DBRS Morningstar Confirms Ratings on GS Mortgage Securities Trust 2017-GS5

DBRS Limited (DBRS Morningstar) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2017-GS5 issued by GS Mortgage Securities Trust 2017-GS5 (the Issuer) as follows:

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

All trends are Stable. In addition, DBRS Morningstar discontinued its rating on Class A-1 as the class repaid in full with the November 2020 remittance.

The rating confirmations reflect the stable performance of the pool, which has had a collateral reduction of 3.1% since issuance as of November 2020. At issuance, the collateral consisted of 32 fixed-rate loans secured by 72 commercial and multifamily properties. As of the November 2020 remittance, 31 loans remained in the pool, with a relatively low concentration of loans secured by retail (19.8% of the pool) and lodging (2.5% of the pool) properties. Six loans are on the servicer’s watchlist, representing 31.5% of the pool, and two loans are in special servicing, representing 5.7% of the pool. One loan, representing 2.1% of the pool, is fully defeased. Based on the YE2019 financials, the pool reported a weighted-average debt service coverage ratio (DSCR) of 2.10 times (x) compared with the Issuer’s underwritten DSCR of 2.39x.

The largest loan in special servicing, Simon Premium Outlets (Prospectus ID#12; 3.1% of the pool) is secured by two retail properties totalling 436,987 square feet (sf), with Simon Property Group, Inc. (Simon) as the loan sponsor. The larger property by allocated loan balance (ALB), Queenstown Premium Outlets (63.7% of the ALB) is in Queenstown, Maryland, and the second collateral property, Pismo Beach Premium Outlets (36.3% of the ALB) is in Pismo Beach, California. The loan transferred to special servicing in July 2020 for payment default when Simon requested Coronavirus Disease (COVID-19)-related relief. According to the servicer, negotiations are ongoing regarding a potential loan modification as well as the pursuit of lender remedies. The sponsor is also reportedly complying with the installation of a lockbox.

Property performance for both malls has been generally stable since issuance as the most recently reported cash flows have a DSCR of 2.06x for the trailing 12-month (T-12) period ended August 31, 2020, which is in line with the YE2019 figure, but below the Issuer’s DSCR of 2.36x. As of October 2020, portfolio occupancy was reported at 81.0%, down from 90.0% at YE2018. The major tenant rosters primarily consist of a mix of the standard Premium Outlets tenants, including VF Outlet, Nike Factory Store, and Polo Ralph Lauren. Given the pandemic-driven issues and current delinquency status, there are increased risks for this loan since issuance and, as such, DBRS Morningstar applied an increased probability of default (POD) penalty to increase the expected loss in its analysis for this review.

The smaller specially serviced loan, 20 West 37th Street (Prospectus ID#16; 2.7% of the pool) is secured by a 77,100-sf mixed-use property in New York. The loan transferred to special servicing in August 2020 for monetary default. According to the servicer, a loan modification as well as a receiver are under consideration. Prior to the loan’s transfer to special servicing, the loan was added to the servicer’s watchlist in May 2020 following the borrower’s coronavirus-related relief request. The loan was also being monitored for an active cash trap event and outstanding servicer advances.

Prior to the loan’s transfer to special servicing, performance had been quite stable with the T-12 period ended June 30, 2020, DSCR of 1.30x compared with YE2019 and YE2018 DSCRs of 1.38x and 1.52x, respectively. As of June 2020, however, occupancy was reported at 68.0% compared with 100.0% at issuance as tenants representing 32.0% of the net rentable area (NRA) vacated the subject from September 2019 to February 2020, suggesting that the YE2020 DSCR will show a significant decline in performance. The remaining three largest tenants collectively represent 26.0% of the NRA with leases expiring between December 2020 and September 2027. Given the pandemic-driven issues and elevated vacancy rate, DBRS Morningstar also applied an increased POD penalty for this loan to increase the expected loss in its analysis for this review.

According to the November 2020 remittance, six loans are on the servicer’s watchlist, representing 31.5% of the pool. Four loans, representing 9.1% of the pool, were flagged for performance declines. Although only one loan was added for an official coronavirus-related relief request, most of the loans are being monitored for cash flow and occupancy declines based on the quarterly 2020 reporting. One loan, representing 7.2% of the pool, was flagged for deferred maintenance. One loan, 350 Park Avenue (Prospectus ID#1; 9.7% of the pool), is being monitored following the announcement that the property’s largest tenant, Ziff Brothers Investments, LLC (50.3% of NRA; expiring in April 2021), would be vacating upon lease expiration. The tenant had been downsizing for years, however, with a substantial portion of its space subleased to other tenants, which partially mitigates the risks associated with its lease expiry next year. Generally, and where merited, for loans on the servicer’s watchlist, DBRS Morningstar applied a POD penalty to increase the expected loss in its analysis for this review.

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.

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 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 – 350 Park Avenue (9.7% of the pool)
-- Prospectus ID#12 – Simon Premium Outlets (3.1% of the pool)
-- Prospectus ID#16 – 20 West 37th Street (2.7% 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 the 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.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

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.

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

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