DBRS Morningstar Downgrades Six Classes, Confirms Two Classes of JP Morgan Chase Commercial Mortgage Securities Trust 2011-C3

DBRS, Inc. (DBRS Morningstar) downgraded six classes of Commercial Mortgage Pass-Through Certificates, Series 2011-C3 issued by JP Morgan Chase Commercial Mortgage Securities Trust 2011-C3 as follows:

-- Class D to BBB (high) (sf) from A (sf)
-- Class E to B (sf) from BBB (sf)
-- Class F to CCC (sf) from BB (high) (sf)
-- Class G to CCC (sf) from B (sf)
-- Class H to C (sf) from CCC (sf)
-- Class J to C (sf) from CCC (sf)

In addition, DBRS Morningstar confirmed the remaining classes as follows:

-- Class B at AAA (sf)
-- Class C at AA (low) (sf)

DBRS Morningstar changed the trend on Class D to Negative from Stable because of weakened performance across both remaining loans. Classes B and C carry Stable trends, while Class E carries a Negative trend. Classes F, G, H, and J have ratings that do not carry a trend.

The downgrades and Negative trends reflect the acute risk related to the only two remaining loans in the pool. As of the June 2021 remittance, the remaining collateral consists of two loans backed by regional malls including Holyoke Mall (77.35% of the pool) and Sangertown Square (22.65%). Both properties are owned and operated by affiliates of the Pyramid Companies (Pyramid), which has seen many of its loans in its mall portfolio move to the special servicer amid the Coronavirus Disease (COVID-19) pandemic.

Both loans in this pool transferred to the special servicer for payment relief in May 2020. After the borrowers and lenders agreed upon modifications (the terms of which included three-year maturity extensions) and the loans prepared to move back to the master servicer, the borrowers notified the servicer that they would not be able to perform under the terms of the original modifications and they were seeking additional relief.

Sangertown Square, which is secured by a 894,127-square-foot (sf) regional mall in New Hartford, New York, a tertiary market between Utica and Syracuse, currently remains in special servicing. The property is anchored by Dick’s Sporting Goods, Target, and Boscov's, with the other two anchor spaces currently vacant after losing JCPenney and Macy’s in October 2020 and April 2021, respectively. The loss of the two anchors has allowed other tenants to exercise cotenancy provisions in their leases. The loan has remained in special servicing as negotiations on a second modification continue. Occupancy has been declining in recent months to its current level of 58% following Macy's departure in April from 76% as of YE2020 after JCPenney vacated. The YE2020 net cash flow (NCF) was 45% below the YE2019 NCF and 59% below issuance. According to the servicer, an updated appraisal is in draft and is not available for release; however, the value of the property has likely plummeted from the issuance figure of $107 million given current market conditions and the steep drop in performance before the pandemic.

Holyoke Mall is secured by a 1.56 million-sf regional mall in Holyoke, Massachusetts. The mall is anchored by JCPenney, Macy’s, Target, and Apple. Macy’s owns its space and is not part of the loan collateral. One anchor space remains empty as Sears vacated in 2018. Junior anchors include Old Navy, Burlington Coat Factory, DSW, Hobby Lobby, and Planet Fitness, which opened in 2019. Pyramid had begun the process of converting the vacant Sears space into a Cinemark theater before the pandemic, securing permits in late 2019; the status of this development remains unknown. The loan returned to the master servicer in May 2021 after the servicer rejected the request for a second modification. The YE2020 NCF was 36% below the 2019 NCF and 54% below issuance levels. The property was 69% occupied as of March 2021. An updated appraisal completed in August 2020 valued the property at $200 million, down from $400 million at issuance. The updated value reflects a trust debt loan-to-value ratio (LTV) of 100% and a whole loan LTV of 117.5% when factoring in the $35 million mezzanine loan.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

The DBRS Viewpoint platform provides additional information on this transaction and underlying loans including DBRS Morningstar metrics, commentary, servicer-reported cash flows, and other performance-related data.

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes issuer and servicer data for most outstanding CMBS transactions (including non-DBRS Morningstar-rated), as well as loan-level and transaction-level commentary for most DBRS Morningstar-rated and -monitored transactions.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology (March 26, 2021), which can be found on dbrsmorningstar.com under Methodologies & Criteria. For a list of the structured-finance-related methodologies that may be used during the rating process, please see the DBRS Morningstar Global Structured Finance Related Methodologies document, which can be found on dbrsmorningstar.com in the Commentary tab under Regulatory Affairs. Please note that not every related methodology listed under a principal structured finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS Morningstar long-term rating scale definition indicates that 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.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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