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New York, August 04, 2022 — Moody’s Investors Service, (“Moody’s”) has affirmed the ratings on six classes in JPMCC Commercial Mortgage Securities Trust 2017-JP7, Commercial Pass-Through Certificates, Series 2017-JP7 as follows:
Cl. A-3, Affirmed Aaa (sf); previously on Dec 6, 2019 Affirmed Aaa (sf)
Cl. A-4, Affirmed Aaa (sf); previously on Dec 6, 2019 Affirmed Aaa (sf)
Cl. A-5, Affirmed Aaa (sf); previously on Dec 6, 2019 Affirmed Aaa (sf)
Cl. A-SB, Affirmed Aaa (sf); previously on Dec 6, 2019 Affirmed Aaa (sf)
Cl. A-S, Affirmed Aa3 (sf); previously on Dec 6, 2019 Affirmed Aa3 (sf)
Cl. X-A*, Affirmed Aa1 (sf); previously on Dec 6, 2019 Affirmed Aa1 (sf)
* Reflects Interest-Only Classes
RATINGS RATIONALE
The ratings on five principal and interest (P&I) classes were affirmed because the transaction’s key metrics, including Moody’s loan-to-value (LTV) ratio, Moody’s stressed debt service coverage ratio (DSCR) and the transaction’s Herfindahl Index (Herf), are within acceptable ranges.
The rating on the interest-only (IO) class was affirmed based on the credit quality of the referenced classes.
Moody’s rating action reflects a base expected loss of 5.1% of the current pooled balance, compared to 5.6% at Moody’s last review. Moody’s base expected loss plus realized losses is now 4.7% of the original pooled balance, compared to 5.6% at the last review. Moody’s provides a current list of base expected losses for conduit and fusion CMBS transactions on moodys.com at http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF215255.
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:
The performance expectations for a given variable indicate Moody’s forward-looking view of the likely range of performance over the medium term. Performance that falls outside the given range can indicate that the collateral’s credit quality is stronger or weaker than Moody’s had previously expected.
Factors that could lead to an upgrade of the ratings include a significant amount of loan paydowns or amortization, an increase in the pool’s share of defeasance or an improvement in pool performance.
Factors that could lead to a downgrade of the ratings include a decline in the performance of the pool, loan concentration, an increase in realized and expected losses from specially serviced and troubled loans or interest shortfalls.
METHODOLOGY UNDERLYING THE RATING ACTION
The principal methodology used in rating all classes except interest-only classes was "US and Canadian Conduit/Fusion Commercial Mortgage-Backed Securitizations Methodology” published in July 2022 and available at https://ratings.moodys.com/api/rmc-documents/391056. The methodologies used in rating interest-only classes were "US and Canadian Conduit/Fusion Commercial Mortgage-Backed Securitizations Methodology” published in July 2022 and available at https://ratings.moodys.com/api/rmc-documents/391056 and “Moody’s Approach to Rating Structured Finance Interest-Only (IO) Securities” published in February 2019 and available at https://ratings.moodys.com/api/rmc-documents/59126. Please see the list of ratings at the top of this announcement to identify which classes are interest-only (indicated by the *). Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of these methodologies.
DEAL PERFORMANCE
As of the July 15, 2022 distribution date, the transaction’s aggregate certificate balance has decreased by 8.4% to $742 million from $811 million at securitization. The certificates are collateralized by 35 mortgage loans ranging in size from less than 1% to 10.1% of the pool, with the top ten loans (excluding defeasance) constituting 63.2% of the pool.
Moody’s uses a variation of Herf to measure the diversity of loan sizes, where a higher number represents greater diversity. Loan concentration has an important bearing on potential rating volatility, including the risk of multiple notch downgrades under adverse circumstances. The credit neutral Herf score is 40. The pool has a Herf of 17, compared to 21 at Moody’s last review.
Eight loans, constituting 25% of the pool, are on the master servicer’s watchlist. The watchlist includes loans that meet certain portfolio review guidelines established as part of the CRE Finance Council (CREFC) monthly reporting package. As part of Moody’s ongoing monitoring of a transaction, the agency reviews the watchlist to assess which loans have material issues that could affect performance.
Two loans have been liquidated from the pool, however the trust has not incurred any losses to date. There are three loans, constituting 14.6% of the pool, that are currently in special servicing.
The largest specially serviced loan is the 245 Park Avenue Loan ($75 million – 10.1% of the pool), which represents a pari passu portion of a $1.08 billion senior mortgage and is the largest loan in the pool. The property is also encumbered with $120.0 million of B-note and $568.0 million of subordinated and non-pooled mezzanine debt. The loan is secured by a 44-story Class A office tower located in New York, New York. As of the March 2022 rent roll, the property was 90% leased however there is significant lease rollover in 2022. The largest in-place tenant is Société Générale, which executed a sublease from JPMorgan Chase Bank for approximately 560,000 square feet (SF) through October 31, 2022 and executed a 10-year direct lease with a start date in November 2022. Excluding Société Générale, JPMorgan leases an additional 225,000 SF through 2022, the majority of which have been subleased to various tenants. Another major tenant at securitization, Major League Baseball (MLB), leases approximately 13% of the net rentable area through October 2022, and previously indicated that they would relocate prior to their lease expiration and would therefore vacate on or before their scheduled lease expiration. The loan structure included a cash flow sweep if the MLB fails to renew substantially all of its premises at least 12 months prior to lease expiration (capped at $85 PSF for their space).The loan transferred to special servicing in November 2021 due to the borrower, which is controlled by HNA of China, filing for Chapter 11 bankruptcy. The special servicer indicated they had agreed on a final cash collateral order (“CCO”) which required the borrower to remain current on all debt service and reserve payments as stipulated within the loan documents, including all of the Lenders collection costs, legal fees, and any monthly servicer fees, as accrued, so essentially no advances are to be made by the Trust. The Newmark Group took over as property manager in January 2022 from SL Green. The loan remains current and due to the historical performance and asset quality, the loan was included in the conduit statistics with a Moody’s LTV of 112%.
The second largest specially serviced loan is the Springhill Suites Newark Airport Loan, ($17.7 million – 2.4% of the pool), which is secured by the borrower’s fee simple interest in a 200-key limited-service hotel, located in Newark, New Jersey. The property was originally built in 2004, and extensively renovated in 2013. Property performance was impacted by the pandemic and the property was closed from April 2020 through January 2022, as the property underwent additional renovations. The loan transferred to special servicing in June 2020 due to payment default and the loan received a loan modification in August 2020. In 2021, renovations to the lobby/front desk area, fitness room, first floor corridors, and breakfast area were completed. In June 2022, an updated appraisal indicated an As-Is market value of $24.3m, which is a 24% decline in value since securitization. The loan incurred an appraisal reduction in July 2022 for $1,774,700. As of July remittance, this loan had over $3 million in outstanding P&I advances, as it was last paid through April 2020 and is in foreclosure. The loan has amortized by 10.6% since securitization.
The third largest specially serviced loan is the Carolina Hotel Portfolio Loan ($15.4 million – 2.1% of the pool), which is secured by the borrower’s fee simple interest in a portfolio of five limited-service hotels located in North Carolina (4) and South Carolina (1). This portfolio consists of two Holiday Inn Express hotels, two Fairfield Inn’s, and one Comfort Suites Gastonia. This loan transferred to special servicing in May 2020, due to payment default, the loan was last paid through July 2022 and was current on P&I Payments. In January 2022, the loan entered a forbearance agreement which allowed a deferral of tax escrows from April 2020-July 2021 to be repaid over an 11-month period. In January 2022, an updated appraisal indicated an As-Is market value of $54.5m, which is a 14% increase in value since the June 2021 appraisal, though slightly below the $55.4 million valuation at securitization. The loan has received a modification, the borrower is working with the lender to resolve the past due balances. As of the July 2022 remittance, this loan has amortized by 6.7% since securitization.
Moody’s has estimated an aggregate loss of $9.2 million (a 27.8% expected loss on average) from these specially serviced loans.
As of the July 2022 remittance statement cumulative interest shortfalls were $417,211. Moody’s anticipates interest shortfalls will continue because of the exposure to specially serviced loans and/or modified loans. Interest shortfalls are caused by special servicing fees, including workout and liquidation fees, appraisal entitlement reductions (ASERs), loan modifications and extraordinary trust expenses.
The credit risk of loans is determined primarily by two factors: 1) Moody’s assessment of the probability of default, which is largely driven by each loan’s DSCR, and 2) Moody’s assessment of the severity of loss upon a default, which is largely driven by each loan’s loan-to-value ratio, referred to as the Moody’s LTV or MLTV. As described in the CMBS methodology used to rate this transaction, we make various adjustments to the MLTV. We adjust the MLTV for each loan using a value that reflects capitalization (cap) rates that are between our sustainable cap rates and market cap rates. We also use an adjusted loan balance that reflects each loan’s amortization profile. The MLTV reported in this publication reflects the MLTV before the adjustments described in the methodology.
Moody’s received full year 2020 operating results for 99% of the pool, and partial year 2021 operating results for 88% of the pool (excluding specially serviced and defeased loans). Moody’s weighted average conduit LTV is 119%, compared to 115% at Moody’s last review. Moody’s conduit component excludes loans with structured credit assessments, defeased and CTL loans, and specially serviced and troubled loans. Moody’s net cash flow (NCF) reflects a weighted average haircut of 23.8% to the most recently available net operating income (NOI). Moody’s value reflects a weighted average capitalization rate of 10.0%.
Moody’s actual and stressed conduit DSCRs are 1.80X and 0.92X, respectively, compared to 1.82X and 0.95X at the last review. Moody’s actual DSCR is based on Moody’s NCF and the loan’s actual debt service. Moody’s stressed DSCR is based on Moody’s NCF and a 9.25% stress rate the agency applied to the loan balance.
The top three conduit loans represent 28.3% of the pool balance. The largest loan is the 245 Park Avenue loan ($75 million – 10.1% of the pool), which was previously discussed.
The second largest loan is the Gateway Net Lease Portfolio Loan ($70 million – 9.1% of the pool), which represents a pari passu portion of a $353 million first mortgage loan. The loan is secured by the borrower’s fee and leasehold interests in 41 single-tenant commercial properties (37 fee; 4 leasehold) located across 20 states. The five largest state concentrations collectively represent 55.0% of the portfolio’s total rentable area and include Texas (23.8% of NRA), Indiana (12.1% of NRA), Michigan (9.1% of NRA), Maryland (5.8% of NRA) and Connecticut (4.3% of NRA). The remaining 45.0% of the collateral area is distributed across the 15 remaining states. The portfolio’s reported occupancy rate was 98% in March 2022. The NOI DSCR improved to 4.17X in December 2021 from 4.15X in December 2020, and 3.90X at securitization, primarily due to incremental base rent steps built into the leases. The loan’s capital structure also includes a $170 million B-note which is held outside the trust. The loan is interest only throughout the entire loan term and Moody’s LTV and stressed DSCR are 97% and 1.17X, respectively, the same as at the last review.
The third largest loan is the Treeview Industrial Portfolio Loan ($65 million — 8.8% of the pool), which represents a pari passu portion of a $125 million first mortgage loan. The loan is secured by the fee simple interest in a portfolio of fourteen triple-net leased industrial warehouse and distribution facilities. The properties are located across six different states: Kentucky, Georgia, Delaware, California, Utah and Texas. As of the December 2021 rent roll, the portfolio was 96% occupied. The loan is interest only throughout the entire loan term and Moody’s LTV and stressed DSCR are 137% and 0.78X, respectively, the same as at the last review.
REGULATORY DISCLOSURES
For further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.
The analysis includes an assessment of collateral characteristics and performance to determine the expected collateral loss or a range of expected collateral losses or cash flows to the rated instruments. As a second step, Moody’s estimates expected collateral losses or cash flows using a quantitative tool that takes into account credit enhancement, loss allocation and other structural features, to derive the expected loss for each rated instrument.
Moody’s did not use any stress scenario simulations in its analysis.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.
Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.
Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.
Ashton Khan
Associate Lead Analyst
Structured Finance Group
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
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Client Service: 1 212 553 1653
Romina Padhi
VP – Senior Credit Officer
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
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