DBRS Morningstar Downgrades Three Classes, Discontinues One Class of JPMBB Commercial Mortgage Securities Trust 2015-C28

DBRS, Inc. (DBRS Morningstar) downgraded ratings on three classes of Commercial Mortgage Pass-Through Certificates, Series 2015-C28 issued by JPMBB Commercial Mortgage Securities Trust 2015-C28 as follows:

-- Class X-E to BB (low) (sf) from BB (sf)
-- Class E to B (high) (sf) from BB (low) (sf)
-- Class F to CCC (sf) from B (low) (sf)

In addition, DBRS Morningstar confirmed the following ratings:

-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AA (sf)
-- Class B at AA (low) (sf)
-- Class X-C at A (sf)
-- Class C at A (low) (sf)
-- Class EC at A (low) (sf)
-- Class X-D at BBB (sf)
-- Class D at BBB (low) (sf)

DBRS Morningstar also discontinued its ratings on Class X-F as it now references a CCC (sf)-rated class. The trends on Classes X-D, D, X-E, and E were changed to Stable from Negative. All other trends are Stable with the exception of Class F, which now has a rating that does not carry a trend. DBRS Morningstar removed the interest in arrears designation on Class F, as the interest shortfalls were repaid with the May 2022 remittance.

DBRS Morningstar previously assigned Negative trends to classes X-D, D, X-E, E, and F as a reflection of the potential for further declines in the outlook for the loans in the pool in special servicing and on the servicer’s watchlist. As such, the downgrades for Classes X-E, E, and F with this review, reflect the sustained performance decline of the loans currently in special servicing. Additionally, DBRS Morningstar continues to note the high concentration of loans secured by retail properties, as the effects of the Coronavirus Disease (COVID-19) pandemic disproportionately affected the performance of retail properties. DBRS Morningstar believes the rating actions taken with this review appropriately reflect the current risk profile of the transaction, supporting the Stable trends.

As of the June 2022 remittance, 59 of the original 67 loans remain in the pool, representing a collateral reduction of 22.1% since issuance. Ten loans, representing 11.0% of the current pool balance, are fully defeased. Three loans, representing 10.8% of the pool, were in special servicing, including two in the top 15, one of which has become real estate owned (REO), the Horizon Outlet Shoppes Portfolio (Prospectus ID#12, 2.2% of the pool). Additionally, eight loans, representing 14.9% of the current pool, were being monitored on the servicer’s watchlist, including four in the top 15. The pool continues to be highly concentrated by property type, with retail properties representing 52.2% of the current pool, including all three of the specially serviced loans. Retail property types saw some of the worst of the initial effects of the pandemic with forced closures and capacity limitations, and while things have improved incrementally over the last year, significant risks remain as the pandemic’s effects continue to linger.

The largest loan in special servicing, and the second-largest loan overall, is Shops at Waldorf Center (Prospectus ID#2, 8.4% of the pool). The loan transferred to special servicing in July 2020 for imminent monetary default related to the onset of the pandemic, and as of the June 2022 remittance, remains over 90 days delinquent. The loan is secured by a 497,000 square-foot (sf) anchored retail property in Waldorf, Maryland, approximately 30 miles south of Washington, D.C. The collateral property’s occupancy rate has fallen precipitously over the last few years, but cash flows had previously remained relatively healthy, with a YE2019 debt service coverage ratio (DSCR) of 1.59 times (x) and an occupancy rate of 81.0%. As of March 2020, occupancy was reported at 76.0%, with a granular rent roll that showed the largest tenant as Christmas Tree Shops with 7.1% of the collateral net rentable area (NRA).

Updated financials have not been provided since the loans were transferred to special servicing, but servicer commentary reports that as of January 2022, the property was 74% occupied and generated $5.1 million in net operating income in 2021, compared with $5.6 million in 2019, and $6.5 million at issuance. The servicer commentary goes on to note that while performance has improved, income generated from the property is not sufficient to cover the senior and mezzanine debt service, as well as leasing and capital expenses. The workout strategy is noted as modification, with commentary reporting that discussions are ongoing with the borrower, while the servicer dual tracks foreclosure. A September 2021 appraisal valued the property at $90.2 million, which was relatively consistent with the September 2020 appraised value of $90.9 million, and still slightly above the loan’s total exposure. In its analysis, DBRS Morningstar analyzed the loan by maintaining an elevated probability of default, increasing the loan’s expected loss profile.

The second-largest loan in special servicing is the Horizon Outlet Shoppes Portfolio (Prospectus ID#12, 2.2% of the pool), a pari passu loan that transferred to special servicing in March 2020, prior to the onset of the pandemic, for imminent monetary default. At issuance, the portfolio consisted of three outlet malls in Wisconsin, Washington, and Indiana, all of which became REO in August 2021. Servicer commentary states that only one of the properties remains REO, indicating that the two smaller properties in Washington and Indiana have been sold. The June 2022 remittance report shows curtailments payments in April and June 2022, totaling $5.5 million, related to the loan. The Washington and Indiana properties reported Q4 2021 DSCRs of -0.11x and 0.46x, respectively, and were most recently valued at $3.0 million and $2.1 million, respectively, indicating significant declines from the issuance appraised values of $23.2 million and $18.7 million, respectively. The remaining asset securing the loan, Prime Outlets of Oshkosh, is a 270,500-sf anchored retail property in Oshkosh, Wisconsin. Current rent rolls were not available, but the servicer reported occupancy and Q4 2021 DSCR of 60% and 1.25x, respectively, compared with 82.3% and 1.05x at YE2019 (YE2020 financials were not provided). Tenancy is fairly granular with no tenant making up more than 5.3% of total NRA.

Servicer commentary noted that the property was not currently listed for sale, though no further updates about the current workout plans have been disclosed, with the special servicer potentially waiting to lease up the property before bringing it to market. While the Oshkosh property had historically performed better than the other two properties in the portfolio, the most recent property valuation of $7.0 million represents an 84.6% decline from the issuance appraised value of $45.0 million. The value is well below the outstanding loan balance of $19.8 million. As a result, DBRS Morningstar liquidated the loan from the trust in its analysis, which resulted in a loss severity of nearly 100%.

There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

Classes X-A, X-B, X-C, X-D, and X-E 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.

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.

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

The principal methodology is North American CMBS Surveillance Methodology (March 4, 2022), 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. 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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