DBRS Confirms Ratings on GSCCRE Commercial Mortgage Trust 2015-HULA

DBRS Limited (DBRS) has today confirmed all classes of Commercial Mortgage Pass-Through Certificates issued by GSCCRE Commercial Mortgage Trust 2015-HULA as follows:

-- Class A at AAA (sf)
-- Class X-CP at AAA (sf)
-- Class X-NCP at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at A (sf)
-- Class D at BBB (high) (sf)
-- Class E at BB (sf)
-- Class F at B (low) (sf)

All trends are Stable.

The rating confirmations reflect the overall performance of the transaction, which remains in line with DBRS’s expectations at issuance. This single-borrower transaction closed in October 2015 and is interest-only for the initial two-year term as well as during the subsequent extension options of up to an additional five years. The $299.1 million floating-rate trust note (Note A) is supplemented by subordinate notes (Note B and Note C) totalling $73.9 million. A $902,648 curtailment was applied to the trust balance in November 2015, as a result of the sale of a residential lot, which was part of the collateral.

The loan is secured by the fee simple and leasehold interests in three distinct components of Hualalai at Historic Ka’upulehu, a master-planned luxury resort community situated on a 724.9-acre site along the desirable Kohala Coast in Kailua-Kona on the Big Island of Hawaii. The collateral includes the leasehold interest in (1) the Four Seasons Resort Hualalai, a 243-key ultra-luxury resort hotel; (2) the private membership Hualalai Club operated by the Four Seasons; and (3) the fee simple interest in the remaining 55 acres of residential land within the master-planned residential resort community intended for future sale. The five-star resort and membership club is situated in an irreplaceable location on the Kohala Coast and features the most luxurious hotel destination within the Hawaiian Islands, offering a total of eight unique restaurants, a 30,700-square foot (sf) world-class spa and sports club, seven pools, over 37,000 sf of indoor and outdoor meeting and event space, five retail outlets and two world-class golf courses.

Demand for the subject is largely driven by guests from foreign countries, particularly Japan, the continental U.S. and Canada. According to the July 2016 year-to-date statistics by the Hawai’i Tourism Authority, visitor arrivals to the Big Island of Hawai’i remained flat year over year (+0.1%), while visitor expenditures increased by 9.2% over the same period. More specifically, the Kona side of the island (where the collateral is situated) saw a 0.8% increase in visitors, as the decreased demand from Japan (-2.7%) and Canada (-18.7%) was offset by increases from the Western U.S. (+2.9%) and Eastern U.S. (+2.8%). Statewide, visitor expenditures on lodging increased by 1.6% year over year.

The collateral’s performance has remained stable since issuance, as the YE2015 debt service coverage ratio (DSCR) for the total debt was reported at 2.00 times (x), well above the DBRS stressed Term DSCR of 1.42x. While occupancy decreased 1.0%, according to the March 2016 trailing 12-month Smith Travel Research report, to 84.4% from 85.4%, the average daily rate (ADR) over the same period increased by 2.1% to $1,138 from $1,115. The resulting revenue per available room (RevPAR) increased marginally by 0.8% to $960 from $953. The property continues to significantly outperform its competitive set, with occupancy, ADR and RevPAR penetration of 134.1%, 359.9% and 482.2%, respectively, as it has little to no direct competition for the wealthy demand demographic it serves.

The loan benefits from strong institutional sponsorship, as it is owned by joint venture partners MSD Capital, L.P., an investment vehicle for Michael Dell and family, and Lake Avenue Investments, an investment vehicle for a high net worth family. At issuance, the sponsors planned to invest an additional $10.0 million ($41,000 per key) on guest room and common area upgrades as well as additional property-wide renovations in order to drive up the occupancy and ADR at the property.

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.

The applicable methodologies are North American CMBS Rating Methodology (March 2016) and CMBS North American Surveillance (December 2015), which can be found on our website under Methodologies.

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

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