DBRS Confirms All Classes of GS Mortgage Securities Corporation Trust 2017-SLP

DBRS, Inc. (DBRS) confirmed the ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2017-SLP (the Certificates) issued by GS Mortgage Securities Corporation Trust 2017-SLP as follows:

-- Class A at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class X-B at BBB (high) (sf)
-- Class D at BBB (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which closed in October 2017 with an original trust balance of $725.0 million. Whole loan proceeds of $800.0 million were used to refinance $753.1 million of debt, fund a $34.2 million upfront property improvement plan (PIP) reserve, return $1.6 million of sponsor equity and cover soft costs. The debt stack consists of a $332.7 million senior A note that was split into a $257.7 million controlling A-1 note and two pari passu, non-controlling companion loans (A-2 and A-3) totaling $75.0 million, and the remainder consists of a $467.3 million B-note. The trust loan comprises the A-1 note and B note, and the two companion notes were later contributed to the GSMS 2017-GS8 and GSMS 2018-GS9 transactions (not DBRS-rated). The interest-only (IO) loan features a five-year term with no extension options.

The whole loan is secured by the fee and leasehold interests in a portfolio of 138 hotels, two of which are considered full service but the majority of which are limited/select-service or extended-stay hotels. The portfolio consists of 10,576 keys located in 27 different states and 84 metropolitan statistical areas (MSA) nationwide. The hotels operate under 16 different flags across six different brands with approximately 93.4% of the allocated loan balance affiliated with either Marriott International, Inc. or the Hilton Hotels & Resorts brand. The portfolio received substantial capital investment with more than $185.2 million ($17,514 per key) invested in property improvement plan (PIP) renovations since 2012. The loan was well structured with the upfront PIP reserve and an additional $5.9 million reserved in the first year of the loan term on top of the franchisor-required furniture, fixtures and equipment reserves.

As of August 2019, the servicer confirmed all properties from issuance remain in the pool. The loan reported a trailing 12-month (T-12) ending March 31, 2019, DSCR of 2.20 times (x) compared with the year-end (YE) 2018 DSCR of 2.22x and DBRS Term DSCR of 2.12x. Net cash flows (NCF) have been steadily declining since peaking in 2015 because of a gradual decline of occupancy rates, less food and beverage (F&B) revenue and rising operating expenses. The DBRS NCF was utilized for the subject review, which reflects the lower occupancy rate and F&B revenue. The stagnant growth can also be attributed to ongoing renovations as rooms are taken offline to perform PIP renovations and other capital improvements. DBRS has requested a status update from the servicer regarding PIP renovations at individual properties across the portfolio; however, the servicer reported a full update will not be available until December 2019.

A T-12 ending March 31, 2019, consolidated Smith Travel Research report showed the portfolio’s weighted average (WA) occupancy rate, average daily rate (ADR) and RevPAR were 66.8%, $108.75 and $73.49, respectively, down from the T-9 ending March 31, 2019, WA occupancy rate, ADR and RevPAR of 74.3%, $109.74 and $82.39, respectively. The collateral’s competitive set reported a T-12 ending March 31, 2019, WA occupancy rate, ADR and RevPAR of 61.1%, $98.15 and $60.36, respectively, indicating the collateral continues to outperform its competitors. The competitors’ WA occupancy rate and ADR declined 0.7% and 1.5%, respectively, over the same 12-month period.

There were 31 properties within the portfolio that reported an occupancy rate decline of 10.0% or greater as of March 2019 with most of those properties located in Texas. Texas has the highest concentration by allocated loan balance, totaling 17.2% of the portfolio. Per a First Half 2019 Research Report from Marcus & Millichap, occupancy rates in Texas have been declining due to growing hotel supply and readjustments from Hurricane Harvey, which considerably lifted occupancy rates in 2018. There are six properties in the portfolio located within the Houston MSA, which was hit hardest by the hurricane. Additionally, there are six properties located in the Dallas MSA, which has one of the largest construction pipelines in the country, per the Marcus & Millichap research report.

Classes X-A and X-B 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.

DBRS provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for this transaction.

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrs.com. The platform includes loan-level 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 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. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS long-term rating scale definition indicates that ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

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

DBRS, Inc.
333 West Wacker Drive, Suite 1800
Chicago, IL 60606 USA