DBRS Confirms All Classes of GS Mortgage Securities Trust 2013-GC10

DBRS Limited (DBRS) confirmed all classes of Commercial Mortgage Pass-Through Certificates issued by GS Mortgage Securities Trust 2013-GC10 as follows:

-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-AB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class X-B at AA (low) (sf)
-- Class C at A (high) (sf)
-- Class D at BBB (sf)
-- Class E at BB (sf)
-- Class F at B (sf)

All trends are Stable, with the exception of Class F, to which DBRS assigned a Negative trend to reflect the concerns surrounding several underperforming loans, including the largest loan in the pool, Empire Hotel & Retail (Prospectus ID#1, 15.0% of pool).

Although there are some loans exhibiting higher risk profiles, there are no delinquent or specially serviced loans in the pool, and the pool has largely performed as expected, with 56 of the original 61 loans remaining in the pool as of the November 2018 remittance and collateral reduction of 12.6% since issuance and the top three classes repaid in full. In addition, there are 12 loans, representing 12.6% of the pool, including three loans in the top 15, that are fully defeased. Of the 44 non-defeased loans, 43 loans, representing 86.9% of the pool, are reporting year-end (YE) 2017 financials, with a weighted-average (WA) debt-service coverage ratio (DSCR) and debt yield of 1.78 times (x) and 11.4%, respectively. All 12 non-defeased loans in the top 15, which represent 64.0% of the pool, are reporting YE2017 financials. These loans reported a WA DSCR and debt yield of 1.70x and 10.5%, respectively, representing a WA net cash flow growth of 9.2% over the DBRS issuance figures.

As of the November 2018 remittance, there are 10 loans, representing 32.0% of the pool, on the servicer’s watchlist. Five loans are being monitored for performance related issues and an additional four loans are being monitored for significant tenant rollover. The largest loan in the pool, Empire Hotel & Retail, is secured by a 423-key full-service hotel with ground level retail located in New York City, across the street from Lincoln Center and within close proximity to Central Park. The loan is being monitored because of its low DSCR, which has remained depressed since YE2016, and was reported at 0.76x for the trailing 12 months ending June 2018. According to the servicer, the borrower attributes the revenue declines to ongoing room renovations, but TripAdvisor reviews from recent stays frequently mention the generally shabby state of the rooms at the hotel. At issuance, a $5.0 million renovation was planned for the near term, but that work was largely allocated to common areas, including the hotel’s rooftop bar.

Comparable hotel properties near the property are reporting revenue per available room (RevPAR) figures up to 20% greater than what Empire Hotel is reporting, suggesting potential upside if the necessary renovations are completed. DBRS has inquired about the scope and cost of all renovations completed over the last five years and the servicer’s response is pending. The property is well located within a short walk of many New York City attractions and RevPAR trends over the past six months do suggest improvement. In addition, the loan benefits from extensive reserves, with $6.0 million in furnitures, fixtures and equipment reserves; $5.0 million in a certificate of occupancy reserve (that appears to be eligible for release; DBRS has requested confirmation); and $6.7 million in excess cash reserves. For additional information on this loan, please see the loan commentary in the DBRS Viewpoint platform, for which information has been provided below.

Although not yet added to the servicer’s watchlist, the Parkwood Plaza (Prospectus ID#11, 2.5% of pool) loan, secured by an office property located in Atlanta, Georgia, is being monitored by DBRS because the property’s largest tenant, General Electric (GE) (69.4% of net rentable area; lease expires August 2019), vacated its space in December 2014 and has not been able to sublease any of the space over the last four years. The submarket is quite soft, with CoStar reporting an overall availability rate of 34.1% as of late November 2018 for Class A properties. GE has honored the lease obligations, currently paying $25.16 per square foot and representing approximately 82.7% of the property’s base rent. Once these payments stop, the DSCR will fall well below 1.0x. The loan was structured with a cash flow sweep to be triggered if the GE lease was not renewed within 12 months of the lease expiry and DBRS has requested confirmation from the servicer that the sweep is in place. In addition, DBRS has asked the servicer why the loan was not placed on the watchlist when the tenant went dark, as it appears this information has been cited in the property inspection reports for the last several years. For additional information on this property, please see the loan commentary in the DBRS Viewpoint platform, for which information has been provided below.

Class X-A and X-B are interest-only (IO) certificates that reference a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation tranche adjusted upward by one notch if senior in the waterfall.

All ratings will be subject to ongoing surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed or discontinued by DBRS.

As part of this review, DBRS has provided updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:
-- Prospectus ID#1 – Empire Hotel & Retail (15.0% of pool)
-- Prospectus ID#4 – Galleria Building (4.3% of pool)
-- Prospectus ID#11 – Parkwood Plaza (2.5% of pool)
-- Prospectus ID#13 – One Technology Plaza (2.0% of pool)
-- Prospectus ID#15 – 701 Technology Drive (2.0% of pool)
-- Prospectus ID#16 – One Castle Hill (1.7% of pool)
-- Prospectus ID#23 – Solomon Chicago Portfolio (1.3% of pool)

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrs.com. The platform includes issuer and servicer data for the entire CMBS universe, as well as deal and loan-level commentary for all DBRS rated transactions.

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

The principal methodology is North American CMBS Surveillance, which can be found on dbrs.com under Methodologies & Criteria. For a list of the Structured Finance related methodologies that may be used during the rating process, please see the DBRS Global Structured Finance Related Methodologies document on www.dbrs.com. Please note that not every related methodology listed under a principal Structured Finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

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 under Related Documents or by contacting us at info@dbrs.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

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