DBRS Morningstar Confirms Ratings on GS Mortgage Securities Trust 2019-GC42

DBRS Limited (DBRS Morningstar) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2019-GC42 issued by GS Mortgage Securities Trust 2019-GC42 as follows:

-- Class A-1 at AAA (sf)
-- 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 X-A at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (sf)
-- Class X-B at A (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (high) (sf)
-- Class X-D at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class F-RR at BB (sf)
-- Class G-RR at B (high) (sf)

All trends are Stable. DBRS Morningstar also removed Class G-RR from Under Review with Negative Implications where it was placed on August 6, 2020.

As of the January 2021 remittance, all 38 original loans remain in the pool, with no defeasance to date. One loan, representing 0.7% of the current pool balance, is in special servicing. Additionally, eight loans, representing 20.6% of the current pool balance, are on the servicer’s watchlist. These loans are being monitored for cash management provisions that have been triggered by recent performance events, low debt service coverage ratios (DSCRs), and/or occupancy issues generally caused by disruptions related to the Coronavirus Disease (COVID-19) pandemic.

The property type distribution of the loans on the servicer’s watchlist is generally granular, as two are backed by retail properties (6.8% of the pool), one by a multifamily property (6.2% of the pool), three by hospitality properties (4.5% of the pool), and one by an office property (3.0% of the pool). In addition, one small loan on the watchlist is secured by a self-storage property (0.3% of the pool). All three of the watchlisted loans backed by hospitality properties have been flagged for considerable cash flow declines that have been driven by the impacts of the pandemic. Although the performance declines by those and other properties that back loans in this pool are indicative of increased risks from issuance, DBRS Morningstar notes that the strong performance of the underlying hotels and the lack of delinquency prior to the pandemic are mitigating factors considered as part of this review of the transaction.

At issuance, DBRS Morningstar shadow-rated five loans, representing 19.4% of the current pool balance, as investment grade. These loans include Moffett Towers II Buildings 3 & 4 (Prospectus ID #1; 6.2% of the pool), Woodlands Mall (Prospectus ID #6; 3.8% of the pool), Diamondback Industrial Portfolio 1 (Prospectus ID #7; 3.8% of the pool), 30 Hudson Yards (Prospectus ID #23; 1.9% of the pool), and Grand Canal Shoppes (Prospectus ID #24; 1.9% of the pool). With this review, DBRS Morningstar confirms that the performance of these loans remains consistent with investment-grade loan characteristics. However, the Grand Canal Shoppes loan is being monitored closely as the coronavirus pandemic has been particularly hard on the Las Vegas economy and sales at the property are expected to slump through the near to medium term. Although local and international tourism is down, DBRS Morningstar believes the collateral property’s prime location, historically strong performance, relatively low leverage, and tenant mix are significant mitigating factors for the near- to medium-term risks introduced by the pandemic.

The only loan in special servicing, 114 Fordham Road (Prospectus ID#32; 0.7% of pool), is secured by an unanchored retail property in Bronx, New York. The loan transferred to special servicing in April 2020 for imminent default and has remained over 90 days delinquent since July 2020. According to the servicer, the property was closed for a few months in 2020 as a result of the pandemic, with many of the tenants having been unable to make rent payments from March 2020 to August 2020. In addition, in the second half of 2020, the property sustained damage from looting activity in the area, which was primarily contained to the retail space occupied by Oren Sportswear (53.9% of the net rentable area, with a lease expiration in April 2027). The servicer confirmed all stores were open as of September 2020 and, as of January 2021, the special servicer is in the final stages of papering a loan modification to provide the borrower temporary relief and address the outstanding defaults.

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-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 loan in the transaction:

-- Prospectus ID#24 – Grand Canal Shoppes (1.9% 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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