monitored on the servicer's watchlist, 100 East Pratt (Prospectus ID#5, 6.3% of the current pool), which is secured by an office building in Baltimore, Maryland. The former largest tenant that occupied approximately 67.0% of the net rentable area (NRA) exercised a termination option and vacated the property in January 2025, dropping the occupancy rate below 25.0%, presenting an obvious challenge for the upcoming loan maturity in April 2026. A stressed analysis for that and other loans exhibiting similar characteristics provided the support for the credit rating downgrades and Negative trends maintained on Classes B, C, and X-B.

As of the February 2025 remittance, 41 of the original 47 loans remain in the trust, with an aggregate balance of $746.2 million, representing a collateral reduction of 20.1% since issuance. Ten loans, representing 23.6% of the pool, are fully defeased. For loans that are not in special servicing but have exhibited increased default risks, Morningstar DBRS increased the probability of default, and, in certain cases, applied stressed loan-to-value ratios to increase the expected loss (EL) as applicable. The resulting WA EL for these loans is almost double the pool average EL.

Morningstar DBRS' increased liquidated loss expectations are concentrated with the Marriott Atlanta Buckhead loan (Prospectus ID#4, 6.6% of the pool balance), which is secured by a 349-key, full-service hotel in Atlanta, Georgia. The loan most recently transferred to the special servicer in September 2024 for payment default. In 2008, the property underwent a $45.0 million renovation that transformed the subject from a Sheraton to a Marriott International (Marriott) flagship with the franchise agreement extending through December 2037. However, as per the latest servicer commentary, the Marriott franchise flag was terminated in December 2024 and the borrower executed a new Wyndham franchise agreement later that month for a 15-year term with no renewal option. The servicer has confirmed that no property improvement plan was completed with the flag change. As per the most recent STR, Inc. report, for the trailing 12-month (T-12) ended August 2024 period, the property reported an occupancy rate of 59.1%, average daily rate of $139.35, and revenue per available room (RevPAR) of $82.36, underperforming within its competitive set with a RevPAR penetration of 88.2%. An updated appraisal valued the property at $29.3 million in November 2024, 35.3% below its previous appraised value of $45.3 million in January 2022, and ultimately a 62.4% decline from the issuance appraised value of $78.0 million. Morningstar DBRS liquidated this loan from the pool with a haircut of 10% on the most recent appraised value, with a projected loss severity of approximately 60%, or $29.5 million.

Another large contributor to Morningstar DBRS' liquidated loss expectations is the Hagerstown Premium Outlets loan (Prospectus ID#9, 3.6% of the pool balance), which is secured by an open-air retail outlet in Hagerstown, Maryland. The remainder of the pari passu loan was placed in the DBJPM 2016-C1 transaction, which is also rated by Morningstar DBRS. The property is owned and operated by Simon Property Group, Inc. The loan transferred to the special servicer as the loan defaulted on its September 2023 payment, with the special servicer dual-tracking foreclosure and a potential interest-only (IO) loan modification as requested by the borrower. The cash flows have been depressed for several years, with the DSCR hovering near or just below breakeven since 2021. The property was 49.5% occupied as per the September 2024 rent roll, compared with 95.0% at issuance. Near-term rollover risk is high, with leases totaling approximately 25.0% of the total NRA having expired or expiring prior to loan maturity in February 2026, making a resolution or refinance of the loan increasingly challenging. The property was reappraised in December 2024 at $28.4 million, 12.6% less than the January 2024 value of $32.5 million, and 81.0% below the issuance appraised value of $150.0 million. The liquidation scenario considered with this review was based on a 15% haircut to the December 2024 appraised value to account for the expected further value deterioration as investor demand is expected to be low given the low occupancy rate and high concentration of scheduled rollover. The resulting projected loss severity is approximately 80%, or $21.0 million.

At issuance, Morningstar DBRS shadow-rated one loan, The Shops at Crystals (Prospectus ID#6; 6.7% of the pool), investment-grade to reflect the above-average property quality and strong sponsorship. With this review, Morningstar DBRS confirms that the performance of the loan remains consistent with investment-grade characteristics.

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 credit 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

Classes X-A, X-B, and X-C 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 North American CMBS Surveillance Methodology (February 28, 2025): https://dbrs.morningstar.com/research/448963

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.

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)/North American CMBS Insight Model v 1.2.0.0: 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
-- 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.