DBRS Morningstar Confirms All Ratings on J.P. Morgan Chase Commercial Mortgage Securities Trust 2018-WPT, Removes UR-Dev. Status

DBRS, Inc. (DBRS Morningstar) confirmed the ratings on the following classes of the Commercial Mortgage Pass-Through Certificates, Series 2018-WPT issued by J.P. Morgan Chase Commercial Mortgage Securities Trust 2018-WPT (the Issuer):

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

All trends are Stable. The ratings have been removed from Under Review with Developing Implications, where they were placed on November 14, 2019.

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.

Prior to the finalization of the NA SASB Methodology, the DBRS Morningstar ratings for the subject transaction and all other DBRS Morningstar-rated transactions subject to the methodology in question were previously placed Under Review with Developing Implications, as the proposed methodology changes were material.

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 subject loan is secured by the fee and leasehold interests in a portfolio of 147 properties, comprising nearly 9.9 million square feet (sf) of office and flex space, located in four states across the United States. Built between 1972 and 2013, the portfolio includes 88 office properties (6.5 million sf) and 59 flex buildings (3.4 million sf). Located across Pennsylvania, Florida, Minnesota, and Arizona, the collateral encompasses five distinct metropolitan statistical areas (MSAs) and more than 15 submarkets. The largest concentration of portfolio properties is found in the Philadelphia MSA with 69 properties totaling 40.3% of the mortgage balance at issuance, followed by the Tampa MSA (34 properties; 16.5% of the original loan balance), the Minneapolis MSA (19 properties; 13.0% of the original loan balance), the Phoenix MSA (14 properties; 12.9% of the original loan balance), and the Southern Florida MSA (11 properties; 17.3% of the original loan balance). Although none of the subject properties are located in what DBRS Morningstar would consider urban markets, the assets are generally located within dense suburban markets that benefit from favorable accessibility and close proximity to their respective central business districts.

At issuance, total loan proceeds of $1.275 billion ($129 per square foot (psf)) were used to pay off $827.5 million ($84 psf) of existing debt and an existing credit line totaling $227.6 million ($23 psf), redeem a preferred equity interest held by Square Mile Capital Management LLC, fund upfront reserves of approximately $32.9 million, pay initial public offering-related expenses, defer LP distribution and asset management fees, and cover closing costs. The mortgage loan was split into (1) a floating-rate component of approximately $255.0 million, with a two-year initial term and three one-year extension options and (2) a five-year fixed-rate loan totaling $1.02 billion, comprising the $850.0 million trust balance and three companion loans totaling $170.0 million. The companion loans were secured across three other DBRS Morningstar-rated deals, BMARK 2018-5, BMARK 2018-6, and BMARK 2018-7, as well as a fourth deal, BMARK 2018-8, which was not rated by DBRS Morningstar. In July 2020, the sponsor submitted an unscheduled principal payment (curtailment) of $2.967 million, which paid down Class A-FL by that amount and lowered the whole loan balance to $1.272 billion from $1.275 billion. Class A-FL decreased to $84.4 million from $92.4 million at issuance.

As of August 1, 2020, the portfolio exhibited a physical occupancy of 88.0%, which is essentially unchanged from the 88.6% reported at issuance. Furthermore, the portfolio’s average occupancy remained favorable throughout the Great Recession, ranging from 88.5% to 91.6% between 2008 and 2010. Since 2005, the portfolio has averaged around 90% and has remained at or above 88.0% during this time period. Much of the portfolio’s stable performance is attributable to its highly granular rent roll with more than 500 tenants, none of which accounts for more than 4.2% of the total net rentable area (NRA). The portfolio’s top five tenants, representing a combined 13.4% of the NRA, include many large corporations such as United Healthcare Services, Inc. (419,543 sf); Aetna Life Insurance Company (323,943 sf); Siemens Medical Solutions USA, Inc. (241,297 sf); Kroll Ontrack, LLC (195,879 sf); and Dell Marketing L.P. (141,290 sf). Eleven of the top 20 tenants have investment-grade ratings, which account for 17.7% of the NRA. In all, investment-grade tenants lease 2.9 million sf (29.4% of the NRA) across the entire portfolio, and DBRS Morningstar considers seven of these tenants occupying 261,963 sf (2.7% of the NRA) to be long-term credit tenants.

The loan sponsor is Workspace Property Trust, L.P. (Workspace), a privately held, full-service commercial real estate company specializing in the acquisition, development, management, and operation of office and flex properties. Led by a management team with more than 75 years of combined real estate experience, the company acquired 39 of the assets in January 2016 and the remaining 108 assets in October 2016. Liberty Property Trust held the subject properties prior to Workspace’s acquisitions. A portion of the portfolio was previously securitized in the JPMCC 2016-WPT transaction.

The DBRS Morningstar net cash flow (NCF) derived at issuance was re-analyzed 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 $104.7 million and a cap rate of 8.75% was applied, resulting in a DBRS Morningstar Value of approximately $1.2 billion, a variance of -25.8% from the appraised value at issuance of $1.6 billion. The DBRS Morningstar Value implies an LTV of 104.8%, as compared with the LTV on the issuance appraised value of 77.8%. The NCF figure applied as part of the analysis represents a -7.3% variance from the Issuer’s NCF, primarily driven by tenant improvements and leasing costs, rent markdowns, reimbursements, and the management fee. As of YE2019, the servicer reported a NCF figure of $105.9 million, a +1.2% variance from the DBRS Morningstar NCF figure.

The cap rate applied is at the middle end of the range of DBRS Morningstar Cap Rate Ranges for office properties, reflective of the highly concentrated portfolio located in predominately secondary markets. In addition, the 8.75% cap rate applied is above the implied cap rate of 6.91% based on the Issuer’s underwritten NCF and appraised value.

DBRS Morningstar made negative qualitative adjustments to the final LTV sizing benchmarks used for this rating analysis totaling -5.00% to account for cash flow volatility, property quality, and market fundamentals. DBRS Morningstar also adjusted the LTV for each class downward by 50 basis points to account for the somewhat weak property release provisions, which stipulate release premiums of 110.0% and 115.0% if released to an affiliated entity. Additionally, any prepayment of principal will be applied first to the reduction of the floating rate components in sequential order and second to the reduction of the fixed rate loan in sequential order.

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 XA-FX, X-FL, and XB-FX 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 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 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.

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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