DBRS Morningstar Assigns Ratings to J.P. Morgan Chase Commercial Mortgage Securities Trust 2019-ICON

DBRS, Inc. (DBRS Morningstar) assigned ratings to the Commercial Mortgage Pass-Through Certificates, Series 2019-ICON issued by J.P. Morgan Chase Commercial Mortgage Securities Trust 2019-ICON (the Issuer) as follows:

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

All trends are Stable.

These certificates are currently also rated by DBRS Morningstar’s affiliated rating agency, Morningstar Credit Ratings, LLC (MCR). In connection with the ongoing consolidation of DBRS Morningstar and MCR, MCR previously announced that it had placed its outstanding ratings of these certificates Under Review–Analytical Integration Review and that MCR intended to withdraw its outstanding ratings; such withdrawal will occur on or about August 14, 2020. In accordance with MCR’s engagement letter covering these certificates, upon withdrawal of MCR’s outstanding ratings, the DBRS Morningstar ratings will become the successor ratings to the withdrawn MCR ratings. Information about the MCR ratings, including the history of the MCR ratings, can be found at www.morningstarcreditratings.com.

On March 1, 2020, DBRS Morningstar finalized its “North American Single-Asset/Single-Borrower Ratings Methodology” (the NA SASB Methodology), which presents the criteria for which ratings are assigned to and/or monitored for North American single-asset/single-borrower (NA SASB) transactions, large concentrated pools, rake certificates, ground lease transactions, and credit tenant lease transactions. For further information on the NA SASB Methodology, please see the press release dated March 1, 2020, on the DBRS Morningstar website at www.dbrsmorningstar.com.

The subject rating actions are the result of the application of the NA SASB Methodology in conjunction with the “North American CMBS Surveillance Methodology,” as applicable. Qualitative adjustments were made to the final loan-to-value (LTV) sizing benchmarks used for this rating analysis.

The collateral for the transaction includes 18 separate nonrecourse, first-lien mortgage loans totaling $174.7 million on 10 multifamily and eight mixed-use properties with 352 residential and 17 commercial units in Manhattan and Brooklyn. The mortgages are not cross-collateralized or cross-defaulted. Each borrower is a special-purpose entity sponsored by Icon Realty Management LLC (Icon). JPMorgan Chase Bank, N.A. (rated AA with a Stable trend by DBRS Morningstar) originated the mortgage loans, which have five-year terms and pay interest only (IO). The loans have a weighted-average interest rate of 5.25437%. Each loan in this transaction is part of a split-loan structure consisting of the related trust loans totaling $144.7 million (the Trust Loans) and separate individual five-year, fixed-rate, IO companion loans totaling $30.0 million (the Companion Loans), which will not be trust assets. Of the Trust Loans, $60.7 million will be Trust A Notes (which will be pari passu with the Companion Loans) and $83.9 million will be Trust B Notes (subordinate in payment to the Companion Loans). The mortgage loans are backed by the borrower’s fee simple interest in 18 multifamily properties, eight of which also have a retail component. The retail space generates 15.4% of total rent and is 100.0% leased to restaurant and consumer-service tenants.

Icon, the portfolio sponsor, acquired the 18 properties over a 12-year period since issuance based on each building’s future upgrade potential as permissible under New York City’s apartment rent restrictions, which originally intended to prevent dramatic rent increases following World War II. Icon plans to invest additional capital into the properties to modernize common areas and upgrade formerly rent-stabilized or rent-controlled apartments as they become vacant. By year-end 2018, the sponsor invested an additional $55.6 million to renovate 16 rent-stabilized units, capturing those apartments as the previous tenants vacated either naturally or through acceptance of a buyout offer.

The DBRS Morningstar net cash flow (NCF) derived at issuance was reanalyzed for the subject rating action to confirm its consistency with the “DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria. The resulting NCF figure was $10.8 million and a cap rate of 6.25% was applied, resulting in a DBRS Morningstar Value of $172.8 million, a variance of 40.9% from the appraised value at issuance of $292.1 million. The DBRS Morningstar Value implies an LTV of 101.1% compared with the LTV of 59.8% on the appraised value at issuance. The NCF figure applied as part of the analysis represents a 5.1% variance from the Issuer’s NCF, primarily driven by concessions, real estate taxes, and commercial leasing costs. As of the most recent reported annualized figures, the servicer reported a NCF figure of $11.4 million, a +0.1% variance from the DBRS Morningstar NCF figure.

The cap rate DBRS Morningstar applied is at the lower end of the DBRS Morningstar Cap Rate Ranges for multifamily properties, reflecting the property locations, types, and qualities. In addition, the 6.25% cap rate DBRS Morningstar applied is substantially above the implied cap rate of 3.9% based on the Issuer’s underwritten NCF and appraised value.

DBRS Morningstar made positive qualitative adjustments to the final LTV sizing benchmarks used for this rating analysis, totaling 4.5% to account for cash flow volatility, property quality, and market fundamentals. DBRS Morningstar also made other negative adjustments to account for certain loan leverage.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Classes X-A and X-B are 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 this transaction.

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes loan-level 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 methodologies are the North American Single-Asset/Single-Borrower Ratings Methodology and North American CMBS Surveillance Methodology, which can be found on www.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 www.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.

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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