DBRS Confirms Ratings of GS Mortgage Securities Trust, Series 2011-GC3

DBRS has today confirmed the ratings of GS Mortgage Securities Trust, Series 2011-GC3 as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at A (high) (sf)
-- Class D at BBB (sf)
-- Class E at BB (sf)
-- Class F at B (sf)
-- Class X at AAA (sf)

All trends are Stable. DBRS does not rate the first lost piece, Class G.

The rating confirmations reflect the transaction’s continued stable performance. The collateral consists of 56 fixed-rate loans secured by 110 commercial properties. The current pool balance of $1.36 billion represents a collateral reduction of 4.1% since issuance in March 2011. The transaction also benefits from defeasance collateral, as one loan, representing 0.3% of the current pool balance, is fully defeased. Overall, the pool has reported stable performance, with the largest 15 loans in the transaction reporting a weighted-average debt service coverage ratio (DSCR) and debt yield of 1.93 times (x) and 13.1%, respectively, according to YE2012 reporting.

At issuance, DBRS shadow-rated two loans, representing 5.8% of the current pool balance, as investment grade. DBRS today confirmed that the performance of the loans remains consistent with investment-grade loan characteristics.

As of the January 2014 remittance report, there are six loans on the servicer’s watchlist, representing 13.9% of the pool. Two of these loans are highlighted below:

The Lakes on Post Oak loan (Prospectus ID#2) is secured by a portfolio of three Class A office buildings totaling 1.2 million square feet (sf) in the southern portion of Houston's Galleria submarket. The properties feature a diverse mix of tenants, consisting of companies in the energy, architecture and design, engineering, banking and law firm sectors. According to the September 2013 rent roll, the portfolio was 92.4% occupied, with the largest tenant - Bechtel Oil, Gas & Chemicals (Bechtel) - occupying 40.2% of the net rentable area on several leases expiring in June 2024. Bechtel, which occupies one entire building and part of another, recently executed a ten-year lease renewal. The loan was added to the servicer's watchlist for the upcoming lease expirations of four tenants in the next four months, which combined, occupy approximately 210,000 sf. According to CoStar, approximately 90,000 sf occupied by these tenants is available for lease beginning in April and June. The Q3 2013 DSCR remained stable at 1.92x, which should insulate the property from a temporary decrease in cash flow as a result of a period of increased vacancy.

The Rancho Tuscana loan (Prospectus ID#30) is secured by a garden-style multifamily property in Oceanside, California. The loan was added to the servicer's watchlist after the YE2012 DSCR decreased to 1.09x, below the CREFC acceptable threshold of 1.10x. According to Q3 2013 reporting, the DSCR remains similarly depressed at 1.08x. While revenue has remained flat since issuance, there has been an increase in real estate taxes and repair and maintenance expenses, which has resulted in a decrease in the DSCR. As of October 2013, the subject was 95.6% occupied, with an average rental rate of $1,210 per unit, which compares similarly with competing multifamily product in the submarket. Despite the decline in performance, the loan remains current.

The DBRS analysis included an in-depth review of these five watchlist loans as well as the top 15 loans and the shadow-rated loans, which represent approximately 73.0% of the current pool balance.

DBRS continues to monitor this transaction in its Monthly CMBS Surveillance Report, with additional information on the DBRS viewpoint for this transaction, including details on the largest loans in the pool and loans on the servicer’s watchlist. The January 2014 Monthly Surveillance Report for this transaction will be published shortly. If you are interested in receiving this report, contact us at info@dbrs.com.

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

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodologies are CMBS Rating Methodology (January 2012) and CMBS North American Surveillance Methodology (November 2012), which can be found on our website under Methodologies.