DBRS Morningstar Downgrades Three Classes of GS Mortgage Securities Trust, Series 2012-GCJ7

DBRS Limited (DBRS Morningstar) downgraded ratings for three classes of Commercial Mortgage Pass-Through Certificates, Series 2012-GCJ7 issued by GS Mortgage Securities Trust, Series 2012-GCJ7 as follows:

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

DBRS Morningstar removed Classes E and F from Under Review with Negative Implications where they were placed on August 6, 2020. DBRS Morningstar also designated those classes as having Interest in Arrears. DBRS Morningstar changed the trend on Class D to Negative from Stable, while Classes E and F have been assigned ratings that do not carry any trends.

DBRS Morningstar also discontinued its rating on Class X-B because the lowest-rated reference obligation, Class F, was downgraded to C (sf).

In addition, DBRS Morningstar confirmed the ratings on the remaining classes as follows:

-- Class A-4 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at A (sf)

The trends on all classes with confirmed ratings are Stable.

According to the March 2021 remittance, 54 of the original 79 loans remain in the trust, representing a collateral reduction of 47.4% since issuance. In addition, 20 loans, representing 20.8% of the current pool balance, are fully defeased. The pool is fairly concentrated by property type, with 27.1% of the pool secured by retail properties and 25.1% of the pool secured by office properties. Five loans, representing 5.4% of the current pool balance, are in special servicing and 10 loans, representing 18.3% of the current pool balance, are on the servicer’s watchlist. The watchlisted loans are being monitored for tenant rollover, low debt service coverage ratios (DSCRs) and/or occupancy issues, upcoming loan maturity, or Coronavirus Disease (COVID-19)-related forbearance requests. One new loan to the watchlist as of March 2021 is the 940 8th Avenue loan (Prospectus ID#32, 1.5% of the pool), which is being monitored for delinquency. The loan was previously on the servicer’s watchlist for the borrower’s relief request submitted as a result of the coronavirus pandemic, but was later removed and it does not appear a modification was approved. The loan has reported less than 30 days delinquent for the last year and, as of the March 2021 remittance, remained outstanding for the March 2021 payment.

The rating downgrades and Negative trends reflect the increased risk of loss to the trust from the largest specially serviced loan, Shoppes on Main (Prospectus ID#12, 3.7% of the pool). The loan is secured by a nine-story retail property located within the central business district of White Plains, New York. The first three floors are configured for retail space, with a six-story parking garage spanning the top of the structure. At issuance, the property was occupied by two tenants in Walmart and Burlington, both of which have since vacated. The lease for Walmart is still active and expires in July 2021. Walmart continues to pay rent on the dark space and, since the property became fully vacant in 2019, there has been no leasing activity.

The loan transferred to special servicing in January 2020 for imminent monetary default and, as of the February 2021 remittance, the loan was over 121 days delinquent. A cash trap was triggered by Walmart’s departure and Burlington’s nonrenewal and the servicer reports the funds captured as part of the trap are being used to pay operating expenses and to pay debt service on the subject loan. The servicer is currently evaluating workout options and the resolution date is unknown. According to the September 2020 appraisal, the property’s as-is value was $10.8 million, which is an 81.1% decline from the issuance value of $57.0 million and well below the senior loan balance of $31.9 million. As part of this review, DBRS Morningstar assumed a liquidation scenario for this loan, resulting in a loss severity in excess of 95.0%.

The largest watchlisted loan, 110 Plaza San Diego (Prospectus ID#9, 5.5% of the pool), is secured by a Class B office property in western portion of Downtown San Diego. This loan is on the watchlist because of a low DSCR, with Q3 2020 financials reporting a DSCR of 1.02 times (x). The historical coverage ratios have been sustained below the DBRS Morningstar DSCR at issuance of 1.15x due to occupancy declines from issuance. The property’s occupancy rate has generally hovered in the low 70.0% range for several years and there is potential for further occupancy loss as the second-largest tenant is scheduled to expire later this year, in July 2021. The submarket is generally soft and, according to Reis, vacancy was at 17.0% as of Q4 2020, up from 15.3% for Q4 2019. Given the increased risks from issuance, this loan was analyzed with a probability of default (POD) penalty to increase the expected loss in the analysis for this review.

The Arrowhead Promenade loan (Prospectus ID#45, 1.3% of the pool) is also on the servicer’s watchlist. The loan is secured by an anchored retail centre located in Glendale, Arizona, and is on the watchlist for a low occupancy rate that has been sustained since the loss of Staples (formerly 32.0% of the net rentable area) in 2015. The most recent financials showed a Q3 2020 DSCR of 0.72x. The loan, which has been underwater for several years, has remained current and to date and no coronavirus-related relief request has been submitted. The remaining tenant mix includes Petco, Anytime Fitness, and L’mage Studio Suites, with the gym and salon tenants either paying rent through the pandemic or the sponsor funding further shortfalls out of pocket amid the pandemic. Given the depressed occupancy and DSCR levels, this loan was analyzed with a POD penalty to increase the expected loss in the analysis for this review.

DBRS Morningstar is also monitoring a mall loan in the top 10 in Bellis Fair Mall (Prospectus ID#3, 9.3% of the pool), which is secured by the 528,000-square-foot (sf) portion of a 776,000-sf regional mall in Bellingham, Washington, approximately 20 miles southeast of the Canadian border. The property is anchored by a collateral Macy’s and DICK’S Sporting Goods (which joined with Ashley Furniture HomeStore to backfill a former Sears space), as well as noncollateral anchors JCPenney, Target, and Kohl’s. The mall is now owned and operated by affiliates of Brookfield Property Partners, which acquired the sponsor, General Growth Properties, at issuance in 2018. Given the proximity to the Canadian border, the mall has historically benefitted from cross-border travel that has ceased amid the pandemic. Based on the trailing nine months ended September 2020 financials, the property was 84.2% occupied with a DSCR of 1.56x, compared with the YE2019 occupancy rate of 87.7% and DSCR of 1.88x and YE2018 occupancy rate of 87.7% and DSCR of 2.07x. Although the occupancy drops and cash flow declines from issuance, as well as the impacts to traffic amid the pandemic, are indicative of increased risks for this loan from issuance, the sponsor continues to keep the loan current, with no coronavirus-related relief request processed to date.

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.

Class X-A is an interest-only (IO) certificate that references 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 issuance metrics and all historical surveillance commentary on the DBRS Viewpoint platform.

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 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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