DBRS Morningstar Upgrades One Class and Confirms One Class of J.P. Morgan Chase Commercial Mortgage Securities Trust 2017-FL11

DBRS, Inc. (DBRS Morningstar) upgraded its rating on one class of Commercial Mortgage Pass-Through Certificates, Series 2017-FL11 issued by J.P. Morgan Chase Commercial Mortgage Securities Trust 2017-FL11 as follows:

-- Class D to AAA (sf) from BBB (high) (sf)

DBRS Morningstar confirmed its ratings on one class as follows:

-- Class E at BB (low) (sf)

In addition, DBRS Morningstar discontinued its ratings on Classes B and C as both classes were repaid in full following the payoff of The Centre at Purchase and the Bank of America Campus loans as of the November 2021 remittance report.

DBRS Morningstar maintained the Stable trend on Class D based on the remaining collateral and the significant factoring down of the class balance. While Class D is seemingly well protected from principal loss given the revised estimates of value on the two remaining loans in the pool, the trend on Class E remains Negative as both loans continue to be monitored on the servicer’s watchlist for performance concerns.

At issuance, the subject transaction consisted of seven floating-rate mortgages secured by 20 commercial properties, with a total mortgage balance of $519.1 million, which were divided into two collateral groups. Collateral Group A consisted of six loans secured by 19 commercial properties with a cumulative mortgage balance of $496.6 million and Collateral Group B represented a $22.5 million junior companion loan secured by the Park Hyatt Beaver Creek. The pooled certificates in this transaction (Classes A, B, C, D, E, F, X-CP, X-EXT, and VRR Interest) are backed by Collateral Group A while the nonpooled certificates (Classes BC and BC-RR Interest) are backed by Collateral Group B. The DBRS Morningstar analysis of this transaction incorporates only Collateral Group A as the nonpooled certificates are not rated by DBRS Morningstar.

As of the December 2021 remittance, two of the original six loans remain in the trust with an aggregate principal balance $112.2 million, representing a collateral reduction of 76.2% since issuance because of the repayment of four loans.

The largest loan remaining in the pool, Hyatt Regency Riverfront Jacksonville, remains on the servicer’s watchlist because of performance-related concerns after the hotel reported negative cash flow in 2020. The loan is backed by a 951 room full-service hotel within the Jacksonville, Florida, central business district. Prior to the pandemic, the loan had maintained a stable performance as the YE2019 net cash flow (NCF) was up nearly 4% compared with issuance while covering with a debt service coverage ratio of 1.94 times.

The loan was briefly in special servicing in mid-2020 before transferring back to the master servicer in January 2021. While in special servicing, the borrower exercised its second extension option, extending the loan’s maturity to September 2021 in conjunction with a principal payment of $3.1 million.. In addition, the loan was modified such that the third and final extension was subject to a revised debt yield test or an additional required principal paydown. In September 2021, the borrower exercised that final maturity extension option, extending the loan to September 2022.

Per the STR report for the trailing three months ended July 31, 2021 (T-3), the subject reported an occupancy rate, average daily rate (ADR), and revenue per available room (RevPAR) of 84.8%, $86.88, and $73.63, respectively, compared with figures of 69.2%, $128.36, and $88.76, respectively, from its competitive set. While the property has shown minimal improvement in occupancy and RevPar compared with the figures for the trailing 12 months ended July 31, 2021 (T-12), penetration rates have decreased between reportings. As of the T-12, the property had penetration rates of 132.1% and 99.2% for occupancy and RevPar, respectively, compared with the T-3 penetration rates of 122.5% and 82.0%, respectively. The penetration rate for ADR was flat at 67% as of the T-3 reporting. An updated appraisal from September 2020 valued the hotel at $99.1 million, down from $126.5 million at issuance.

The other loan remaining in the pool, One Westchase Center, is secured by a 12-story Class A office property located in the Westchase submarket of Houston. The collateral includes an adjacent six-story parking garage. The loan transferred to special servicing in June 2020 after the borrower requested coronavirus relief and was unable to secure takeout financing. While in special servicing, the mezzanine lender foreclosed on its interest in the borrower, forming a new borrowing entity on the senior note via a newly created joint venture with Nitya Capital. The mezzanine lender (OWS Commercial Mezz) retained a 25% stake in the new borrowing entity with the remaining 75% interest held by Nitya Capital. The loan returned to the master servicer after the borrower exercised its second extension option. The borrower has since exercised its third and final extension option, extending the loan to its current maturity date in October 2022.

The loan continues to be monitored on the servicer’s watchlist for performance-related concerns after the loan reported negative cash flow in 2020. In addition, occupancy declined to 68.7% as of the July 2021 rent roll from 80% in 2020. Prior to the pandemic, the 2019 NCF was down 33.2% compared with issuance. In addition to occupancy concerns, cash flow was also affected by rental abatements and expense reimbursements. A number of rent concessions are burning off in 2021, which should lead to some increase in revenue. The loan currently holds $3.1 million in leasing reserves.

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.

All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

The DBRS Viewpoint platform provides additional information on this transaction and underlying loans including DBRS Morningstar metrics, commentary, servicer-reported cash flows, and other performance-related data.

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 the 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.

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.

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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