Morningstar DBRS Downgrades Four Classes of DBJPM 2017-C6 Mortgage Trust

DBRS, Inc. (Morningstar DBRS) downgraded the credit ratings on four classes of Commercial Mortgage Pass-Through Certificates, Series 2017-C6 issued by DBJPM 2017-C6 Mortgage Trust as follows:

-- Class D to BBB (low) (sf) from BBB (sf)
-- Class E-RR to BB (low) (sf) from BB (high) (sf)
-- Class F-RR to B (sf) from BB (low) (sf)
-- Class X-D to BBB (sf) from BBB (high) (sf)

In addition, Morningstar DBRS confirmed the following credit ratings:

-- 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-M at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at A (high) (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AA (low) (sf)

Morningstar DBRS changed the trends on Classes D, X-D, E-RR, and F-RR to Negative from Stable. All other trends are Stable.

The credit rating downgrades are reflective of Morningstar DBRS' increased loss expectations for two of the three loans in special servicing: Long Meadow Farms (Prospectus ID#31; 1.0% of the pool) and Union Hotel - Brooklyn (Prospectus ID#34; 0.7% of the pool), which is currently real estate owned (REO). With this review, Morningstar DBRS Morningstar DBRS analyzed the two specially serviced loans named above with liquidation scenarios given the decline in their appraised values since issuance. Though the projected losses are currently contained to the unrated Class G-RR certificate, the resulting erosion in credit support to the junior bonds in the transaction has contributed to the credit rating downgrades.

Morningstar DBRS changed the trends on Classes D, X-D, E-RR, and F-RR to Negative from Stable. The trend revisions reflect increased pool expected losses, driven by the largest loan in special servicing -- 211 Main Street - Trust (Prospectus ID#6; 6.4% of the pool) -- as well as a number of other loans that are not currently in special servicing, but are exhibiting declining performance trends. To account for these concerns, Morningstar DBRS analyzed five loans representing 27.5% of the pool, including 211 Main Street - Trust, with elevated probabilities of default and/or stressed loan-to-value ratios (LTVs) to increase the loan-level expected loss (EL) as applicable, resulting in a weighted average EL approximately 20% greater than the pool average.

As of the July 2024 remittance report, 33 of the original 41 loans remain in the pool, representing a collateral reduction of 18.3% since issuance, with three loans, representing 8.7% of the pool, fully defeased. The pool is concentrated by property type with office, retail, and lodging properties representing 24.8%, 23.4%, and 14.5% of the pool, respectively. Ten loans, representing 38.9% of the pool, are currently being monitored on the servicer's watchlist while three loans, representing 8.1% of the pool, are in special servicing.

The largest loan in special servicing, 211 Main Street - Trust (transferred to the special servicer in April 2024 following the sponsor's inability to repay the loan at maturity. The subject note is pari passu with notes securitized in the JPMCC 2016-JP6 and JPMCC 2017-JP7 transactions, both of which are rated by Morningstar DBRS. The collateral is a 417,266-square foot (sf) office building constructed in 1973 in the heart of downtown San Francisco. Per the servicer commentary, the borrower was granted a four-year loan extension that would extend the loan's maturity date to April 2028. At issuance, the building was 100% occupied by Charles Schwab, which maintained its global headquarters at the subject on a lease through April 2028. In 2021, the tenant moved its headquarters to the Dallas -- Fort Worth area and has reduced its footprint at the subject to six floors from 17 floors. Charles Schwab has no termination options and Morningstar DBRS expects that all excess cash is being trapped according to the loan triggers. The tenant continues to honor its original lease terms, as evidenced by the stable reported cash flow and debt service coverage ratio. According to Reis, the South Financial District office submarket reported a vacancy rate of 23.3% in Q2 2024 and net absorption of -1.84 million sf for YE2023, indicating an uphill battle to find suitable tenants during the loan's proposed extension period. The loan extension does provide a longer runway during which the borrower may locate replacement tenants but also exposes the loan to increased maturity default risk as the sole in-place lease is co-terminous with the extended maturity. Morningstar DBRS expects the property value has likely declined from the issuance value of $294 million given the decline in space utilization in addition to the challenged office landscape, weakened submarket conditions, and age of the asset. Morningstar DBRS analyzed this loan with an elevated probability of default (POD) and LTV, resulting in an EL approximately 25% greater than the pool average.

The largest loan in the pool is 245 Park Avenue (Prospectus ID#1; 10.1% of the current pool balance), which is secured by a 1.7 million sf, Class A office tower in Midtown Manhattan. The $1.2 billion whole loan has a pari passu structure with pieces securitized across five Morningstar DBRS-rated deals: JPMDB 2017-C7, CGCMT 2017-P8, JPMCC 2017-JP7, JPMCC 2017-JP6, and CSAIL 2017-C8. The loan was previously sent to special servicing in November 2021 after the original sponsor (PWM Property Management LLC, an affiliate of HNA Group Co.) filed for chapter 11 bankruptcy. According to servicer documents, SL Green Realty Corp. (SL Green) purchased the property and assumed the debt in late 2022; however, SL Green later sold its 50% stake to Mori Trust Co Ltd. for $1 billion, implying a collateral value of $2.0 billion at the time. Recent servicer reporting indicates the loan has exhibited declining cash flows and occupancy rates. According to the March 2024 rent roll, the property was 71.2% occupied, following year-over-year declines since the YE2021 reported occupancy rate of 83.3%. The YE2023 cash flow of $70.4 million represents a 24.4% decline from the YE2022 cash flow of $92.2 million. Additionally, there is concentrated near-term rollover risk with leases representing 19.0% of the net rentable area, including two of the five largest tenants, scheduled to expire by YE2026. To reflect its concerns with the declining performance and high rollover risk, Morningstar DBRS analyzed this loan with elevated LTV and POD, resulting in an EL in line with the pool average.

At issuance, Morningstar DBRS assigned investment-grade shadow ratings to two loans. With this review, Morningstar DBRS confirms that the performance of one loan, Olympic Tower - Trust (Prospectus ID#3; 8.6% of the pool) remains consistent with investment-grade characteristics and, as such, Morningstar DBRS has maintained the associated shadow rating on this loan. Morningstar DBRS also removed the shadow rating on one loan, Gateway Net Lease Portfolio - Trust (Prospectus ID#2; 7.9% of the poo), as the underlying credit features are no longer consistent with investment-grade characteristics.

Morningstar DBRS removed the shadow rating on Gateway Net Lease Portfolio - Trust in light of the borrower's inability to repay the loan at maturity in June 2024. The loan is secured by a portfolio of 41 single-tenant industrial and office properties totalling approximately 5.3 million sf across 20 states. Although financial performance remains in line with issuance expectations, the borrower has entered into a forbearance agreement effective to August 2024 to allow it additional time to obtain takeout financing.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental, Social, or Governance factors that had a significant or relevant effect on the credit analysis.
 
A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024) at https://dbrs.morningstar.com/research/437781.

Classes X-A, X-B, and X-D 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 credit ratings are subject to surveillance, which could result in credit ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by Morningstar DBRS.

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

The principal methodology is North American CMBS Surveillance Methodology (March 1, 2024), https://dbrs.morningstar.com/research/428798.

Other methodologies referenced in this transaction are listed at the end of this press release.

The credit ratings were initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for these credit rating actions.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with these credit rating actions.

These are solicited credit ratings.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS' outlooks and credit ratings are monitored.

DBRS, Inc.
22 West Washington Street
Chicago, IL 60602 USA
Tel. +1 312 332-3429

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

-- North American CMBS Multi-Borrower Rating Methodology (March 1, 2024)/North American CMBS Insight Model version 1.2.0.0, https://dbrs.morningstar.com/research/428797
-- Rating North American CMBS Interest-Only Certificates (June 28, 2024),
https://dbrs.morningstar.com/research/435294
-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (June 28, 2024),
https://dbrs.morningstar.com/research/435293
-- North American Commercial Mortgage Servicer Rankings (August 23, 2024),
https://dbrs.morningstar.com/research/438283
-- Legal Criteria for U.S. Structured Finance (April 15, 2024),
https://dbrs.morningstar.com/research/431205

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.