JPMCC Commercial Mortgage Securities Trust 2016-JP2 -- Moody's affirms five and downgrades two classes of JPMCC 2016-JP2

Rating Action: Moody's affirms five and downgrades two classes of JPMCC 2016-JP2Global Credit Research - 25 Feb 2021Approximately $731 million of structured securities affectedNew York, February 25, 2021 -- Moody's Investors Service, ("Moody's") has affirmed the ratings on five classes and downgraded the ratings on two classes in JPMCC Commercial Mortgage Securities Trust, Commercial Mortgage Pass-Through Certificates, Series 2016-JP2, as follows:Cl. A-3, Affirmed Aaa (sf); previously on Jul 13, 2018 Affirmed Aaa (sf)Cl. A-4, Affirmed Aaa (sf); previously on Jul 13, 2018 Affirmed Aaa (sf)Cl. A-SB, Affirmed Aaa (sf); previously on Jul 13, 2018 Affirmed Aaa (sf)Cl. A-S, Affirmed Aa3 (sf); previously on Jul 13, 2018 Affirmed Aa3 (sf)Cl. B, Downgraded to Baa1 (sf); previously on Jul 13, 2018 Affirmed A3 (sf)Cl. X-A*, Affirmed Aa1 (sf); previously on Jul 13, 2018 Affirmed Aa1 (sf)Cl. X-B*, Downgraded to Baa1 (sf); previously on Jul 13, 2018 Affirmed A3 (sf)* Reflects interest-only classesRATINGS RATIONALEThe ratings on four P&I classes were affirmed due to their credit support and 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 one P&I was downgraded due to a decline in pool performance and higher expected losses driven primarily by specially serviced loans and the deal's exposure to hotel and retail properties. Special servicing loans currently represent 9% of the pool and are secured by retail and hotel properties that have experienced deterioration in net operating income (NOI) prior to 2020. In aggregate retail and hotel loans represent 23% and 19% of the pool, respectively.The rating on IO class, X-A was affirmed based on the credit quality of the referenced classes.The rating on IO class, X-B was downgraded due to a decline in the credit quality of its referenced class.The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Our analysis has considered the effect on the performance of commercial real estate from the current weak US economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. As a result, the degree of uncertainty around our forecasts is unusually high. Stress on commercial real estate properties will be most directly stemming from declines in hotel occupancies (particularly related to conference or other group attendance) and declines in foot traffic and sales for non-essential items at retail properties.We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.Moody's rating action reflects a base expected loss of 8.5% of the current pooled balance, compared to 4.8% at Moody's last review. Moody's base expected loss plus realized losses is now 8.1% of the original pooled balance, compared to 4.8% 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 RATINGSThe 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 ACTIONThe principal methodology used in rating all classes except interest-only classes was "Approach to Rating US and Canadian Conduit/Fusion CMBS" published in September 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1244778. The methodologies used in rating interest-only classes were "Approach to Rating US and Canadian Conduit/Fusion CMBS" published in September 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1244778 and "Moody's Approach to Rating Structured Finance Interest-Only (IO) Securities" published in February 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1111179. 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 www.moodys.com for a copy of these methodologies. DEAL PERFORMANCEAs of the February 18, 2021 distribution date, the transaction's aggregate certificate balance has decreased by 5.6% to $886.8 million from $939.2 million at securitization. The certificates are collateralized by 45 mortgage loans ranging in size from less than 1% to 9.0% of the pool, with the top ten loans (excluding defeasance) constituting 49.9% of the pool. One loan, constituting 5.6% of the pool, has an investment-grade structured credit assessment.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 23, compared to 25 at Moody's last review.As of the February 2021 remittance report, loans representing 91% were current, 2% were beyond their grace period but less than 30 days late, 1% were 30 days delinquent and 6% were 90+ days delinquent.Twenty loans, constituting 32.7% 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.No loans have been liquidated from the pool. Two loans, constituting 8.9% of the pool, are currently in special servicing.The largest specially serviced loan is the Marriott Atlanta Buckhead Loan ($49.2 million -- 5.5% of the pool), which is secured by a 349-room, full-service hotel located in Atlanta, Georgia. The property is located directly across the street from Lenox Square Mall and is two blocks south from Phipps Plaza. The loan transferred to special servicing in January 2021 due to payment default and is now past due for debt service payment by over 90 days. The hotel derives a sizable portion of its revenue from the meeting and group segment; higher than most comparable properties in the market. Moody's has included this loan in the conduit statistics. However, these metrics are based on return of leisure, group and meeting demand; which may lag compared to the overall US pace of recovery.The second largest specially serviced loan is the Hagerstown Premium Outlets Loan ($29.4 million -- 3.3% of the pool), which is secured by a pari-passu portion of a $73.1 million senior mortgage loan. The loan is secured by a 484,994 square feet (SF), open-air outlet shopping center located in Hagerstown, Maryland, approximately 70 miles northwest of Washington, D.C. The loan transferred to special servicing in June 2020 due to imminent monetary default in relation to the coronavirus outbreak. The lender conditionally approved a deferral of principal payments for three months, and the borrower would fund operating and interest shortfalls during this time. The deferred principal is to be paid back from available cash flow but no later than March 2021. Property occupancy dropped to 67% in June 2020, down from 90% in April 2016 at securitization. This was mainly due to loss of the anchor tenant, Wolf Furniture, which filed bankruptcy and vacated 67,000 SF of space shortly after extending their lease to May 2029. Currently, two other spaces, each over 10,000 SF are vacant. The in-place top 10 tenants (by net rentable area (NRA)) have leases that expire before loan maturity in February 2026.Moody's has also assumed a high default probability for five poorly performing loans, constituting 6.0% of the pool and has estimated an aggregate loss of $18.2 million (a 22% expected loss on average) from these specially serviced and troubled loans. The largest troubled loan is the Aloft Milwaukee Loan ($18.7 million -- 2.1% of the pool), which is secured by a 160-room, select service hotel located in Milwaukee, Wisconsin. Property performance has deteriorated from 2016 through year-end 2019. The second largest troubled loan is the Autumn Park Apartments Loan ($12.1 million -- 1.4% of the pool), which is secured by a 288 unit, garden style multifamily property located in Victoria, Texas. Higher vacancy as well as increased debt service due to change in payment method from interest only to amortization has led to a decline in performance. The remaining troubled loans, each constituting 1% or less of the pool balance, are secured by office, retail and hotel properties.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 2019 operating results for 87% of the pool, and partial year 2020 operating results for 72% of the pool (excluding specially serviced and defeased loans). Moody's weighted average conduit LTV is 119%, compared to 117% 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 25% to the most recently available net operating income (NOI). Moody's value reflects a weighted average capitalization rate of 9.9%.Moody's actual and stressed conduit DSCRs are 1.43X and 0.93X, respectively, compared to 1.49X and 0.93X 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 loan with a structured credit assessment is the Shops at Crystals Loan ($50.0 million -- 5.6% of the pool), which represents a pari-passu portion of a $382.7 million senior mortgage loan. The total mortgage debt also includes junior subordinate pari-passu notes with an aggregate balance of $167.3 million. The loan is secured by a 262,000 SF luxury shopping center located in Las Vegas, Nevada, attached to the Aria Resort & Casino. As of June 2020, the property was 83% leased, compared to 80% in December 2019 and 88% at securitization. Major tenants at the property include Louis Vuitton, Prada, Dolce & Gabbana, Gucci, and Tiffany & Co. As of year-end 2019, the property's sales were reported to be $1,688 PSF, compared to $1,324 PSF at securitization. The loan is interest only for its entire term and Moody's structured credit assessment and stressed DSCR are a3 (sca.pd) and 1.26X.The top three conduit loans represent 21.6% of the pool balance. The largest loan is the Opry Mills Loan ($80.0 million -- 9.0% of the pool), which is secured by a pari-passu interest in a $375 million senior mortgage loan. The loan is secured by a 1.2 million square foot (SF) super-regional mall located in Nashville, Tennessee. Simon Property Group, L.P. is the loan sponsor. The property is part of Opryland, which includes the Grand Ole Opry and the Gaylord Opryland Resort and Convention Center. The convention center, which includes 2,881 rooms and 600,000 SF of meeting space, has over 3.0 million visitors each year. The mall is anchored by Bass Pro Shops, Regal Cinemas, Dave & Buster's, and Forever 21. The property was 96% leased as of September 2020 and has maintained strong occupancy since securitization. The loan is interest only for its entire term and Moody's LTV and stressed DSCR are 92% and 1.00X, respectively, the same as at last review.The second largest loan is the 693 Fifth Avenue Loan ($61.0 million -- 6.9% of the pool), which represents a pari-passu portion of a $234.5 million first-mortgage loan secured by a 96,514 SF, 20-story, mixed-use building located in New York, New York. The property is located along Manhattan's Fifth Avenue retail corridor and contains 14,527 SF of retail space and 82,089 SF of office space. The property's office component was 50% vacant as of June 2020, similar to occupancy level at securitization. While the retail portion of the property accounts for 15% of the NRA, it accounts for 84% of the in-place rental revenue. The retail component of the property was 100% leased to Italian fashion brand, Valentino, through July 2029. In June 2020, Valentino filed a lawsuit against the property's landlord to end their lease, citing difficulties due to business disruptions in relation to the coronavirus outbreak. As of February 2021, Valentino lost its bid and owes $207 million in rent. The landlord has now countersued Valentino for broken lease and damages. The loan is current. Moody's LTV and stressed DSCR are 159% and 0.56X, respectively.The third largest loan is the 100 East Pratt Loan ($50.4 million -- 5.7% of the pool), which represents a pari-passu portion of a $110.4 million senior mortgage loan. The loan is secured by an approximately 663,000 SF, 28-story, Class A office building located in downtown Baltimore, Maryland. The property also includes an 8-level parking garage with 932 parking spaces. As September 2020, the property was 97% leased, compared to 99% as of December 2019 and December 2018. The largest tenant, T. Rowe Price, a global asset management firm that occupies 443,000 SF (67% of the NRA) through December 2027 announced in late 2020 that they will be vacating their space in as early as July 2024 with 18 months notice and a $20.4 million termination fee. Moody's utilized a partial lit/dark analysis due to the exposure to this single tenant. Moody's LTV and stressed DSCR are 126% and 0.86X, respectively, compared to 101% and 1.08X at the last review.REGULATORY DISCLOSURESFor 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 at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.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 ratings tab on the issuer/entity page for the respective issuer on www.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 www.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://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.At least one ESG consideration was material to the credit rating action(s) announced and described above.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 www.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 www.moodys.com.Please see www.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 ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Tulay Sangiray Analyst Structured Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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