DBRS Morningstar Downgrades Four Classes and Confirms Remaining Classes of GS Mortgage Securities Trust 2014-GC24
CMBSDBRS Limited (DBRS Morningstar) downgraded the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2014-GC24 issued by GS Mortgage Securities Trust 2014-GC24 as follows:
-- Class D to BB (high) (sf) from BBB (low) (sf)
-- Class X-C to B (high) (sf) from BB (sf)
-- Class E to B (sf) from BB (low) (sf)
-- Class F to CCC (sf) from B (low) (sf)
The trends on these classes are Negative except for Class F, which does not carry a trend. DBRS Morningstar also removed these classes from Under Review with Negative Implications, where they were placed on August 6, 2020.
In addition, DBRS Morningstar changed the trends on the following classes to Negative from Stable:
-- Class C at A (sf)
-- Class PEZ at A (sf)
DBRS Morningstar also confirmed the ratings on the remaining classes as follows:
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-5 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)
The trends on these classes remain Stable.
The rating downgrades and Negative trends reflect the continued performance challenges facing the underlying collateral, primarily driven by the impacts of the global Coronavirus Disease (COVID-19) pandemic. In addition to the six loans, representing 15.1% of the pool, that are in special servicing as of the November 2020 remittance, DBRS Morningstar notes that the pool has a high concentration of retail properties, representing 34.7% of the pool. The largest specially serviced loan is backed by an anchored retail property, representing 9.1% of the pool. In general, the initial effects of the coronavirus pandemic have severely affected retail properties and, as such, the high concentration of loans backed by retail property types suggests increased risks for the pool since issuance, particularly for the lower rating categories. The pandemic has also significantly affected hotel properties, which has also affected the subject pool as four loans that are secured by hotel properties are in special servicing, representing 5.3% of the pool.
The six loans in special servicing are Beverly Connection (Prospectus ID #3; 9.1% of the pool), Hampton Inn & Suites – Yonkers (Prospectus ID #8; 2.4% of the pool), MHG Hotel Portfolio (Prospectus ID #23; 1.0% of the pool); Holiday Inn Express Corvallis (Prospectus ID #27; 1.0% of the pool), Hampton Inn & Suites Fargo (Prospectus ID #26; 0.9% of the pool), and Westwind Marketplace (Prospectus ID #57; 0.5% of the pool).
The largest loan in special servicing, Beverly Connection (Prospectus ID #3; 9.1% of the pool), is secured by a two-story 334,566-square-foot (sf) anchored retail center and parking structure in the West Los Angeles submarket of Los Angeles. As of the March 31, 2020, rent roll, the property was 95.0% leased and the largest tenants included City Target, Marshalls, Nordstrom Rack, and Ross Dress for Less. The loan transferred to special servicing in August 2020 for delinquent payments resulting from the coronavirus pandemic. As of the November 2020 reporting, the loan was listed as 90+ days delinquent and was last paid in May 2020. The servicer is currently evaluating a borrower request for relief but notes that, to date, the borrower has not provided an acceptable workout proposal. Given the strong tenancy and the healthy historical cash flow trends, the borrower’s need for coronavirus relief may be overstated and the servicer’s suggestion that proposed modifications terms have been unacceptable could indicate the loan will ultimately return to the master servicer in the near to moderate term.
All of the loans in special servicing are secured by retail and hospitality property types and all but one transferred to special servicing after the beginning of the coronavirus pandemic. Two of the seven specially serviced loans have reported updated property values since their transfer to special servicing—the real estate owned Hampton Inn & Suites – Yonkers (Prospectus ID #26; 2.4% of the pool) and Holiday Inn Express Corvallis (Prospectus ID #27; 1.0% of the pool). In both cases, the updated property values showed declines from issuance that would result in losses to the trust.
As of the November 2020 remittance, 66 of the original 75 loans remain in the pool with a collateral reduction of 11.0% since issuance. Seven loans, representing 11.7% of the pool, are fully defeased. Additionally, 13 loans, representing 33.7% of the pool, are on the servicer’s watchlist for a variety of reasons, including low debt service coverage ratio (DSCR) and occupancy issues. The primary reason for the increased loans on the servicer’s watchlist, however, is for hospitality and retail properties with a low DSCR stemming from disruptions related to the coronavirus. Where merited, DBRS Morningstar analyzed these, and any other loans in the pool showing signs of increased stress since issuance, with an elevated probability of default and expected loss.
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, and X-C 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#3 – Beverly Connection (9.1% of the pool)
-- Prospectus ID#8 – Hampton Inn & Suites – Yonkers (2.4% 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.
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 info@dbrsmorningstar.com.
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 info@dbrsmorningstar.com.
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