DBRS Morningstar Confirms All Ratings on JPMBB Commercial Mortgage Securities Trust 2015-C32

DBRS Limited (DBRS Morningstar) confirmed the ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2015-C32 issued by JPMBB Commercial Mortgage Securities Trust 2015-C32 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-S at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AA (low) (sf)
-- Class B at A (high) (sf)
-- Class C at CCC (sf)
-- Class EC at CCC (sf)
-- Class D at C (sf)
-- Class E at C (sf)
-- Class F at C (sf)
-- Class G at C (sf)

The trends on Classes B and X-B remain Negative. Classes C, EC, D, E, F, and G have ratings that do not carry a trend, and all remaining Classes have Stable trends. DBRS Morningstar maintained its Interest in Arrears designation on Classes D, E, F, and G.

The rating confirmations and Negative trends are reflective of the overall performance of the transaction and DBRS Morningstar’s ongoing concerns regarding the loans in special servicing, which represent 34.6% of the pool balance and include four loans in the top 10. According to the February 2022 remittance, 77 of the original 89 loans remain in the pool, representing a collateral reduction of 26.4% since issuance. Three loans are fully defeased, representing 34.6% of the pool, and 15 loans are on the servicer’s watchlist, representing 15.4% of the pool.

The largest loan in the pool, Civic Opera Building (Prospectus ID#2, 8.4% of the pool), is secured by an office property in Chicago’s West Loop District and is pari passu with a loan in the JPMBB 2015-C31 transaction, which is also rated by DBRS Morningstar. The loan transferred to special servicing in June 2020 because of imminent monetary default as a result of the Coronavirus Disease (COVID-19) pandemic and was last paid through May 2021. The servicer reports that it is pursuing multiple workout strategies including ongoing forbearance negotiations with the borrower. According to the servicer’s commentary, a consensual receivership was also awarded by the courts. The most recent appraisal reported by the servicer, dated February 2021, valued the property at $165.0 million, down 25% from the appraised value of $220.0 million at issuance, equating to a current whole-loan loan-to-value ratio of 94.0%. As of March 2021, the property reported an occupancy rate of 75.0% and a debt service coverage ratio (DSCR) of 0.73 times (x), compared with the YE2020 figures of 75.0% and 0.80x, respectively. The cash flow declines have been the result of lower occupancy rates in the last few years, as well as significant increases in payroll and real estate tax expenses. Given the sustained low DSCRs, value decline, and the leasing challenges given that the subject was constructed in 1929 and the general format of the suites is small, the loan exhibits elevated credit risk. As such, for this review, DBRS Morningstar analyzed the loan with a liquidation scenario, which resulted in a loss severity in excess of 35.0%.

The second-largest loan, Hilton Suites Chicago Magnificent Mile (Prospectus ID#1, 8.2% of the pool), is secured by a full-service hotel in downtown Chicago. The loan is in special servicing and was last paid through September 2020. Prior to the pandemic, the loan performance had declined from issuance expectations and the risk was compounded because the hospitality industry was significantly affected by the pandemic. The lender and the borrower are working on documenting a deed in lieu of foreclosure as the workout. Based on the May 2021 appraisal, the property was valued at $57.1 million, which is a 49.2% decline from the issuance value of $112.4 million and is below the outstanding loan balance of $69.4 million. With this review, DBRS Morningstar analyzed this loan with a liquidation scenario, which resulted in a loss severity in excess of 50.0%.

The third-largest loan, Palmer House Retail Shops (Prospectus ID#3, 6.9% of the pool), is secured by a mixed-use retail and office property in downtown Chicago. The loan transferred to special servicing in July 2020 for payment default and the loan was last paid through April 2020. A foreclosure complaint was filed in December 2020 and a receiver was appointed in February 2021. Based on the July 2021 appraisal, the property was valued at $39.9 million, a 56.9% decline from the issuance value of $92.6 million and below the outstanding loan balance of $58.9 million. With this review, DBRS Morningstar analyzed this loan with a liquidation scenario, which resulted in a loss severity in excess of 60.0%.

The Outlet Shoppes at Gettysburg (Prospectus ID#8, 4.2% of the pool) is secured by a retail outlet center in Gettysburg, Pennsylvania. The loan transferred to special servicing in April 2021 because of imminent default and the guarantor’s filing for Chapter 11 bankruptcy in November 2020, which triggered a recourse provision. As of the February 2022 remittance, the loan is current and the servicer is in discussions with the borrower regarding a loan modification while dual-tracking foreclosure. Based on the June 2021 appraisal, the property was valued at $18.4 million, which is a 71.6% decline from the issuance value of $64.8 million and well below the outstanding loan balance of $35.7 million. As of December 2021, the property was 73.1% occupied as several small tenants vacated upon their lease expirations. The loan reported a YE2020 DSCR of 0.98x, compared with the YE2019 DSCR of 1.04x. The sponsors are CBL & Associates (CBL) and Horizon Group Properties. CBL recently emerged from Chapter 11 bankruptcy in November 2021, having reduced its corporate debt by $1.7 billion. Considering the loan is current and the possibility of a loan modification as the resolution strategy, DBRS Morningstar analyzed this loan with a significant probability of default penalty to increase the expected loss.

At issuance, DBRS Morningstar shadow-rated the U-Haul Portfolio loan (Prospectus ID#5, 2.5% of the pool) as investment grade. With this review, DBRS Morningstar confirmed that the performance of this loan remains consistent with investment-grade loan characteristics.

ESG CONSIDERATIONS
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 and X-B 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 – Hilton Suites Chicago Magnificent Mile (8.2% of the pool)
-- Prospectus ID#2 – Civic Opera Building (8.4% of the pool)
-- Prospectus ID#3 – Palmer House Retail Shops (6.9% of the pool)
-- Prospectus ID#8 – The Outlet Shoppes at Gettysburg (4.2% 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. 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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