DBRS Confirms Ratings on GS Mortgage Securities Trust 2014-GC26

DBRS Limited (DBRS) has today confirmed the ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2014-GC26, issued by GS Mortgage Securities Trust 2014-GC26 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 A-S at AAA (sf)
-- Class B at AA (sf)
-- Class PEZ at A (sf)
-- Class C at A (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class F at B (sf)

All trends are Stable. DBRS does not rate the first or second loss piece, Class G or Class H. The Class PEZ certificates are exchangeable with Class A-S, Class B and Class C certificates (and vice versa).

The rating confirmations reflect the overall stable performance of the transaction, which has remained in line with DBRS’s expectations since issuance in December 2014. The collateral consists of 92 loans secured by 133 properties, and as of the November 2016 remittance, there has been a collateral reduction of 1.0% since issuance due to scheduled amortization. All of the original loans remain in the pool. Loans representing 94.3% of the current pool balance are reporting YE2015 figures with a weighted-average (WA) debt service coverage ratio (DSCR) and a WA debt yield of 1.6 times (x) and 9.3%, respectively. The DBRS underwritten (UW) WA DSCR and WA debt yield at issuance were 1.4x and 8.3%, respectively.

As of the November 2016 remittance report, there are no loans in special servicing but there are 14 loans are on the servicer’s watchlist, representing 7.4% of the current pool balance. Three of those loans, representing 2.8% of the pool, are on the watchlist for deferred maintenance; however, none of the issues noted appear to suggest a material impact on the overall condition of the property or operations in general. Five loans, representing 1.8% of the pool, are on the servicer’s watchlist for upcoming tenant rollover. According to the servicer, some of these rolling tenants have renewed their leases, but for others, the status is yet to be determined. Three other loans are on the watchlist, representing 1.9% of the pool, for reporting a drop in DSCR as of the annualized Q2 2016 net cash flow (NCF) figures. There is one loan on the watchlist for delinquency, Prospectus ID#86, Dollar General Texas and Oklahoma Portfolio (0.24% of the pool), which showed payments at 30 days to 59 days late as of the November 2016 remittance. As the loan is reporting a YE2015 and a Q2 2016 DSCR of 1.59x and 1.61x, respectively, the payment issues are not likely cash flow related. DBRS has requested information from the servicer on the source of the delinquency and will monitor closely for developments.

The largest loan in the pool is Prospectus ID#1, Queen Ka’ahumanu Center, representing 7.1% of the pool. This loan is secured by the fee interest in a 570,904 square foot (sf) mixed-use regional mall located in Kahului, Hawaii. This is the island of Maui’s only regional mall. The collateral is comprised of a regional mall (90.2% of NRA), an outparcel grocery store (4.6% of NRA) and a two-story office structure (2.6% of NRA). The subject was constructed in 1972, with the most recent renovations completed in 1994 and 2005. The sponsor, the Seligman Group, acquired the property from General Growth Partners in 2003 and Jones Lang LaSalle Retail provides third-party management services. As of the June 2016 rent roll, the collateral was 91.9% occupied with an average rental rate of $17.09 per sf (psf), remaining in line with the September 2015 occupancy rate of 92.5% and the average rental rate of $16.86 psf. At issuance, the property was 93.3% occupied with an average rental rate of $16.36 psf. The mall is anchored by Maui’s only department stores in Macy’s and Sears, in addition to a Foodland Super Market, and the six-screen Consolidated Theatres Ka’ahumanu 6 (Ka’ahumanu Theatres). Anchor sales for non-theater tenants have fallen since issuance. According to the trailing 12 months (T-12) May 2016 tenant sales report (TSR), Macy’s Home Store, Macy’s, Sears and Foodland Supermarket reported sales of $137.89 psf, $222.92 psf, $204.44 psf and $853.50 psf, respectively, figures that represent decreases of 16.9%, 3.6%, 15.9% and 4.9%, respectively, from the T-12 May 2015 TSR. Ka’ahumanu Theatres reported sales of $625,065.50 per screen, an increase of 25.6% from the T-12 May 2015 TSR. Although sales have declined for non-theater anchor tenants, those leases run through at least 2023 and it was noted at issuance that Sears and Macy’s both had very low occupancy costs (0.7% and 3.1%, respectively). According to the YE2015 operating statement analysis report (OSAR), the DSCR was 1.19x, as compared to the DBRS UW DSCR of 1.05x. The DBRS UW NCF figure represented a 14.9% haircut to the Issuer’s figure, driven largely by higher capital expenditures and tenant improvement/leasing commission costs underwritten.

Prospectus ID#3, 5599 San Felipe, represents 6.4% of the current pool balance and is secured by the borrower’s fee interest in a 436,253 sf office property located in Houston, Texas. The subject consists of a 19-story building that was constructed in 1979, renovated in 1993 and again from 2010 through 2014. As of the June 2016 rent roll, the collateral was 96.2% occupied with an average rental rate of $21.61 psf, a small decrease from the September 2015 occupancy rate of 99.1% and the average rental rate of $22.00 psf. These figures compare similarly to issuance levels. The largest tenant at the property is Schlumberger Technology Corp (Schlumberger), which represents 69.7% of the NRA on a lease through 2027 at, an average rental rate of $24.84 psf. Founded in 1926, Schlumberger is the world’s largest oilfield services company, employing over 100,000 people in over 85 countries and has been a tenant at the property since 1994, with the subject serving as its international headquarters. According to the YE2015 OSAR, the DSCR was 1.02x, a decrease from the DBRS UW DSCR of 1.56x. This decline was the result of a 90.5% decrease in expense reimbursements from the DBRS UW figure. At issuance, it was noted the largest tenant, Schlumberger, would begin paying expense reimbursements in August 2016, estimated at $4.0 million annually.

For more information on this transaction and supporting data, please log into DBRS CMBS IReports, www.ireports.dbrs.com. DBRS continues to monitor this transaction monthly with periodic updates provided in the DBRS CMBS IReports platform.

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 (October 2016), which can be found on our website under Methodologies.

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