DBRS Morningstar Confirms Ratings on DBJPM 2017-C6 Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2017-C6 issued by DBJPM 2017-C6 Mortgage Trust as follows:

-- Class A-2 at AAA (sf)
-- 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-M at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class X-B at AA (low) (sf)
-- Class C at A (high) (sf)
-- Class D at BBB (sf)
-- Class X-D at BBB (high) (sf)
-- Class E-RR at BB (high) (sf)
-- Class F-RR at BB (low) (sf)

All trends are Stable.

The rating confirmations and Stable trends reflect the transaction’s overall consistent performance. As of the November 2021 remittance, 39 of the original 41 loans remained in the pool, with an aggregate principal balance of approximately $1.1 billion, representing a collateral reduction of 6.5% since issuance as a result of loan amortization and repayment. Additionally, one loan, representing 6.0% of the current pool balance, is fully defeased. By property type, the pool is most heavily concentrated in office, retail, and lodging properties, representing 27.1%, 21.2%, and 15.1% of the current pool, respectively.

Per the November 2021 reporting, there were four loans, representing 11.6% of the current pool, in special servicing. One of these loans, 245 Park Avenue (Prospectus ID#1; 8.8% of the pool), is also the largest loan in the pool and transferred to special servicing with the November 2021 remittance after the sponsor filed for Chapter 11 bankruptcy in October 2021. The three smaller loans in special servicing, representing 2.7% of the pool, transferred between May 2020 and July 2020 and are all 121+ days delinquent. Receivers are in place for both Cincinnati Eastgate Holiday Inn (Prospectus ID#25; 1.2% of the current pool) and Long Meadow Farms (Prospectus ID#31; 0.9% of the current pool), with sales expected by early 2022. The third loan, Union Hotel Brooklyn (Prospectus ID#34; 0.6% of the current pool), was subject to the New York moratorium that has delayed the workout; however, motions have been filed to appoint a receiver. Based on the updated appraisals dated from September 2020 to November 2020, property values for these three loans have declined between 11% and 51%, with total implied losses of approximately $9.0 million contained to the first loss piece.

The 245 Park Avenue loan is secured by a 44-storey Class A office property with ground-floor retail in Midtown Manhattan. According to an October 2021 Bloomberg article, the borrower filed for Chapter 11 bankruptcy because the property manager had been unable to backfill Major League Baseball’s (MLB) space (12.6% of net rentable area) after MLB vacated the property in January 2020 ahead of its October 2022 lease expiration (a departure that was known to be forthcoming at issuance). The December 2020 rent roll showed that the property was 93.2% occupied with an average base rent of $79.72 per square foot (psf) compared with the 91.2% occupancy rate and $80.72 psf average base rent at issuance. The loan is sponsored by HNA Group, a China-based Fortune 500 company that was relatively new to owning and managing commercial real estate at issuance.

The collateral benefits from its location in one of Manhattan’s premier office corridors and its accessibility to Grand Central Terminal. The subject’s historical occupancy rate has remained above 90% for several years, largely because of the long-term leases to investment-grade tenants. The loan is structured with a springing cash management lockbox that was triggered when MLB vacated in 2020 and the tenant reserve balance totaled $26.3 million as of November 2021. DBRS Morningstar anticipated the possibility of the MLB space going completely vacant and acknowledged MLB’s above-market rents at issuance. The loan’s transfer to the special servicer is primarily related to borrower-associated issues rather than the collateral’s credit profile. Tenant reserves are expected to continue accruing until MLB’s lease expires, and the current balance provides a sufficient tenant improvement package of $119 psf for the MLB space to attract a new tenant. DBRS Morningstar will continue to monitor leasing and sponsor updates but the low leverage for the senior loan, with its issuance loan-to-value of 48.9%, suggests the overall risk profile remains healthy.

There are also nine loans, representing 23.2% of the pool, on the servicer’s watchlist for a variety of reasons, including low debt service coverage ratios, declines in occupancy, and monitoring. One of the loans listed, Vineyards at Forest Edge (Prospectus ID#5; 6.0% of the pool), is fully defeased. DBRS Morningstar has requested an update from the servicer.

The third-largest loan on the watchlist, Lake Forest Gateway (Prospectus ID#11; 3.3% of the pool), is secured by a 77,710-sf unanchored retail property in Lake Forest, California. The loan initially transferred to special servicing in June 2020 for payment default but has since been returned to the master servicer. The borrower originally indicated its desire to turn the property over to the lender because of the uncertainty of tenancy post-pandemic but has since reconsidered and agreed to a loan modification because the property is performing better than anticipated. To date, the borrower has been complicit with the terms of forbearance, and as such, the loan was returned to the master servicer in August 2021. Terms of the forbearance include three months’ deferral of interest payments, 18 months’ deferral of principal payments, and nine months’ deferral of replacement reserves. Repayments for the deferrals will occur over 24-month and 30-month instalments ending in February 2024. The loan’s maturity remains in May 2027.

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.

Classes X-A, X-B, and X-D 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 ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:

-- Prospectus ID#1 – 245 Park Avenue (8.8% of the pool)
-- Prospectus ID#11 – Lake Forest Gateway (3.3% of the pool)

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.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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@dbrsmorningstar.com.

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.

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

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577