DBRS Morningstar Takes Actions on J.P. Morgan Chase Commercial Mortgage Securities Trust 2017-FL11

DBRS Limited (DBRS Morningstar) changed the trends on two classes of Commercial Mortgage Pass-Through Certificates, Series 2017-FL11 (the Certificates) issued by J.P. Morgan Chase Commercial Mortgage Securities Trust 2017-FL11. DBRS Morningstar also confirmed the ratings on all classes of the Certificates as follows:

-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (sf)
-- Class D at BBB (high) (sf)
-- Class E at BB (low) (sf)

All trends are now Stable as Classes B and C have been changed to Stable from Positive. Stable trends were assigned as Cooper Hotel Portfolio (Prospectus ID#2, representing 27.0% of the current trust balance) as the reported net cash flow (NCF) remained below the DBRS Morningstar Term NCF derived at issuance. Additionally, One Westchase Center (Prospectus ID#6, 12.2% of the current trust balance) failed to meet the minimum debt yield requirement in 2018 and is located in a weak office submarket of the Houston metropolitan statistical area (MSA).

The ratings confirmations reflect the overall stable performance exhibited since issuance. The collateral consisted of seven floating-rate mortgages secured by 20 commercial properties with a total mortgage loan amount of $519.1 million, which was divided up into two collateral groups. DBRS Morningstar only rated one of the collateral groups that consisted of six loans secured by 19 commercial properties with a collective mortgage balance of $496.6 million. As of the September 2019 remittance, five of the original six loans remain in the trust with an aggregate principal balance $386.6 million, representing a collateral reduction of 22.2% since issuance due to loan repayment. All loans in the trust are structured with two-year terms and three one-year extension options. Four of the loans within the trust exercised the first one-year extension and the One Westchase Center is in the process of exercising the extension.

All loans within the trust reported year-end (YE) 2018 financials and partial year 2019 financials. The partial year 2019 financials reported a weighted average (WA) debt service coverage ratio (DSCR) of 2.52 times (x) compared with the WA YE2018 DSCR of 2.76x and WA DBRS Morningstar Term DSCR of 2.30x. The improvement over the DBRS Morningstar Term DSCR derived at issuance was primarily due to the performances of Bank of America Campus (Prospectus ID#4; 18.9% of the trust balance), Hyatt Regency Jacksonville Riverfront (Prospectus ID#5; 17.7% of the trust balance) and The Centre at Purchase (Prospectus ID#3; 24.3% of trust balance). The partial year 2019 DSCRs were lower primarily due to an increase in interest rates. The pool benefits from all properties being in core suburban markets and all loans reporting high DSCRs. In addition to being concentrated by loan size, the pool is also concentrated by property type, as two loans (44.6% of the current trust balance) are secured by hotel properties, while the remaining three loans (55.4% of the current trust balance) are secured by office properties.

As of the September 2019 remittance, two loans (Cooper Hotel Portfolio and One Westchase Center), representing 39.1% of the current trust balance, are on the servicer’s watchlist due to upcoming loan maturities. Both loans have either been extended or in the process of being extended, and DBRS Morningstar is monitoring the One Westchase Center loan as the property failed to achieve a minimum debt yield requirement and a cash sweep has been activated. The 12-story office structure is in the Westchase office submarket of the Houston MSA, which reported a high vacancy rate of 31.9% for Class A office properties, per a Q2 2019 Reis report. The property reported an August 2019 occupancy rate of 83.4%; however, 14 tenants (14.3% of net rentable area) have lease expirations prior to YE2021. The YE2018 NCF of $3.9 million was well below the YE2017 NCF of $4.4 million due to rent abatements from recent lease renewals, indicating the borrower is providing concessions to tenants to remain at the property. The upcoming lease rollover and declining submarket conditions are being monitored by DBRS Morningstar.

At issuance, DBRS Morningstar shadow-rated one loan, the Cooper Hotel Portfolio, as investment grade. With this review, DBRS Morningstar confirms that the performance of the loan remains consistent with the investment-grade shadow rating.

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 this transaction.
-- Cooper Hotel Portfolio – Prospectus ID#2 (27.0% of the trust balance)
-- The Center at Purchase – Prospectus ID#3 (24.3% of the trust balance)
-- Bank of America Campus – Prospectus ID#4 (18.9% of the trust balance)
-- Hyatt Regency Jacksonville Riverfront – Prospectus ID#5 (17.7% of the trust balance)
-- One Westchase Center – Prospectus ID#6 (12.2% of the trust balance)

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

The principal methodology is North American CMBS Surveillance Methodology, which can be found on www.dbrs.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 Global Structured Finance Related Methodologies document, which can be found on www.dbrs.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 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.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.

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

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