DBRS Morningstar Downgrades Two Classes; Changes Trends on Three Classes of GS Mortgage Securities Trust, 2010-C1

DBRS, Inc. (DBRS Morningstar) downgraded two classes of Commercial Mortgage Pass-Through Certificates Series 2010-C1 issued by GS Mortgage Securities Trust, 2010-C1 (the Trust) as follows:

-- Class E to BBB (low) (sf) from BBB (sf)
-- Class F to BB (low) (sf) from BB (sf)

In addition, DBRS Morningstar has confirmed its ratings on the remaining classes in the transaction as listed below:

-- Class A-2 at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AAA (sf)
-- Class D at AA (low) (sf)

DBRS Morningstar does not rate the most subordinate bond, Class G. The rating on Class A-1 has been discontinued because the class has been fully repaid. The rating on the notional Class X has been discontinued and withdrawn as, in accordance with the Rating North American CMBS Interest-Only Certificates methodology, DBRS Morningstar may withdraw its rating when a transaction is in the winddown period with very limited cash flow stream remaining on the interest-only bond and all the remaining loans have initial maturity dates scheduled in 2020.

DBRS Morningstar has maintained Stable trends on Classes A-2, B, and C; however, it has changed the trends on Classes D, E, and F to Negative from Stable.

The ratings downgrades and trend changes are the result of the negative outlook on several loans within the Trust that are secured by regional malls in secondary and tertiary markets, which in recent years have exhibited performance declines and/or the loss of a department store anchor tenant(s). Currently, five loans representing 42.4% of the current pool balance are secured by all or portions of regional malls, including one loan in special servicing (8.6% of the current pool balance) and two loans on the servicer’s watchlist (18.6% of the current pool balance). The pool as a whole is concentrated by loans secured by retail properties (eight loans representing 71.1% of the current pool balance).

The pool currently consists of 16 of the original 23 loans with collateral reduction of 29.5% since issuance as of the January 2020 remittance. The pool benefits from defeasance collateral as four loans, representing 19.8% of the current pool balance, are defeased. According to the most recent year-end reporting, there has been a weighted-average (WA) cash flow decline of -3.9% for the non-defeased loans, resulting in a WA debt service coverage ratio (DSCR) of 1.89 times (x) at YE2018 compared with 1.95x at YE2017. All loans were originally scheduled to mature or had an anticipated repayment date in 2020 and, while some loans are expected to secure refinancing capital without issue, others may have difficulty, particularly those secured by regional malls.

The Mall at Johnson City loan (Prospectus ID#8), secured by a regional mall in Johnson City, Tennessee, was transferred to the special servicer in November 2019 after the borrower notified the servicer that it would not be able to refinance the loan at its May 2020 maturity date. An updated September 2019 appraised value of $52.0 million represented a 41.2% decline from the issuance appraised value of $88.5 million. Based on the updated valuation, the loan has a current loan-to-value ratio of 92.5%, which is significantly elevated, considering the subject’s tertiary location. The loan was modified in December 2020 with a new initial maturity date of May 2023 and the borrower, Washington Prime Group, is responsible for a $5.0 million principal curtailment due May 2020 and for funding the $10.0 million of projected leasing and capital improvement costs necessary to stabilize the property to the May 2023 maturity date.

In addition to the two loans secured by malls on the servicer’s watchlist, the largest loan in the pool (660 Madison Avenue Retail; 14.0% of the current pool balance) is also on the servicer’s watchlist. Until recently, the collateral served as the flagship retail location for Barney’s; however, that company filed for Chapter 11 bankruptcy protection in August 2019. Barney’s was purchased by Authentic Brands in November 2019 with the subject location continuing to operate as a Barney’s for the time being while the remaining inventory is sold, according to a December 2019 Forbes article. The loan has a current cash reserve of $4.4 million and has an anticipated repayment date in July 2020 with its ultimate maturity date in 2035. The annualized September 2019 DSCR was reported at 2.47x, indicative of stable performance; however, at this time DBRS Morningstar has not received concrete updates from the servicer about the borrower’s plans to refinance the loan at the anticipated repayment date. Given the uncertainty surrounding the loan and the ultimate plans for the collateral, DBRS Morningstar has removed the shadow rating on the loan.

DBRS Morningstar has confirmed the shadow ratings on the Cole Portfolio (Prospectus ID#5, 10.7% of the pool) and Aardex Ground Lease Portfolio (Prospectus ID#11, 2.7% of the pool) loans, as performance remains consistent with investment-grade loan characteristics.

DBRS Morningstar materially deviated from its principal methodology by four notches when determining the rating assigned to Class D. DBRS Morningstar considers a material deviation from a methodology to exist when there may be a substantial likelihood that a reasonable investor or other user of the credit rating(s) would consider the material deviation to be a significant factor in evaluating the rating(s). The material deviation is warranted given qualitative loan-level factors that are not precisely captured in the quantitative model.

Class X 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 Morningstar.

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

-- Prospectus ID#1 – 660 Madison Avenue Retail (14.0% of the pool)
-- Prospectus ID#2 – Burnsville Center (11.6% of the pool)
-- Prospectus ID#4 – Valley View (9.2% of the pool)
-- Prospectus ID#6 – Mall at Johnson City (8.6% of the pool)
-- Prospectus ID#7 – Grand Central Mall (7.0% 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 Morningstar rated), as well as loan-level and transaction-level commentary for most DBRS Morningstar-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 Morningstar 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 Morningstar 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 Morningstar 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 [email protected].

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