DBRS Morningstar Downgrades Four Classes and Changes Trend on One Class of GS Mortgage Securities Trust, 2010-C1

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

-- Class C to A (high) (sf) from AAA (sf)
-- Class D to CCC (sf) from AA (low) (sf)
-- Class E to C (sf) from BBB (low) (sf)
-- Class F to C (sf) from BB (low) (sf)

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

-- Class A-2 at AAA (sf)
-- Class B at AAA (sf)

Additionally, DBRS Morningstar changed the trend on Class C to Negative from Stable. The trends for Classes A-2 and B remain Stable. Classes D, E, and F have ratings that do not carry trends.

The ratings downgrades and trend change are the result of the outlook for the three loans in special servicing as of the May 2020 remittance, which represent 56.3% of the overall pool balance. All three of these loans are secured by regional malls in secondary and tertiary markets, including Burnsville Center (Prospectus ID#2, representing 24.0% of the current pool balance), for which DBRS Morningstar expects a significant loss at resolution. The other two mall loans in special servicing are the Mall at Johnson City (Prospectus ID #6, 17.9% of the pool) and Grand Central Mall (Prospectus ID #7, 14.4% of the pool). In the case of those two malls, DBRS Morningstar believes risks are elevated from issuance, but notes there are mitigating factors in each case that suggest a lower loss severity could be realized at resolution.

The pool as a whole is concentrated by loans secured by retail properties (top four loans representing 85.3% of the current pool balance).

As of the May 2020 remittance, the pool consisted of seven of the original 23 loans with collateral reduction of 66.3% since issuance. The pool as a whole is concentrated by loans secured by retail properties (top four loans representing 85.3% of the current pool balance), compounding the concentration risks for the remaining pool. Although the retail concentration is significant, and particularly noteworthy given the concentration of mall loans currently in default, the cash flow performance for most loans has been stable from issuance. According to the most recent year-end reporting, there has been a weighted-average (WA) cash flow increase of 6.0% over the prior year for the remaining loans in the pool, resulting in a WA debt service coverage ratio (DSCR) of 1.86 times (x) at YE2019 compared with 1.69x at YE2018. All loans were originally scheduled to mature or had an anticipated repayment date in 2020 and DBRS Morningstar believes the retail loans in particular will have difficulty obtaining replacement financing amid the Coronavirus Disease (COVID-19) pandemic and the impact to capital markets.

The Burnsville Center loan, secured by a regional mall in Burnsville, Minnesota, was transferred to the special servicer in January 2020 after the borrower notified the servicer of payment difficulties stemming from steady performance declines over the last several years. As of YE2019 financials, the subject reported a DSCR of 1.05x, a sharp decline compared with the YE2018 and YE2017 figures of 1.23x and 1.58x, respectively. The performance decline was a result of vacant spaces being backfilled at lower rents along with the lack of capital reinvestment by the sponsor to improve the quality of the subject.

The loan is scheduled to mature in July 2020 and the sponsor, CBL Properties (CBL), recently announced as part of its Q1 2020 earnings release that modification discussions for the subject loan remained ongoing, with the company “not able to predict the outcome at this time.” The property was valued at $137.4 million at issuance; however, the as-is value today is likely drastically lower given the cash flow declines and generally perilous state of the property’s tenant base and future outlook. Given these factors, for this review, DBRS Morningstar liquidated this loan with a loss severity in excess of 70.0%, with losses projected to take out the balance of the unrated Class G certificates, as well as the rated Class F certificates, and the bulk of the balance of Class E. For further information on the loan and property, please see the commentary on the DBRS Viewpoint platform, for which information has been provided below.

The second-largest mall loan in special servicing, Mall at Johnson City (Prospectus ID#6), is secured by a regional mall in Johnson City, Tennessee. The loan was transferred to special servicing in November 2019 after the borrower notified the servicer that it would not be able to refinance the loan at the 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 September 2019 value, the loan had an LTV of just over 92.0%; the property lost a collateral Sears anchor in early 2020 and has secured a partial replacement in HomeGoods, for which construction was underway as of the spring of 2020. The loan was modified in December 2020 with a new initial maturity date of May 2023. As part of the modification, the sponsor, Washington Prime Group, was required to pay down the loan by $5.0 million and provide an additional $10.0 million for reserves. However, according to the servicer, these commitments have not been met due to the effects of the coronavirus pandemic and a prenegotiation letter has been executed to discuss potential resolution strategies. Given the likely maturity default and generally increased risk profile for this loan in the high LTV and weak sponsorship, DBRS Morningstar analyzed the loan with an elevated probability of default for this review.

DBRS Morningstar confirmed the shadow rating on the Aardex Ground Lease Portfolio (Prospectus ID#11, 5.6% of the pool) loan, as performance remains consistent with investment-grade loan characteristics.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

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 (29.0% of the pool)
-- Prospectus ID#2 – Burnsville Center (24.0% of the pool)
-- Prospectus ID#6 – Mall at Johnson City (17.9% of the pool)
-- Prospectus ID#7 – Grand Central Mall (14.4% of the pool)

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.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 (March 6, 2020), which can be found on dbrsmorningstar.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 dbrsmorningstar.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.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

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 [email protected].

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.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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