Fitch to Rate J. P. Morgan Chase Commercial Mortgage Securities Trust 2016-JP3; Presale Issued
Fitch expects to rate the transaction and assign Rating Outlooks as follows:
--$45,932,000 class A-1 'AAAsf'; Outlook Stable;
--$97,274,000 class A-2 'AAAsf'; Outlook Stable;
--$16,726,000 class A-3 'AAAsf'; Outlook Stable;
--$300,000,000 class A-4 'AAAsf'; Outlook Stable;
--$342,359,000 class A-5 'AAAsf'; Outlook Stable;
--$49,955,000 class A-SB 'AAAsf'; Outlook Stable;
--$970,952,000a class X-A 'AAAsf'; Outlook Stable;
--$56,309,000a class X-B 'AA-sf'; Outlook Stable;
--$118,706,000 class A-S 'AAAsf'; Outlook Stable;
--$56,309,000 class B 'AA-sf'; Outlook Stable;
--$50,222,000 class C 'A-sf'; Outlook Stable;
--$105,009,000ab class X-C 'BBB-sf'; Outlook Stable;
--$54,787,000b class D 'BBB-sf'; Outlook Stable;
--$22,828,000b class E 'BBsf'; Outlook Stable;
--$15,219,000b class F 'B-sf'; Outlook Stable.
The following classes are not expected to be rated:
--$47,177,696a class NR.
A) Notional amount and interest only.
B) Privately placed pursuant to Rule 144A.
The expected ratings are based on information provided by the issuer as of Sept. 7, 2016.
The certificates represent the beneficial ownership interest in the trust, primary assets of which are 52 loans secured by 62 commercial properties having an aggregate principal balance of $1,217,494,697 as of the cut-off date. The loans were contributed to the trust by JP Morgan Chase Bank, National Association, Benefit Street Partners CRE Finance LLC, and Starwood Mortgage Funding VI LLC.
Fitch reviewed a comprehensive sample of the transaction's collateral, including site inspections on 89.4% of the properties by balance, asset summary reviews on 100.0% of the pool, and cash flow analysis of 81.4% of the pool.
KEY RATING DRIVERS
Lower Fitch Leverage: The pool's leverage statistics are lower than those of other recent Fitch-rated, fixed-rate multiborrower transactions. The pool's Fitch DSCR and Fitch LTV of 1.25x and 101.2%, respectively, are better than the YTD 2016 average Fitch DSCR and Fitch LTV of 1.18x and 106.5%, respectively. Excluding credit-opinion loans, the pool's Fitch DSCR and Fitch LTV are 1.20x and 108.1%, respectively. Comparatively, the YTD 2016 average DSCR and LTV of Fitch-rated deals excluding credit-opinion and co-op loans is 1.14x and 110.2%.
Investment-Grade Credit Opinion Loans: The largest loan in the pool and the sixth largest loan in the pool, 9 West 57th Street (8.2% of the pool) and Westfield San Francisco Centre (4.9% of the pool), have investment-grade credit opinions. The 9 West 57th Street senior note contributed to the trust has an investment-grade credit opinion of 'AAAsf*' on a stand-alone basis. Westfield San Francisco Centre has an investment-grade credit opinion of 'Asf*' on a stand-alone basis. The two loans have a weighted average Fitch DSCR and Fitch LTV of 1.60x and 55.5%, respectively.
More Diverse Pool by Loan Concentration: The top 10 loans comprise 49.8% of the pool, as compared to the YTD 2016 average of 55.3%. The pool's loan concentration index (LCI) is 356, which is below the YTD 2016 average of 428. However, the resulting sponsor concentration index (SCI) delta compared to the LCI is 30.3%, which is above the YTD 2016 average delta of 16.8%.
For this transaction, Fitch's net cash flow (NCF) was 7.9% below the most recent year's net operating income (NOI; for properties for which a full-year NOI was provided, excluding properties that were stabilizing during this period). Unanticipated further declines in property-level NCF could result in higher defaults and loss severities on defaulted loans and in potential rating actions on the certificates.
Fitch evaluated the sensitivity of the ratings assigned to JPMCC 2016-JP3 certificates and found that the transaction displays average sensitivity to further declines in NCF. In a scenario in which NCF declined a further 20% from Fitch's NCF, a downgrade of the junior 'AAAsf' certificates to 'A-sf' could occur. In a more severe scenario, in which NCF declined a further 30% from Fitch's NCF, a downgrade of the junior 'AAAsf' certificates to 'BBB-sf' could occur. The presale report includes a detailed explanation of additional stresses and sensitivities on page 13.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10
Fitch was provided with Form ABS Due Diligence-15E (Form 15E) as prepared by Ernst & Young LLP. The third-party due diligence described in Form 15E focused on a comparison and re-computation of certain characteristics with respect to each of the mortgage loans. Fitch considered this information in its analysis and it did not have an impact on Fitch's analysis or conclusions.