DBRS Confirms Ratings of GS Mortgage Securities Trust 2015-GC28

DBRS Limited (DBRS) 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 A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AA (high) (sf)
-- Class B at AA (sf)
-- Class C at A (low) (sf)
-- Class PEZ at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class X-C at BB (sf)
-- Class E at BB (low) (sf)
-- Class X-D at B (sf)
-- Class F at B (low) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since issuance. At issuance, the transaction consisted of 74 fixed-rate loans secured by 112 commercial properties with an original trust balance of $914.0 million. According to the January 2019 remittance, 73 loans remain in the pool with a current balance of $882.4 million, representing a collateral reduction of 3.9% due to scheduled loan amortization and the repayment of one loan. In addition, ten loans (7.5% of the pool) are fully defeased. To date, non-defeased loans, representing approximately 95.2% of the pool, have reported YE2017 financials. Based on the most recent year-end reporting, the non-defeased loans in the pool reported a weighted-average (WA) debt service coverage ratio (DSCR) of 1.92 times (x) and 10.2%, respectively, compared with the DBRS WA figures of 1.73x and 9.0%, respectively. Individually, the performance for many of the largest loans in the pool has been quite strong since issuance, with the largest loan, Airport Technology Park (12.3% of the pool), reporting net cash flow (NCF) growth of 19.6% over the DBRS NCF figure at YE2017. The third-largest loan, Campus Marketplace (4.7% of the pool) reported NCF growth over the DBRS figure at YE2017 of 27.7%. However, overall cash flow growth for the largest 15 loans has been generally weak, with WA NCF growth of just 3.4% as of the YE2017 reporting for those loans, which collectively represent 51.5% of the pool. The WA figure is driven down by sharply negative cash flow growth since issuance for loans such as Discovery Corporate Center (-38.4%), Iron Horse Hotel (-18.4%) and Kingwood Lakes Apartments (-67.7%).

According to the January 2019 remittance, there are 14 loans (23.8% of the pool) on the servicer’s watchlist, including Discovery Corporate Center (Prospectus ID#2; 5.7% of the pool), secured by an office campus in Rancho Bernardo, California; Kingwood Lakes Apartments (Prospectus ID#13; 1.8% of the pool), secured by a multifamily property in Kingwood, Texas; and MacDade Retail (Prospectus ID#7, 2.4% of the pool), secured by a retail property in Holmes, Pennsylvania. The MacDade Retail loan is being monitored for the collateral property’s exposure to the Sears Holdings bankruptcy, with Kmart in place for approximately 40.0% of the net rentable area (NRA) on a lease through 2023. DBRS notes that the Kmart lease was recently renewed for five years, with the most recent sales reported for both Kmart and the grocery co-anchor, ACME Supermarkets, suggesting healthy traffic for both stores. For additional information on that loan, please see the DBRS Loan Commentary in the Viewpoint platform, for which information has been provided below.

The Discovery Corporate Center loan has been monitored for occupancy declines since issuance. Broadcom Corporation (Broadcom) previously leased 92.8% of the NRA but has since downsized to a footprint of approximately 39.7% of the NRA; as a result, the overall occupancy rate across the three buildings securing the loan is expected to be approximately 76.7% as of March 2019 when new tenant Daylight Solutions is in occupancy. In accordance with the loan terms, the sponsor has posted cash reserves in the amount of $5.9 million in connection with these developments. Given the challenges in the occupancy declines from issuance, DBRS assumed a stressed scenario for this loan to significantly increase the probability of default for this review. However, the strong sponsorship, high cash equity contribution at closing and significant cash reserves on this loan are noteworthy and serve as mitigants to these risks, reducing the likelihood of default over the near to medium term.

DBRS has added the third-largest loan on the watchlist, Kingwood Lakes Apartments, to the DBRS Hotlist given the extraordinarily low occupancy rate of 4.9% at September 2018 and the ongoing repair work to address significant damage caused by Hurricane Harvey at the collateral property, a 390-unit apartment complex located within the Houston metropolitan statistical area. The servicer is holding insurance proceeds of approximately $8.7 million, and recent updates have suggested the repair work is underway. According to the servicer, there were 219 units taken offline directly as a result of flooding at the property, but given the low occupancy rate, DBRS assumes further issues developed that necessitated the removal of nearly all units at the property from operations.

According to the January 2019 remittance, there are two loans in special servicing. The first, 7 Becker (Prospectus ID#41; 0.9% of the pool), is secured by an office property in Roseland, New Jersey. This loan was transferred to the special servicer in March 2018, and a foreclosure complaint was filed in November 2018, with the appointment of a receiver still being finalized. Cash flows declined for the property when ADP (formerly 58.2% of NRA, expired August 2018) vacated upon lease expiration, and Liberty Mutual Insurance downsized its space by 14,400 square feet (16.1% of NRA). Based on the scenario assumed as part of this review, a loss severity in excess of 45.0% could be realized at disposition. The second loan, Indian Trace Commons (Prospectus ID#63; 0.4% of the pool), secured by an office property in Sunrise, Florida, was transferred to the special servicer in February 2019. DBRS analyzed this loan using a stressed cash flow to increase the subordination levels; however, a hypothetical liquidation scenario based on a recent appraisal implies only a minor loss for this loan.

Classes X-A, X-B, X-C and X-D 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 are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed or discontinued by DBRS.

DBRS provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:

-- Prospectus ID#2 – Discovery Corporate Center (5.7% of the pool)
-- Prospectus ID#7 – MacDade Retail (2.4% of the pool)
-- Prospectus ID#11 – Iron Horse Hotel (2.1% of the pool)
-- Prospectus ID#13 – Kingwood Lakes Apartments (1.8% of the pool) (DBRS Hotlist)
-- Prospectus ID#33 – Park West at Gateway Business Center (1.1% of the pool)
-- Prospectus ID#41 – 7 Becker (0.9% of the pool)
-- Prospectus ID#63 – Indian Trace Commons (0.4% of the 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 most outstanding CMBS transactions (including non-DBRS rated), as well as loan-level and transaction-level commentary for most DBRS-rated and -monitored transactions.

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

The principal methodology is North American CMBS Surveillance Methodology, which can be found on www.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, which can be found on www.dbrs.com in the Commentary tab under Regulatory Affairs. 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.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada