DBRS Confirms All Classes of GS Mortgage Securities Trust, Series 2012-GCJ7

DBRS Limited (DBRS) has today confirmed the ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2012-GCJ7, issued by GS Mortgage Securities Trust, 2012-GCJ7:

-- 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 A-AB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (sf)
-- Class F at B (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)

DBRS does not rate the first loss piece, Class G. All trends are stable.

The rating confirmations reflect the overall stability of the pool’s performance since issuance. The collateral consists of 79 loans secured by 175 properties. Since the transaction closed in June 2012, the deal has amortized 3.5%. As of the March 2015 remittance, six loans have defeased, representing 6.3% of the pool balance, in the last 12 months. According to the most recent financials, the weighted-average (WA) debt service coverage ratio (DSCR) and debt yield for the pool overall were 1.60 times (x) and 11.6%, respectively, up from 1.50x and 10.7%, respectively, at issuance.

There is currently one loan in special servicing (1.6% of the current pool balance) and nine loans (9.7% of the pool balance) on the servicer’s watchlist. Four of the nine watchlisted loans have been flagged because of upcoming lease expirations. These four loans are secured by properties located in urban and suburban markets where there is more consistent demand for commercial space.

The specially serviced loan is Independence Place (Prospectus ID#16; 1.6% of the current pool balance), which is secured by a 264-unit, military focused multifamily property in Hinesville, Georgia. The borrower reported performance issues such as cutbacks at nearby Fort Stewart in late 2013, deployments and difficulties renting some apartment configurations. In an attempt to encourage more traditional leasing, the borrower completed a new playground and dog trail according to the June 2014 servicer site inspection. The loan was transferred to special servicing in October 2014 for default. The January 2015 and all subsequent debt service payments are currently outstanding. A November 2014 appraisal valued the property at $23.8 million, which is proximate to the outstanding loan balance of $24.5 million as of this review. A receiver was appointed on February 6, 2015, and the property is now real estate owned (REO). Because the loan is REO, DBRS modeled the loan assuming a liquidation, inflating carrying costs, which results in a $6 million loss to the trust. The borrower sponsored another commercial mortgage-backed security (CMBS) loan that was securitized in MSC Mortgage Securities Trust 2012-C4, which DBRS rates. That loan is also secured by a military-housing complex and is in special servicing.

The largest loan on the servicer’s watchlist is 110 Plaza San Diego (Prospectus ID#9; 3.3% of the current pool balance), which is secured by a Class B office building on the western edge of downtown San Diego, California. The borrower is expecting that the largest tenant, the California Department of General Services (37.0% of the net rentable area) will be vacating its space upon lease expiration on October 31, 2015. As of the September 2014 rent roll, the property was 71.2% occupied by 29 tenants. According to CoStar, Class B office properties in the subject’s submarket experience an average vacancy rate of 28.8%, which has increased since issuance of 23.0%. The loan represented acquisition financing for the borrower, which had approximately $29.0 million of equity in the transaction when the loan closed. There is a current tenant reserve of $407,179, which equates to $3.37 per square foot for the space being vacated by the largest tenant. DBRS modeled the loan using the lower cash flow reflective of the largest tenant vacating, which results in an elevated probability of default and loss profile for the loan.

The DBRS analysis took into account the largest 15 loans, loans on the servicer’s watchlist and the loan in special servicing. Combined, these loans account for 62.5% of the current outstanding pool balance. The top 15 loans reported a WA DSCR of 1.55x and a WA debt yield of 10.1%.

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, the specially serviced loan and the loans on the servicer’s watchlist. The March 2015 Monthly Surveillance Report for this transaction will be published shortly. If you are interested in receiving this report, contact DBRS at info@dbrs.com.

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

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating
Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

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 (January 2015), which can be found on our website under Methodologies.

DBRS will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrs.com.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.