DBRS Morningstar Confirms All Ratings on JPMBB Commercial Mortgage Securities Trust 2015-C32

DBRS Limited (DBRS Morningstar) confirmed the ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2015-C32 issued by JPMBB Commercial Mortgage Securities Trust 2015-C32 as follows:

-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-5 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 (low) (sf)
-- Class B at A (high) (sf)
-- Class C at CCC (sf)
-- Class EC at CCC (sf)
-- Class D at C (sf)
-- Class E at C (sf)
-- Class F at C (sf)
-- Class G at C (sf)

Classes C, D, E, F, G, and EC have ratings that do not typically carry trends in commercial mortgage-backed securities (CMBS) ratings. All other classes have Stable trends. The rating confirmations reflect the overall stable performance of the transaction since DBRS Morningstar’s last review. The CCC (sf) and C (sf) ratings for Classes C, D, E, F, G, and EC are reflective of DBRS Morningstar’s continued loss expectations for the largest loans in special servicing, as discussed below.

As of the February 2023 remittance, 74 loans of the original 89 remain outstanding with a pool balance of $750.4 million, representing a collateral reduction of 34.7% since issuance as a result of loan amortization and repayments. Of the remaining loans, six loans, representing 5.6% of the pool balance, have fully defeased. Seven loans are in special servicing, totaling 33.4% of the pool balance, including the top three loans. In addition, 13 loans, totaling 17.7% of the pool balance, are on the servicer’s watchlist, six of which have been flagged for performance-related issues.

The largest loan in the pool and in special servicing, Civic Opera Building (Prospectus ID#2, 9.3% of the pool), is secured by the borrower’s fee-simple interest in a 915,162-square-foot office property in Chicago’s West Loop District and is pari passu with a companion note in the JPMBB 2015-C31 transaction, which is also rated by DBRS Morningstar. The loan transferred to special servicing in June 2020 following the borrower’s request for forbearance relief as a result of the Coronavirus Disease (COVID-19) pandemic. The loan has been delinquent since May 2021, and a receiver has been appointed. According to the most recent servicer commentary, the lender is seeking foreclosure as forbearance negotiations have stalled.

According to the September 2022 rent roll, the property was 63.7% occupied, compared with 69.4% at year-end (YE) 2021. The largest tenants are Bond Collective (7.4% of the net rental area (NRA), expiry in November 2033); TechNexus, LLC (5.3% of the NRA, expiry in April 2025); Natural Resources (2.8% of the NRA, expiry in March 2038); and Perficient, Inc. (2.4% of the NRA, expiry in June 2030). There is moderate upcoming rollover risk, with leases representing 9.2% of the NRA scheduled to expire within the next 12 months. The most recent appraisal obtained by the special servicer, dated September 2022, valued the property at $159.4 million, compared with a value of $165.0 million dated February 2021, and down 27.5% from the appraised value of $220.0 million at issuance. DBRS Morningstar’s analysis included a liquidation scenario based on a stress to the most recent appraised value to reflect declining occupancy, upcoming rollover, and an increasing supply of vacant office space in the Chicago central business district, resulting in a loss severity in excess of 45%.

The second-largest loan in special servicing, Hilton Suites Chicago Magnificent Mile (Prospectus ID#1, 9.0% of the pool), is secured by a full-service hotel in downtown Chicago. The loan transferred to special servicing in May 2020 for monetary default and was last paid through September 2020. According to the most recent commentary from the special servicer, a receiver is in place and the foreclosure sale is anticipated to occur in the first quarter of 2023. According to the September 2022 STR, Inc. reporting, the occupancy rate, average daily rate, and revenue per available room for the trailing 12-month period, were reported at 63.1%, $204.96, and $129.41, respectively, an improvement over the YE2021 figures of 29.8%, $164.36, and $48.95, respectively. Updated financials have not been produced since March 2020. The trailing 12 months ended March 2020 debt service coverage ratio (DSCR) was reported to be 0.79 times (x), down from a YE2019 DSCR of 0.90x and YE2018 DSCR of 1.30x, indicating declines to performance prior to the pandemic. An April 2022 appraisal valued the property at $68.1 million, compared with a May 2021 appraised value of $57.1 million. The most recent appraised value represents a 39.4% decline from the issuance appraised value of $112.4 million. With this review, DBRS Morningstar liquidated this loan from the pool, which resulted in a loss severity in excess of 30%.

The third-largest loan in special servicing, Palmer House Retail Shops (Prospectus ID #3, 7.7% of the pool), is secured by a mixed-use retail and office property in downtown Chicago. The loan transferred to special servicing in July 2020 for payment default having last paid through in April 2020. The special servicer reported that a foreclosure complaint was filed in December 2020 and a receiver was appointed in February 2021. The borrower, an affiliate of Thor Equities, has contested the foreclosure, delaying proceedings. Thor Equities is facing multiple foreclosure suits across its portfolio.

According to the June 2022 rent roll, occupancy dropped to 54.6% from 65.7% at YE2021 and 98.0% at YE2019. As per the June 2022 rent roll, the largest tenant is Hilton Domestic Operating Company (21.1% of the NRA, expiry in June 2024), representing all of the collateral office space. The largest retail tenants include Sterling Jewelers Inc. (7.5% of the NRA, expiry in April 2028) and Crocs Retail, Inc. (3.8% of the NRA, expiry in December 2023). Rollover risk for the next 12 months is minimal with only 4.8% of the NRA with upcoming lease expirations. The largest rentable collateral space is the property’s parking component, which was previously leased to an operator whose lease expired in August 2022. The most recent appraisal, dated April 2022, reported an as-is value of $36.9 million, compared with the April 2021 value of $39.9 million, and representing a 60.2% decline from the appraised value of $92.6 million at issuance. DBRS Morningstar liquidated this from the pool with a loss severity in excess of 70%.

DBRS Morningstar’s analysis included liquidation scenarios for three additional assets in special servicing. Hilton Atlanta Perimeter (Prospectus ID#12, 3.5% of the pool), Market Square at Montrose (Prospectus ID#49, 0.7% of the pool), and La Quinta Inn & Suites (Prospectus ID#58, 0.5% of the pool), are real estate owned. DBRS Morningstar’s modeled loss severities for these loans range from approximately 20% to 65%.

At issuance, DBRS Morningstar shadow-rated the U-Haul Portfolio loan (Prospectus ID#5, 2.0% of the pool) as investment grade. With this review, DBRS Morningstar confirmed that the performance of this loan remains consistent with investment-grade loan characteristics.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
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 (May 17, 2022).

Classes X-A and X-B are an 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.

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

The principal methodology is the North American CMBS Surveillance Methodology (October 3, 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 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@dbrsmorningstar.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.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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