DBRS Assigns Provisional Ratings to GS Mortgage Securities Trust 2019-GC42

DBRS, Inc. (DBRS) assigned provisional ratings to the following classes of Commercial Mortgage Pass-Through Certificates, Series 2019-GC42 to be issued by GS Mortgage Securities Trust 2019-GC42:

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

All trends are Stable.

Classes D, X-D, E, F-RR and G-RR will be privately placed.

The collateral consists of 36 fixed-rate loans secured by 94 commercial and multifamily properties. The transaction is a sequential-pay pass-through structure. The conduit pool was analyzed to determine the provisional ratings, reflecting the long-term probability of loan default within the term and its liquidity at maturity. Five loans, representing a combined 19.4% of the pool, are shadow-rated investment grade by DBRS. The pool additionally includes 11 loans, representing a combined 27.3% of the pool by allocated loan balance, with issuance loan-to-values (LTVs) equal to or in excess of 67.1%, a threshold historically indicative of above-average default frequency. The weighted-average (WA) LTV of the pool at issuance is 58.8%, and the pool is scheduled to amortize down to a WA LTV of 56.6% at maturity.

The collateral features five loans, representing a combined 19.4% of the pool, that are shadow-rated investment grade by DBRS: 30 Hudson Yards, Grand Canal Shoppes, Moffett Towers II Buildings 3 & 4, Woodlands Mall and Diamondback Industrial Portfolio 1. The 30 Hudson Yards loan exhibits credit characteristics consistent with a BBB shadow rating, Grand Canal Shoppes exhibits credit characteristics consistent with a BBB (high) shadow rating, Woodlands Mall and Moffett Towers II Buildings 3 & 4 exhibit credit characteristics consistent with a AA shadow rating and the Diamondback Industrial Portfolio 1 exhibits credit characteristics consistent with an “A” shadow rating.

Nine loans, representing a combined 32.5% of the pool by allocated loan balance, exhibit issuance LTVs of less than 59.3%, a threshold historically indicative of relatively low-leverage financing and generally associated with below-average default frequency.

No properties were deemed Average (-), Below Average or Poor quality. Additionally, 13 loans, representing 51.5% of the pool by allocated loan balance, exhibited Average (+), Above Average or Excellent property quality. The pool’s largest loan, Moffett Towers II Buildings 3 & 4, and 30 Hudson Yards are secured by collateral that DBRS deemed to be of Excellent property quality.

Ten loans, representing a combined 30.0% of the pool, are located in areas with a DBRS Market Rank of 6, 7 or 8, which are characterized as urbanized locations. These markets benefit from increased liquidity that is driven by consistently strong investor demand. Such markets therefore tend to benefit from lower default frequencies than less dense suburban, tertiary and rural markets. Areas with a DBRS Market Rank of 7 or 8 are especially densely urbanized and benefit from significantly elevated liquidity. Six loans, representing 18.5% of the pool by allocated loan balance, are located in areas with a DBRS Market Rank of 7 or 8.

Eleven loans, representing 38.5% of the aggregate pool balance, are secured by properties that are either fully or partially leased to a single tenant. The largest single-tenant property by proportion of pool balance (Moffett Towers II Buildings 3 & 4) represents 6.2% of the aggregate pool balance, and five of the top ten loans by proportion of pool balance are either fully or partially leased to a single tenant. DBRS sampled nine of the 11 loans secured by single-tenant properties. Additionally, three of the 11 loans leased to a single tenant are shadow-rated investment grade by DBRS (Moffett Towers II Buildings 3 & 4, Diamondback Industrial Portfolio 1 and 30 Hudson Yards). Ten of the 11 identified properties are leased to single tenants that DBRS considers to be investment-grade rated: Moffett Towers II Buildings 3 & 4, 19100 Ridgewood, Diamondback Industrial Portfolio 1, 105 East 17th Street, USAA Office Portfolio, Capitol Commons, Powered Shell Portfolio – Manassas, Powered Shell Portfolio – Ashburn, 30 Hudson Yards and 1609 Avenue.

The pool has a relatively high concentration of loans secured by office properties, as evidenced by ten loans, representing 37.0% of the pool by allocated loan balance, being secured by such properties. DBRS considers office properties to be a riskier property type with a generally above-average historical default frequency. Of the ten loans secured by office properties, two loans, representing 8.1% of the pool by allocated loan balance, are shadow-rated investment grade by DBRS: 30 Hudson Yards and Moffett Towers II Buildings 3 & 4. Three of the ten identified loans, representing 8.8% of the pool by allocated loan balance, are secured by office properties located in areas with a DBRS Market Rank of 8, which is characterized as a highly dense, urbanized area such as New York or San Francisco. These markets benefit from increased liquidity that is driven by consistently strong investor demand. Such markets therefore tend to benefit from lower default frequencies than less dense suburban, tertiary and rural markets. The WA expected loss of the seven loans secured by office properties that are not located in DBRS Market Rank 8 or are shadow-rated investment grade is more than two times the WA expected loss of the overall pool. As a result, the risk of these loans is reflected in the credit enhancement levels of the pool.

Twenty-six loans, representing a combined 81.7% of the pool by allocated loan balance, are structured with full-term interest-only (IO) periods. Expected amortization for the pool is only 3.2%, which is less than recent conduit securitizations. Of the 26 loans structured with full-term IO periods, six loans, representing 18.5% of the pool by allocated loan balance, are located in areas with a DBRS Market Rank of 7 or 8. These markets benefit from increased liquidity that is driven by consistently strong investor demand. Such markets therefore tend to benefit from lower default frequencies than less dense suburban, tertiary and rural markets. Five of the 26 identified loans, representing 19.4% of the pool by allocated loan balance, are shadow-rated investment grade by DBRS: Moffett Towers II Buildings 3 & 4, Woodlands Mall, Diamondback Industrial Portfolio 1, 30 Hudson Yards and Grand Canal Shoppes. The full-term IO loans are for the most part pre-amortized, as the WA issuance LTV for these loans is low at 57.0%.

The pool features a relatively high concentration of loans secured by properties located in less favorable suburban market areas, as evidenced by 17 loans, representing 46.0% of the pool by allocated loan balance, being secured by properties located in areas with a DBRS Market Rank of either 3 or 4. Four of the identified loans, representing 16.2% of the pool balance, that are secured by properties located in areas with a DBRS Market Rank of either 3 or 4, will amortize over the loan term, which can reduce risk over time. The average expected amortization of these loans is 15.6%, which is notably higher than the pool’s total WA expected amortization of 3.2%.

Classes X-A, X-B, and X-D are 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.

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

With regard to due diligence services, DBRS was provided with the Form ABS Due Diligence-15E (Form-15E), which contains a description of the information that a third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While due diligence services outlined in Form-15E do not constitute part of DBRS’s methodology, DBRS used the data file outlined in the independent accountant’s report in its analysis to determine the ratings referenced herein.

The principal methodology is the North American CMBS Multi-borrower Rating 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 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.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrs.com.

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

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