DBRS Morningstar Confirms Ratings on All Classes of GS Mortgage Securities Trust 2013-GC10; Three Classes Carry Negative Trends

DBRS Limited (DBRS Morningstar) confirmed its ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2013-GC10 issued by GS Mortgage Securities Trust 2013-GC10 as follows:

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

The trends on Classes D and E were changed to Negative from Stable, and the Negative trend for Class F was maintained, as well. All other trends are Stable. Class F has had a Negative trend since 2018 resulting from ongoing performance declines for the largest loan in the pool, Empire Hotel & Retail (Prospectus ID #1, 15.8% of the pool), and the additional Negative trends on the two classes above Class F in the capital stack are reflective of increased risks that have emerged for additional loans in the top 15, as further discussed below.

According to the March 2021 remittance, 53 of the original 61 loans remain in the trust, representing a collateral reduction of 23.1% since issuance. In addition to the significant paydown since the transaction’s closing, 18 loans, representing 20.2% of the pool, are fully defeased. Six loans, representing 21.9% of the pool, are on the servicer’s watchlist and there are currently no loans in special servicing. The watchlisted loans are being monitored for tenant rollover, low debt service coverage ratios (DSCRs) and/or occupancy, trigger events, or Coronavirus Disease (COVID-19)-related forbearance requests.

The Empire Hotel & Retail pari passu loan is secured by a 423-key, full-service hotel with ground-level retail in New York City (NYC), located across the street from Lincoln Center near Central Park. The loan has been on the servicer’s watchlist for several years because of a low DSCR, which has been depressed since 2017. As of the trailing 12 months (T-12) ended September 2020, the DSCR was reported at -0.19 times (x), down from the YE2019 DSCR of 0.78x and DBRS Morningstar DSCR at issuance of 1.51x. The borrower previously attributed the revenue declines to renovation work that occurred between 2014 and 2016, as well as the softening of the NYC hotel market in recent years. More recently, the coronavirus pandemic forced the closure of the hotel portion of the property and it remains closed as of March 2021 with no firm timeline for reopening provided to date.

The loan remains with the master servicer but did fall 60 days delinquent in July 2020 before being brought current through the use of reserve funds allowed by a modification approved by the master and special servicer as a nontransfer event. As of the March 2021 remittance, the loan showed 30 days delinquent, with the limited commentary provided by the servicer noting collections were in process. The reporting for the subject transaction and the transaction that holds the remaining pari passu debt, CGCMT 2013-GC11 (not rated by DBRS Morningstar), shows a total of $1.8 million in outstanding advances for the whole loan as of March 2021. Given the property’s historical performance struggles, which have been severely compounded by the impact of the coronavirus pandemic, the loan was analyzed with a probability of default (PoD) penalty to significantly increase the expected loss in the analysis for this review.

Another large loan on the servicer’s watchlist, 701 Technology Drive loan (Prospectus ID#15; 2.0% of the pool), is secured by a flex industrial property in Canonsburg, Pennsylvania. This loan is being monitored for a low DSCR, which was reported at 0.99x for the T-9 ended September 2020, with an occupancy rate of 78.6%. The loan is structured with a cash trap that is to be triggered when the DSCR falls below the 1.10x threshold, and the servicer has been contacted for an update on the status of the trigger’s enforcement. The performance decline was primarily driven by a decrease in occupancy from issuance. In addition, there is substantial tenant rollover risk within the near term as tenants representing 46.9% of the NRA have lease expirations in the next year. This includes the property’s largest tenant, Heeter Printing Company (26.6% of NRA), which has a lease expiration in May 2021. Given the decline in performance and upcoming tenant rollover risk, the loan was analyzed with a PoD penalty to increase the expected loss in the analysis for this review.

Other loans of concern in the top 15 include One Technology Plaza (Prospectus ID#13; 2.0% of the pool), which is secured by a Class A office property in downtown Peoria, Illinois. The loan was previously on the servicer’s watchlist when the former second-largest tenant, Caterpillar Inc. (which represented 18.6% of NRA at the time), vacated at its lease expiry in June 2017. Occupancy has been down since, with the December 2020 rent roll reporting an occupancy rate of 77.3%. In addition, the first and third-largest remaining tenants, Roosevelt University (20.6% of NRA) and Illinois State Government Department (13.2% of NRA), have leases scheduled to expire in December 2021. Based on the YE2020 financials, the loan reported a DSCR of 1.15x, which has remained unchanged since 2018. According to an online posting, the property was listed for sale at $17.4 million, which is a 23.3% decline from the issuance value of $22.7 million but above the current loan balance of $13.3 million. An update on the borrower’s efforts to sell the property has been requested of the servicer, but the demand is likely to be tepid given the tertiary location and challenges for those markets in attracting office users, particularly amid the coronavirus pandemic. Given the increased risks from issuance, this loan was also analyzed with a PoD penalty to increase the expected loss in the analysis for this review.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

DBRS Morningstar materially deviated from its its North American CMBS Insight Model when determining the ratings assigned to Classes B and C as the quantitative results suggested a lower rating. The material deviations are warranted given the uncertain loan level event risk with the loans in special servicing and on the servicer’s watchlist.

Classes X-A and X-B 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 – Empire Hotel & Retail (15.8% of the pool)
-- Prospectus ID#13 – One Technology Plaza (2.0% of the pool)
-- Prospectus ID#15 – 701 Technology Drive (2.0% 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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