Morningstar DBRS Assigns Provisional Credit Ratings to JPMCC Multifamily Housing Mortgage Loan Trust 2025-Q032

DBRS, Inc. (Morningstar DBRS) assigned provisional credit ratings to the following classes of Multifamily Mortgage Pass-Through Certificates, Series 2025-Q032 (the Certificates) to be issued by JPMCC Multifamily Housing Mortgage Loan Trust 2025-Q032 (the Trust):

-- Class A at (P) AAA (sf)
-- Class B at (P) A (low) (sf)
-- Class C at (P) BBB (low) (sf)

All trends are Stable.

The collateral for the pool consists of 246 individual loans secured by 246 multifamily properties with an average cut-off date balance of $1,921,841. None of the mortgage loans is cross-collateralized or cross-defaulted with each other. Given the complexity of the structure and granularity of the pool, Morningstar DBRS applied its "North American CMBS Multi-Borrower Rating Methodology" (the CMBS Methodology). Furthermore, given the pro-rata structure of this transaction, we utilized the Intex CMBS Cash Flow Program . We assumed four CPR stresses - 5.0%, 10.0%, 15.0%, and 20.0%. Additional assumptions in the CMBS Cash Flow Model include a 22-month recovery lag period, 100% servicer advancing and two default curves (front and back). Lastly, rates were stressed, both upward and downward, based on their respective loan indices, including the Prime, six-month SOFR, 30-day SOFR and SOFR.

All loans were originated between October 2023 and October 2024, resulting in a weighted average (WA) seasoning of 10.2 months. The pool has a WA original term length of 359.5 months, or approximately 30 years. It also has a WA original amortization term of 359.5 months, resulting in 87.1% amortization over the loan term, based on a Morningstar DBRS stressed interest rate. However, 88 loans, which represent 41.7% of the pool, have an initial interest-only (IO) period of 12 months to 60 months. The loans are hybrid adjustable rate mortgages with a fixed interest rate for five years followed by an adjustable-rate period for the remainder of the loan term. The pool has a WA current mortgage rate of 6.59%. However, because of the adjustable nature of the loans, Morningstar DBRS stressed the interest rate based on the greater of the 12-month Secured Overnight Financing Rate (SOFR) or the max interest rate per the loan agreement. This resulted in a stressed Morningstar DBRS mortgage rate of 9.45%.

Based on the current loan amount, and the appraised values from loan origination, the pool has a WA loan-to-value ratio (LTV) of 46.3%. However, Morningstar DBRS made LTV adjustments to 37 loans that had an implied capitalization rate of more than one standard deviation from capitalization rates established by Morningstar DBRS based on market rank and property type. This resulted in a higher Morningstar DBRS LTV of 47.7%.

Lastly, all loans amortize over their respective remaining terms, resulting in 87.1% expected amortization, which is higher than what is typical for commercial mortgage-backed securities (CMBS) conduit pools. Morningstar DBRS' research indicates that, for CMBS conduit transactions securitized between 2000 and 2021, average amortization by year has ranged between 6.5% and 22.0%, with a median rate of 16.5%. As contemplated and explained in Morningstar DBRS' "Rating North American CMBS Interest-Only Certificates" methodology, the most significant risk to an IO cash flow stream is term default risk. As Morningstar DBRS notes in the methodology, for a pool of approximately 63,000 CMBS loans that had fully cycled through to their maturity defaults, the average total default rate across all property types was approximately 17%, the refinance default rate was 6% (approximately one third of the total default rate), and the term default rate was approximately 11%. Morningstar DBRS recognizes the muted impact of refinance risk on IO certificates by notching the IO credit rating up by one notch from the Applicable Reference Obligation rating. Therefore, similar logic regarding term default risk supports the rationale for Morningstar DBRS to reduce the loan level probability of default (POD) in the CMBS Insight Model by one notch because refinance risk is largely absent for this pool of loans given most of the loans fully amortize with the overall anticipated amortization at 87.1%.

The Morningstar DBRS CMBS Insight Model does not contemplate the ability to prepay loans, which is generally seen as credit-positive because a prepaid loan cannot default. The CMBS predictive model was calibrated using loans that have prepayment lockout features. The historical prepayment performance of those loans is close to a 0% conditional prepayment rate (CPR). If the CMBS predictive model had an expectation of prepayments, Morningstar DBRS would expect the default levels to be reduced. Any loan that prepays is removed from the pool and can no longer default. The loans in the pool generally have prepayment penalties during the first five years of the loan term. Given the seasoned nature of this pool, Morningstar DBRS expects this pool will have prepayments over the remainder of the transaction.

The pool has higher stressed interest rates and lending spreads, compared with conduit and agency loans. Consequently, the transaction has an overall Issuer debt service coverage ratio (DSCR) of 1.12 times (x) with 114 loans, representing 49.4% of the deal, with an Issuer DSCR of less than 1.0x, based on the Morningstar DBRS stressed mortgage rate. Therefore, Morningstar DBRS applied a 10.0% penalty to the fully adjusted cumulative default assumptions to account for DSCR risks.

Morningstar DBRS' credit rating on the Certificates addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the related Principal Distribution Amounts and the Interest Distribution Amounts of the related classes.

Morningstar DBRS' credit rating does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations.

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, or 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.

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 Multi-Borrower Rating Methodology (December 13, 2024),
https://dbrs.morningstar.com/research/444616

Other methodologies referenced in this transaction are listed at the end of this press release.

With regard to due diligence services, Morningstar DBRS was provided with the Form ABS Due Diligence-15E (Form-15E), which contains a description of the information that a third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While due diligence services outlined in Form-15E do not constitute part of Morningstar DBRS' methodology, Morningstar DBRS used the data file outlined in the independent accountant's report in its analysis to determine the credit ratings referenced herein.

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.

These are solicited credit ratings.

A provisional credit rating is not a final credit rating with respect to the above-mentioned securities and may change or be different than the final credit rating assigned or may be discontinued. The assignment of final credit ratings on the above-mentioned securities is subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalize the credit ratings.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

DBRS, Inc.
22 West Washington Street
Chicago, IL 60602 USA
Tel. +1 312 332-3429

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

-- North American Commercial Mortgage Servicer Rankings (August 23, 2024), https://dbrs.morningstar.com/research/438283
-- 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
-- North American CMBS Insight Model v 1.2.0.0: https://dbrs.morningstar.com/research/444616

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