DBRS Confirms Ratings on GS Mortgage Securities Trust 2015-GC28

DBRS Limited (DBRS) has today confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2015-GC28 issued by GS Mortgage Securities Trust 2015-GC28 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 A-5 at AAA (sf)
-- Class A-AB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)
-- Class X-C at AAA (sf)
-- Class X-D at AAA (sf)
-- Class X-E at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (sf)
-- Class PEZ at A (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class F at B (low) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which remains in line with DBRS expectations. At issuance, the collateral consisted of 74 fixed-rate loans secured by 112 commercial properties. The transaction had a DBRS weighted-average (WA) debt service coverage ratio (DSCR) and a DBRS WA debt yield of 1.68 times (x) and 8.9%, respectively. As of the February 2016 remittance, loans representing 89.4% of the current pool balance are reporting 2015 partial-year financials (most loans reporting a Q3 2015 figure). Based on the 2015 cash flows, the top 15 loans reported a WA amortizing DSCR of 2.20x, with a WA net cash flow growth over the respective DBRS underwritten figures of 12.1%. All loans remain in the pool, with an aggregate balance of $908.1 million, representing a collateral reduction of 0.6% since issuance as a result of scheduled loan amortization.

As of the February 2016 remittance, there are no loans in special servicing and three loans are on the servicer’s watchlist, representing 3.2% of the current pool balance. One loan in the top 15 and the largest watchlisted loan are detailed below.

The 411 Seventh Avenue loan (Prospectus ID#8, 2.4% of the current pool balance) is secured by a 301,771 square foot (sf) Class B office property in the Pittsburgh central business district (CBD). The property was built in 1915 and renovated in 1993, and is commonly known as the Chamber of Commerce building. According to the September 2015 rent roll, the property was 77.2% occupied, which is a decrease from the in-place occupancy of 83.3% at issuance. The largest two tenants, Duquesne Lights and Commonwealth of Pennsylvania, occupy 40.3% of the net rentable area (NRA) and 15.0% of the NRA, respectively. Both tenants have leases scheduled to expire beyond loan maturity in 2029/2030 and are investment-grade tenants. The former third-largest tenant, Gateway Health Plan, previously occupied 6.4% of the NRA and vacated the property at its December 2015 lease expiration. Consequently, occupancy appears to have further declined to 70.8%. In order to improve occupancy, the borrower has changed companies for its leasing services from Jones Lang LaSalle to Colliers and Colliers has been actively marketing the property since December 2015. Three prospective tenants have shown interest in the property; however, no letters of intent or new leases have been executed to date. According to CoStar, properties larger than 200,000 sf in the Pittsburgh CBD submarket reported an average rental rate of $20.91 per square foot (psf), an average vacancy rate of 9.7% and an average availability rate of 14.0%. The subject property is underperforming in comparison with an average rental rate of $18.77 psf and vacancy rate of 29.2%; however, the average rental rate is slightly above the issuance rental rate of $18.66 psf.

This loan was structured with an upfront tenant improvements/leasing commission rollover reserve of $500,000 at issuance with monthly deposits equivalent to $136,000 per year. This amount translates to approximately $7.27 psf when considering all vacant units, which may not be enough to successfully attract enough new tenants to bring the occupancy rate to the submarket average. At Q3 2015, the DSCR was 1.54x, an increase from the DBRS underwritten DSCR of 1.48x; however, DBRS expects the net cash flow to decline slightly given that occupancy is below the market and underwritten levels.

The Schuyler Commons loan (Prospectus ID#15, 1.6% of the current pool balance) is secured by a 144-unit multifamily apartment complex located in Utica, New York. The property is a Class A, age-restricted senior housing community that was constructed in 2008. This loan was placed on the watchlist because the Q2 2015 DSCR declined to 1.00x when occupancy was at 89.6%, a decrease from the DBRS underwritten DSCR of 1.10x and the in-place occupancy of 93.1% at issuance. According to the September 2015 rent roll, occupancy has further declined to 86.8%, with an average rental rate of $1,450 per unit, which is slightly above the issuance average rental rate of $1,444 per unit. Despite the decline in occupancy, the Q3 2015 DSCR has improved to 1.09x. The slight difference between the Q3 2015 net cash flow and DBRS underwritten net cash flow is mainly driven by a 2.1% decrease in effective gross income and a 6.0% increase in operating expenses, specifically the general and administrative expense.

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 North American CMBS Rating Methodology (June 2015) and CMBS North American Surveillance (December 2015), which can be found on our website under Methodologies.

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